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Under its environmental restoration program, DOD is responsible for identifying and cleaning up contamination that is a threat to human health or the environment and resulted from its past activities on active and closing installations and on formerly used defense sites. The types of contamination include petroleum products; heavy metals, such as lead and mercury; paints and solvents; and other hazardous substances. The restoration program also covers substances that may not be contaminants, such as ordnance and explosive waste and unsafe buildings and debris. The program is guided primarily by the Superfund Amendments and Reauthorization Act of 1986, which amended the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. DOD's program also must comply with applicable state laws. Under federal and state law, the EPA and state regulatory agencies oversee DOD's restoration program. The Office of the Deputy Under Secretary of Defense, Installations and Environment, formulates policy and provides oversight for the restoration program. In fiscal year 1997, program funding was partitioned into five environmental restoration accounts: Army, Navy (including Marine Corps), Air Force, formerly used defense sites, and defensewide. The military services plan, program, and budget for individual restoration projects. The Air Force administers its program through its Environmental Restoration Branch; the Navy, through its Naval Facilities Engineering Command; and the Army, through its Environmental Center. The Army also administers the program at formerly used defense sites through the Environmental Division of the U.S. Army Corps of Engineers. The restoration program at installations designated for closure or mission realignment is funded separately, through the Base Realignment and Closure program. DOD's environmental restoration program is one of the largest in the United States, containing over 28,000 potentially contaminated locations, and involves several stages. First, potentially contaminated locations must be identified. Next, restoration program officials assess locations to determine if they are eligible for cleanup under the program. If a location is found to be on an active installation or a formerly used defense site and is contaminated from past DOD activities, the location is evaluated for risk and, if cleanup is necessary, a cleanup approach is selected. Because DOD has many projects in its inventory, it sets priorities for sequencing the work. Eventually, the location is cleaned up or a remedy is put in place and, if necessary, is monitored to ensure protection of human health and the environment. Through fiscal year 2000, DOD had spent over $17 billion on its restoration program. Cleanup at most locations is scheduled for completion by 2074, and the total expected cost of the program is projected to be over $42 billion. DOD's efforts for identifying locations in Guam that may have environmental contamination have been scaled back since the mid-1990s. Under the current approach, DOD generally limits its efforts to search for potentially contaminated locations, instead concentrating on cleaning up locations already identified. Of the known contaminated locations in Guam, most were identified when DOD, under an earlier approach, funded major efforts to search for them. For both DOD-owned property and formerly used defense sites, the Navy, the Air Force, and the Corps conducted multiple organized searches for contamination in the 1980s and early 1990s, usually through contracts with private companies. The searches included activities such as reviewing records and historical photographs, observing property conditions, and interviewing knowledgeable individuals. If contamination was discovered or suspected during a search, the location could be added to DOD's inventory. Since the mid-1990s, however, DOD has shifted its focus to cleaning up contamination and generally has limited its efforts to search for potentially contaminated locations. Since then, potentially contaminated locations on active military installations have been discovered through normal operations and construction activities, while the Corps has relied primarily on regulators or community residents to bring potentially contaminated locations on formerly used defense sites to its attention. DOD has added far fewer locations to the Guam inventory since the change in program emphasis. However, based on DOD's extensive past activities in Guam and the continuing discoveries of potentially contaminated locations, regulators and other stakeholders believe that additional undetected contamination may exist in Guam and that a continuing process to identify that contamination is needed to protect human health and the environment. Starting in the 1980s, DOD agencies conducted several searches to identify potentially contaminated locations in Guam. The Navy, the Air Force, and the Corps used similar approaches that generally involved hiring contractors to, among other techniques, review archived records, maps, and photographs; inspect property; and interview knowledgeable individuals. These searches occurred on different occasions over the years. For example, between 1984 and 1994, the Corps conducted three separate searches in Guam to identify contaminated locations. According to a Corps Honolulu District Office official, more than one search was conducted because Corps officials had concerns that all contaminated locations may not have been identified in the prior studies. The identification of formerly used defense sites can be difficult in Guam because land use and property transfer records are hard to locate and are often incomplete. Searches by the Navy, the Air Force, and the Corps identified a large number of potentially contaminated locations on both active DOD properties and formerly used defense sites. In addition, several potentially contaminated locations were brought to DOD's attention through referrals from other parties, such as Guam EPA. For all of Guam, a total of 202 potentially contaminated locations were included in the DOD inventory, including 155 on active installations and 47 on formerly used defense sites. The circumstances varied under which DOD used these locations, as did the types of hazardous waste and debris they contained. For example, for years the Air Force disposed of construction debris, aircraft components, ordnance, and chemical waste, such as pesticides, on private property located on the cliff-line boundary of Andersen Air Force Base. At the same time, the Navy disposed of paints, paint thinners, battery casings, and other material on its own property, which was located near the ocean at Orote Point, Guam. Figure 1 shows the Navy's disposal site before environmental restoration action began. In the mid-1990s, as a result of congressional direction and the belief that much of the environmental contamination had been found, DOD changed its focus from identifying locations with potential contamination to addressing contamination at the locations already identified. DOD officials said that most contaminated locations had been found and that the change in focus was a natural progression of the program. The Congress was also concerned that DOD had not made much progress in cleaning up identified locations and that more money was being spent on identifying and studying locations than on the actual cleanup. Consequently, in the National Defense Authorization Act for Fiscal Year 1996, the Congress set a goal for DOD to spend no more than 20 percent of its environmental program funds for program support, studies, and investigations. Despite the shift in focus from identifying locations to addressing the contamination already found, DOD continued to identify and add potentially contaminated locations to its inventory in Guam, although fewer locations were added than in the past (see table 1). While DOD continued to fund some searches, such as one to identify chemical warfare materials on the Fifth Field Marine Supply Depot in Guam, restoration program officials began to rely primarily on others to bring the locations to their attention. On active installations, contamination was discovered as a result of construction or other operational activities. For example, the Navy added two locations to its inventory in 1995 that were discovered during construction activities. On formerly used defense sites, the Corps began relying primarily on agencies, such as Guam EPA, and other sources, such as community residents, to identify potential locations. For example, Guam EPA referred the only potentially contaminated location that the Corps added to its inventory since the shift in program emphasis. Stakeholders said they believe that not all contaminated locations in Guam caused by DOD have been found. Given the extent of past DOD operational activities in Guam, the few controls over disposal practices during and after World War II, and the continuing discoveries of contamination problems, this view seems reasonable. In part to respond to congressional concerns, the Corps has budgeted $500,000 in fiscal year 2002 to conduct an islandwide archival search in Guam to identify formerly used defense sites with evidence of potential chemical warfare material. Even with this effort, however, stakeholders will continue to have an important role in alerting DOD agencies to potential environmental hazards on the island. Stakeholders raised no major concerns about DOD's cleanup efforts on active military installations, but raised three major concerns about the Corps' efforts to identify and address contamination on formerly used defense sites in Guam. Their first concern is that the Corps' current process for adding potentially contaminated locations to its inventory is not clear to them. We believe that the lack of clarity can be attributed to the Corps' failure to develop well-understood written guidelines for stakeholders to use when referring such locations to the Corps, including the information that should be included with the referrals. We also found that the Corps has not effectively communicated to stakeholders the actions it plans to take on the referrals. The second concern is that DOD excludes from the restoration program debris that does not pose a threat to human health or the environment, even though it was caused by DOD and could place a financial burden on owners who incur costs to remove it. However, DOD policy provides for cleaning up debris only if it is a threat to human health or the environment. The third concern is the slow pace of funding environmental cleanup on formerly used defense sites included in the restoration program. During fiscal years 1984-2000, 4 percent of the total expected cost of locations the Corps approved for cleanup had been funded in Guam while, nationally, 16 percent had been funded, even though contaminated locations in Guam posed risks to human health and the environment that were similar to risks posed by such locations nationally. The Corps explained that, consistent with DOD policy, the unfunded locations in Guam ranked lower in sequencing work than the locations that were funded nationally. Stakeholders have reported that the process for referring potentially contaminated locations to the Corps is unclear to them. Without a clearly understood process, stakeholders cannot be sure that the Corps is properly considering the referred locations for inclusion in its Guam inventory. DOD policy requires the identification of contamination from its past activities, but neither DOD nor Corps policy sets forth the process that stakeholders should use when making referrals. In fact, the Corps' formerly used defense site program manual, which is its primary document setting forth policy guidance for executing the program, is silent on procedures stakeholders should use to make referrals. Corps Pacific Ocean Division and Honolulu District Office officials acknowledged that the division and district offices did not have written guidelines explaining the referral process, but the Corps district office program manager said the process was verbally explained to Guam EPA and other stakeholders. One area needing clarification is the information that should be included with referrals of potentially contaminated locations. Stakeholders were unclear about the information they should provide when referring such locations to the Corps because the Corps had not defined what information was required. Neither DOD nor Corps policy sets forth the information required with referrals, and the Corps district program manager said that the district office had provided no written guidelines to stakeholders regarding information requirements. Moreover, the program manager said that the referrals the Corps district office had received were sometimes incomplete. For example, the program manager told us that the information provided by Guam EPA with an October 30, 1999, letter referring several potentially contaminated locations was incomplete because there was no documentation showing contamination or indicating that the locations were likely formerly used defense sites. The program manager also said that more information would be needed before the Corps would take any action to determine whether the referred locations should be added to the inventory. Guam EPA officials told us that, in the summer of 2001, the Corps had verbally informed them that more information was needed with their referrals, but it did not describe the specific information needed. Rather than identifying the specific information that should be included, the program manager asked that Guam EPA and others include as much information as possible with any referrals, including information that indicates that the locations were formerly used defense sites and describes potential contamination associated with DOD activities. These uncertainties have been exacerbated by poor communication between the Corps and its stakeholders. Guam EPA officials told us that the Corps often did not respond to or share much information about the referrals it had received, so they did not know whether the Corps was properly considering their referrals. For example, concerning several referrals made between October 30, 1999, and May 18, 2000, the Guam EPA administrator wrote a letter on June 20, 2000, to the district engineer in the Corps Honolulu District Office complaining that no feedback had been provided regarding whether the referred locations were eligible for funding or what action the Corps planned to take on the referrals. The Corps program manager had no written record of a response to this letter. However, the program manager said that the referrals had been verbally acknowledged with a Guam EPA official, who was also told that no action to assess the referrals would be taken at that time because there was no money available due to higher priority work. The Guam EPA official did not recall receiving this information. Stakeholders said that they discussed concerns about the formerly used defense sites program with the Corps, but the concerns have not been resolved. For example, EPA officials organized a work group to improve the Corps Honolulu District Office's process for dealing with formerly used defense sites. Concerns about how to add locations and other issues related to the Corps' inventory process, such as what locations may exist that are not on the inventory, were raised in the initial work group meeting in January 2001. The meeting involved EPA, Guam EPA, Corps district and division officials, and officials from other interested federal agencies, such as the Fish and Wildlife Service, the National Park Service, and the Coast Guard. EPA officials told us that concerns about the inventory were also discussed at an August meeting of the work group and would continue to be discussed in future meetings. As of February 2002, the work group was still considering the concerns. In our view, improved communications on the part of the Corps would help stakeholders better understand the process for referring potentially contaminated locations to the Corps, including information they should include with such referrals. Under the Superfund Amendments and Reauthorization Act of 1986, EPA regulations, and DOD policy, the Corps is required to consult with regulators and the public in the decision- making process for environmental cleanup. Nationally, since 1994, restoration advisory boards have been the primary forum for communities affected by contamination at formerly used defense sites to keep informed of and participate in decisions affecting cleanup. Corps policy is to establish a restoration advisory board for formerly used defense sites that contain an active cleanup project if, among other reasons, a board is requested by a government agency. However, there currently is no restoration advisory board for formerly used defense sites in Guam. In August 2001, Guam EPA asked the Corps Honolulu District Office to establish a restoration advisory board for the island. While none of the pending projects in Guam have progressed far enough to be considered active and Corps district officials have expressed concern about the cost of establishing a board in Guam, the Corps district office engineer agreed in September 2001 that a board would be a good tool and committed to discussing the issue with the work group discussed previously. In addition, in August 2001, the Corps' formerly used defense sites national program manager visited Guam, in part, to improve communications with regulators and assure them that the Corps would be more responsive to their inquiries about site eligibility. Stakeholders' second concern is that the Corps has not accepted responsibility for some apparent military debris discovered on private property. For example, in 2001, a property owner unearthed military debris while excavating for a foundation on a residential lot east of Guam's capitol city. As figure 2 shows, the debris included jeep parts, scrap metal, and other material, such as tires. The debris apparently had been discarded and buried years before, when the lot was part of the 700-acre Fifth Field Marine Supply Depot. Upon discovering the debris, the property owner notified Guam EPA, which in turn notified the Navy and the Corps. After inspecting the site, the Corps Honolulu District Office decided that since the debris contained no apparent toxic materials, and, prior to excavation by the owner, had been buried, it was not a threat to human health or the environment and was therefore not eligible for funding under the restoration program. The Corps' decision to exclude this debris is consistent with DOD policy, although it likely will result in a financial burden for the property owner. The Superfund Amendments and Reauthorization Act of 1986 authorizes using environmental restoration program funds to remove unsafe debris, and DOD has adopted a policy that it only cleans up debris that poses a threat to human health or the environment. DOD officials stated that this policy is necessary, in part, to ensure that most funding is directed toward cleaning up contamination from hazardous and toxic waste that poses a greater risk to human health or the environment. While the Corps followed DOD policy in making its decision, the property owner may incur costs to remove the debris and relocate the construction project. A stakeholder said that this type of problem was likely to increase as more of Guam's limited land base is developed. The third concern raised by stakeholders is that the Corps has not made sufficient progress in cleaning up locations that the Corps has accepted for inclusion in the restoration program. They said that little work has been done to date or is scheduled in the next several years. Despite the shift in focus in the mid-1990s to cleaning up contaminated locations that have been identified, between fiscal year 1984 and 2000, the Corps spent $4.9 million on its environmental restoration program in Guam, which represents 4 percent of the total expected cost in Guam. Nationally, the Corps has spent about 16 percent of the total expected cost of its restoration program. Six of the 20 projects the Corps approved for cleanup action in Guam have been completed, while 3 are scheduled for completion before 2011, 2 between 2011 and 2020, and 9 after 2021. Most of the completed cleanup projects in Guam have involved removing hazardous waste and underground storage tanks. The remaining work mostly involves removing ordnance and explosive waste. Corps officials acknowledged the difference in funding between Guam and other locations, but they said that it was an appropriate outcome of the Corps' approach to prioritizing the sequence of work. The Corps considers several factors in sequencing work, including the risk posed to human health or the environment, legal obligations, stakeholder concerns, and program management considerations. Contaminated locations on formerly used defense sites in Guam have a similar risk profile as locations nationally. Risk, therefore, does not explain the difference in funding. Corps officials said that when other factors besides risk are considered, projects in other locations emerge with higher priority. For example, the Alaska District Office sometimes combines low priority projects with high priority projects in remote areas of Alaska to save transportation and other costs. If new contamination is discovered, the Corps can reassess its priorities and redistribute available funds to address the problem. For example, a Guam landowner discovered World War II-era chemical testing kits with diluted mustard gas and other chemicals on his property in July 1999. Due to the potential threat, EPA conducted an emergency response action and, within 3 weeks of discovery, it had removed 16 kits from the property. One week later, the Corps inspected the property using ground-penetrating radar and removed 19 additional kits. In March 2000, the Corps expanded its efforts to a 6-acre area surrounding the property and removed at least 17 more kits. Overall, the Corps spent over $4.6 million on this project, which represented about 95 percent of all the environmental restoration funds it had spent in Guam. To fund this unexpected effort, the Corps reallocated funds from other projects within its Pacific Ocean Division and from other sources, such as Corps headquarters. Despite DOD's efforts to identify environmentally contaminated locations in Guam, it is likely that some contamination has yet to be discovered. Because DOD agencies now limit their efforts to search for the contamination and instead rely primarily on others to identify such locations, it is important to have a clearly understood process in place for referring those locations to DOD. Although stakeholders raised no major concerns about the process for active DOD installations, the Corps' process for adding potentially contaminated locations to its formerly used defense site inventory is unclear--both the procedures to follow and the information to include. Without a clear process, the Corps cannot ensure that it is carrying out its environmental responsibilities properly. Furthermore, stakeholders cannot be assured that they are meeting the Corps' information needs. Stakeholders need to better understand the process for referring potentially contaminated locations to the Corps because the stakeholders are the persons and entities most likely to make referrals. Moreover, once the referrals have been made, communications between the Corps and its stakeholders about actions the Corps plans to take have been ineffective. Without knowing the actions that the Corps plans to take on referrals, stakeholders have no assurance that the Corps has properly considered the referrals to determine whether the potential locations should be added to the inventory. By not effectively communicating with stakeholders, the Corps' process is not transparent, and stakeholders lack the assurance they seek that the Corps' restoration program is properly implemented in Guam. To improve DOD's management of the process for identifying contamination on formerly used defense sites in Guam, we recommend that the secretary of the Department of Defense direct the secretary of the Department of the Army to develop written guidelines for stakeholders in Guam to use when referring locations of suspected contamination to the Corps. The Army should also identify the information that stakeholders should include when making such referrals. To improve stakeholders' overall understanding of DOD's restoration program on formerly used defense sites in Guam, we recommend that the secretary of the Department of Defense direct the secretary of the Department of the Army to improve efforts to communicate with stakeholders in Guam to better inform them about policies and procedures for stakeholders to use when referring potential locations to the Corps and the actions the Corps plans to take on the referrals it receives. One way to do this would be to establish a restoration advisory board for formerly used defense sites in Guam. We provided DOD with a draft of this report for its review and comment. DOD responded that, except for one concern, the draft report represented a fair and accurate assessment of the Corps' efforts to identify new potentially contaminated sites in Guam and coordinate cleanup of those sites with regulators and other stakeholders. DOD agreed with our recommendations to develop written guidelines on its referral process and to improve communications with stakeholders in Guam. DOD's one concern was that some information that it had provided to us during our review, such as clarifying the types of materials found in Guam and the conditions under which the Corps would establish a restoration advisory board in Guam, was left out of the report. In finalizing our report, however, we incorporated these and other DOD suggestions as appropriate. Regarding our recommendation that the Army develop written guidelines for stakeholders in Guam to use when referring locations of suspected contamination to the Corps, DOD agreed and stated that it would publish such written guidelines and make them publicly available. DOD also stated that its process in Guam could be improved and that the Corps has undertaken a programwide improvement initiative to better coordinate cleanup of formerly used defense sites with regulators and stakeholders. One aspect of the initiative is the development of management action plans, which also provide regulators with the opportunity to communicate with the Corps on cleanup priorities and to notify the Corps about other potentially contaminated locations. DOD stated that in response to our recommendation, and as a first step in developing a management action plan in Guam, it would direct the Army to convene interagency meetings with Guam EPA to review the list of formerly used defense sites and develop an updated inventory. Regarding our recommendation that the Army improve efforts to communicate with stakeholders in Guam, DOD agreed and said it would direct the Army to develop a community relations plan for Guam that describes the information needs of the community and tools the Corps can use to reach out to the community, such as public meetings and information papers. Through these tools, DOD stated that the Corps would also be able to better communicate its procedures for referring potentially contaminated locations. DOD also stated that establishment of restoration advisory boards would be considered if there is sufficient, sustained community interest and cleanup projects are planned on the island. As we stated in our report, such boards are one way to improve communications with stakeholders in Guam. DOD also provided technical corrections, which we incorporated as appropriate. DOD's written comments on the draft report are included in appendix I. To determine the process used by DOD to identify potentially contaminated locations in Guam and determine what locations were identified, we reviewed relevant federal laws and regulations and DOD policies and procedures and discussed DOD's environmental restoration program with DOD officials. We also visited DOD officials in Hawaii and Guam to discuss the program and document their efforts to identify environmental contamination in Guam. We reviewed each military service's inventory of potentially contaminated locations in Guam and the method by which the locations were discovered. We also discussed DOD's current inventory of contaminated locations with Guam EPA officials and other stakeholders. To determine the nature and extent of concerns about the environmental restoration program raised by regulators and other stakeholders, we discussed the program with Guam EPA officials and other interested parties in Guam, such as restoration advisory board members and EPA officials. To evaluate the concerns raised by stakeholders, we reviewed relevant federal laws and regulations and DOD environmental restoration program policies and procedures and discussed the program with DOD headquarters and field officials. We also analyzed program funding in Guam and nationally. We did not independently verify DOD's funding data, which forms the basis for DOD's annual report to the Congress and is publicly available. We conducted our work from June 2001 to March 2002 in accordance with generally accepted government auditing standards. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 5 days after the date of this letter. At that time, we will send copies of the report to the secretary of defense; the administrator, Environmental Protection Agency; and the administrator, Guam Environmental Protection Agency. We will make copies available to others on request. In addition to the above, Don Cowan, Jonathan Dent, Doreen Feldman, Susan Irwin, and Stan Stenersen made key contributions to this report.	Chemical testing kits from World War II containing diluted mustard gas and other chemicals have been discovered on Guam. The Department of Defense (DOD) is responsible for identifying and cleaning up contaminated military sites throughout the United States and its territories. In the mid-1990s, DOD scaled back its identification efforts nationally and focused its attention on Guam. It now relies on referrals from the Guam Environmental Protection Agency and on incidental discovery during construction and other operational activities. Stakeholders had three concerns about the Army Corps of Engineers' efforts to identify and address contamination on former defense sites. First, they were uncertain about the Corps' process for adding potentially contaminated locations to its Guam inventory. Second, some locations containing debris, such as metal and tires, were excluded even though the waste was caused by DOD and could place a financial burden on the owner to remove it. Third, stakeholders were concerned about the slow pace of funding for the program. Between fiscal years 1984 and 2000, only four percent of the total expected cost of cleaning up these locations had been funded in Guam, compared with 16 percent nationwide.	5,744	238
Government officials are concerned about attacks from individuals and groups with malicious intent, such as criminals, terrorists, and adversarial foreign nations. For example, in February 2009, the Director of National Intelligence testified that foreign nations and criminals have targeted government and private sector networks to gain a competitive advantage and potentially disrupt or destroy them, and that terrorist groups have expressed a desire to use cyber attacks as a means to target the United States. The director also discussed that in August 2008, the national government of Georgia's Web sites were disabled during hostilities with Russia, which hindered the government's ability to communicate its perspective about the conflict. The federal government has developed a strategy to address such cyber threats. Specifically, President Bush issued the 2003 National Strategy to Secure Cyberspace and related policy directives, such as Homeland Security Presidential Directive 7, that specify key elements of how the nation is to secure key computer-based systems, including both government systems and those that support critical infrastructures owned and operated by the private sector. The strategy and related policies also establish the Department of Homeland Security (DHS) as the focal point for cyber CIP and assign the department multiple leadership roles and responsibilities in this area. They include (1) developing a comprehensive national plan for CIP, including cybersecurity; (2) developing and enhancing national cyber analysis and warning capabilities; (3) providing and coordinating incident response and recovery planning, including conducting incident response exercises; (4) identifying, assessing, and supporting efforts to reduce cyber threats and vulnerabilities, including those associated with infrastructure control systems; and (5) strengthening international cyberspace security. In addition, the strategy and related policy direct DHS and other relevant stakeholders to use risk management principles to prioritize protection activities within and across the 18 critical infrastructure sectors in an integrated, coordinated fashion. Because the threats have persisted and grown, President Bush in January 2008 began to implement a series of initiatives--commonly referred to as the Comprehensive National Cybersecurity Initiative (CNCI)--aimed primarily at improving DHS and other federal agencies' efforts to protect against intrusion attempts and anticipate future threats. While these initiatives have not been made public, the Director of National Intelligence stated that they include defensive, offensive, research and development, and counterintelligence efforts, as well as a project to improve public/private partnerships. Subsequently, in December 2008, the Commission on Cybersecurity for the 44th Presidency reported, among other things, that the failure to protect cyberspace was an urgent national security problem and made 25 recommendations aimed at addressing shortfalls with the strategy and its implementation. Since then, President Obama (in February 2009) initiated a review of the cybersecurity strategy and supporting activities. The review is scheduled to be completed in April 2009. Over the last several years we have reported on our nation's efforts to fulfill essential aspects of its cybersecurity strategy. In particular, we have reported consistently since 2005 that DHS has yet to fully satisfy its cybersecurity responsibilities designated by the strategy. To address these shortfalls, we have made about 30 recommendations in key cybersecurity areas including the 5 listed in table 1. DHS has since developed and implemented certain capabilities to satisfy aspects of its cybersecurity responsibilities, but the department still has not fully satisfied our recommendations, and thus further action needs to be taken to address these areas. In July 2008, we reported that DHS's United States Computer Emergency Readiness Team (US-CERT) did not fully address 15 key cyber analysis and warning attributes related to (1) monitoring network activity to detect anomalies, (2) analyzing information and investigating anomalies to determine whether they are threats, (3) warning appropriate officials with timely and actionable threat and mitigation information, and (4) responding to the threat. For example, US-CERT provided warnings by developing and distributing a wide array of notifications; however, these notifications were not consistently actionable or timely. As a result, we recommended that the department address shortfalls associated with the 15 attributes in order to fully establish a national cyber analysis and warning capability as envisioned in the national strategy. DHS agreed in large part with our recommendations. In September 2008, we reported that since conducting a major cyber attack exercise, called Cyber Storm, DHS had demonstrated progress in addressing eight lessons it had learned from these efforts. However, its actions to address the lessons had not been fully implemented. Specifically, while it had completed 42 of the 66 activities identified, the department had identified 16 activities as ongoing and 7 as planned for the future. Consequently, we recommended that DHS schedule and complete all of the corrective activities identified in order to strengthen coordination between public and private sector participants in response to significant cyber incidents. DHS concurred with our recommendation. To date, DHS has continued to make progress in completing some identified activities but has yet to do so for others. In a September 2007 report and an October 2007 testimony, we reported that consistent with the national strategy requirement to identify and reduce threats and vulnerabilities, DHS was sponsoring multiple control systems security initiatives, including an effort to improve control systems cybersecurity using vulnerability evaluation and response tools. However, DHS had not established a strategy to coordinate the various control systems activities across federal agencies and the private sector, and it did not effectively share information on control system vulnerabilities with the public and private sectors. Accordingly, we recommended that DHS develop a strategy to guide efforts for securing control systems and establish a rapid and secure process for sharing sensitive control system vulnerability information. DHS recently began developing a strategy and a process to share sensitive information. We reported and later testified in 2006 that the department had begun a variety of initiatives to fulfill its responsibility, as called for by the national strategy, for developing an integrated public/private plan for Internet recovery. However, we determined that these efforts were not comprehensive or complete. As such, we recommended that DHS implement nine actions to improve the department's ability to facilitate public/private efforts to recover the Internet in case of a major disruption. In October 2007, we testified that the department had made progress in implementing our recommendations; however, seven of the nine have not been completed. To date, an integrated public/private plan for Internet recovery does not exist. In 2007, we reported that public and private entities faced a number of challenges in addressing cybercrime, including ensuring adequate analytical and technical capabilities for law enforcement and conducting investigations and prosecuting cybercrimes that cross national and state borders. In addition to our recommendations on improving key aspects of the national cybersecurity strategy and its implementation, we also obtained the views of experts (by means of panel discussions) on these and other critical aspects of the strategy, including areas for improvement. The experts, who included former federal officials, academics, and private sector executives, highlighted 12 key improvements that are, in their view, essential to improving the strategy and our national cybersecurity posture. These improvements are in large part consistent with our above mentioned reports and extensive research and experience in this area. They include: 1. Develop a national strategy that clearly articulates strategic objectives, goals, and priorities--The strategy should, among other things, (1) include well-defined strategic objectives, (2) provide understandable goals for the government and the private sector (end game), (3) articulate cyber priorities among the objectives, (4) provide a vision of what secure cyberspace should be in the future, (5) seek to integrate federal government capabilities, (6) establish metrics to gauge whether progress is being made against the strategy, and (7) provide an effective means for enforcing action and accountability when there are progress shortfalls. According to expert panel members, the CNCI provides a good set of tactical initiatives focused on improving primarily federal cybersecurity; however, it does not provide strategic objectives, goals, and priorities for the nation as a whole. 2. Establish White House responsibility and accountability for leading and overseeing national cybersecurity policy-- The strategy makes DHS the focal point for cybersecurity; however, according to expert panel members, DHS has not met expectations and has not provided the high-level leadership needed to raise cybersecurity to a national focus. Accordingly, panelists stated that to be successful and to send the message to the nation and cyber critical infrastructure owners that cybersecurity is a priority, this leadership role needs to be elevated to the White House. In addition, to be effective, the office must have, among other things, commensurate authority-- for example, over budgets and resources--to implement and employ appropriate incentives to encourage action. 3. Establish a governance structure for strategy implementation--The strategy establishes a public/private partnership governance structure that includes 18 critical infrastructure sectors, corresponding government and sector coordinating councils, and cross-sector councils. However, according to panelists, this structure is government-centric and largely relies on personal relationships to instill trust to share information and take action. In addition, although all sectors are not of equal importance in regard to their cyber assets and functions, the structure treats all sectors and all critical cyber assets and functions equally. To ensure effective strategy implementation, experts stated that the partnership structure should include a committee of senior government representatives (for example, the Departments of Defense, Homeland Security, Justice, State, and the Treasury and the White House) and private sector leaders representing the most critical cyber assets and functions. Expert panel members also suggested that this committee's responsibilities should include measuring and periodically reporting on progress in achieving the goals, objectives, and strategic priorities established in the national strategy and building consensus to hold involved parties accountable when there are progress shortfalls. 4. Publicize and raise awareness about the seriousness of the cybersecurity problem--Although the strategy establishes cyberspace security awareness as a priority, experts stated that many national leaders in business and government, including in Congress, who can invest resources to address cybersecurity problems are generally not aware of the severity of the risks to national and economic security posed by the inadequacy of our nation's cybersecurity posture and the associated intrusions made more likely by that posture. Expert panel members suggested that an aggressive awareness campaign is needed to raise the level of knowledge of leaders and the general populace that our nation is constantly under cyber attack. 5. Create an accountable, operational cybersecurity organization--DHS established the National Cyber Security Division (within the Office of Cybersecurity and Communications) to be responsible for leading national day-to- day cybersecurity efforts; however, according to panelists, this has not enabled DHS to become the national focal point as envisioned. Panel members stated that currently, DOD and other organizations within the intelligence community that have significant resources and capabilities have come to dominate federal efforts. They told us that there also needs to be an independent cybersecurity organization that leverages and integrates the capabilities of the private sector, civilian government, law enforcement, military, intelligence community, and the nation's international allies to address incidents against the nation's critical cyber systems and functions. However, there was not consensus among our expert panel members regarding where this organization should reside. 6. Focus more actions on prioritizing assets and functions, assessing vulnerabilities, and reducing vulnerabilities than on developing additional plans--The strategy recommends actions to identify critical cyber assets and functions, but panelists stated that efforts to identify which cyber assets and functions are most critical to the nation have been insufficient. According to panel members, inclusion in cyber critical infrastructure protection efforts and lists of critical assets are currently based on the willingness of the person or entity responsible for the asset or function to participate and not on substantiated technical evidence. In addition, the current strategy establishes vulnerability reduction as a key priority; however, according to panelists, efforts to identify and mitigate known vulnerabilities have been insufficient. They stated that greater efforts should be taken to identify and eliminate common vulnerabilities and that there are techniques available that should be used to assess vulnerabilities in the most critical, prioritized cyber assets and functions. 7. Bolster public/private partnerships through an improved value proposition and use of incentives--While the strategy encourages action by owners and operators of critical cyber assets and functions, panel members stated that there are not adequate economic and other incentives (i.e., a value proposition) for greater investment and partnering in cybersecurity. Accordingly, panelists stated that the federal government should provide valued services (such as offering useful threat or analysis and warning information) or incentives (such as grants or tax reductions) to encourage action by and effective partnerships with the private sector. They also suggested that public and private sector entities use means such as cost-benefit analyses to ensure the efficient use of limited cybersecurity-related resources. 8. Focus greater attention on addressing the global aspects of cyberspace--The strategy includes recommendations to address the international aspects of cyberspace but, according to panelists, the U.S. is not addressing global issues impacting how cyberspace is governed and controlled. They added that, while other nations are actively involved in developing treaties, establishing standards, and pursuing international agreements (such as on privacy), the U.S. is not aggressively working in a coordinated manner to ensure that international agreements are consistent with U.S. practice and that they address cybersecurity and cybercrime considerations. Panel members stated that the U.S. should pursue a more coordinated, aggressive approach so that there is a level playing field globally for U.S. corporations and enhanced cooperation among government agencies, including law enforcement. In addition, a panelist stated that the U.S. should work towards building consensus on a global cyber strategy. 9. Improve law enforcement efforts to address malicious activities in cyberspace--The strategy calls for improving investigative coordination domestically and internationally and promoting a common agreement among nations on addressing cybercrime. According to a panelist, some improvements in domestic law have been made (e.g., enactment of the PROTECT Our Children Act of 2008), but implementation of this act is a work in process due to its recent passage. Panel members also stated that current domestic and international law enforcement efforts, including activities, procedures, methods, and laws are too outdated and outmoded to adequately address the speed, sophistication, and techniques of individuals and groups, such as criminals, terrorists, and adversarial foreign nations with malicious intent. An improved law enforcement is essential to more effectively catch and prosecute malicious individuals and groups and, with stricter penalties, deter malicious behavior. 10. Place greater emphasis on cybersecurity research and development, including consideration of how to better coordinate government and private sector efforts--While the strategy recommends actions to develop a research and development agenda and coordinate efforts between the government and private sectors, experts stated that the U.S. is not adequately focusing and funding research and development efforts to address cybersecurity or to develop the next generation of cyberspace to include effective security capabilities. In addition, the research and development efforts currently underway are not being well coordinated between government and the private sector. 11. Increase the cadre of cybersecurity professionals--The strategy includes efforts to increase the number and skills of cybersecurity professionals but, according to panelists, the results have not created sufficient numbers of professionals, including information security specialists and cybercrime investigators. Expert panel members stated that actions to increase the number of professionals with adequate cybersecurity skills should include (1) enhancing existing scholarship programs (e.g., Scholarship for Service) and (2) making the cybersecurity discipline a profession through testing and licensing. 12. Make the federal government a model for cybersecurity, including using its acquisition function to enhance cybersecurity aspects of products and services--The strategy establishes securing the government's cyberspace as a key priority and advocates using federal acquisition to accomplish this goal. Although the federal government has taken steps to improve the cybersecurity of agencies (e.g., beginning to implement the CNCI initiatives), panelists stated that it still is not a model for cybersecurity. Further, they said the federal government has not made changes in its acquisition function and the training of government officials in a manner that effectively improves the cybersecurity capabilities of products and services purchased and used by federal agencies. In summary, our nation is under cyber attack, and the present strategy and its implementation have not been fully effective in mitigating the threat. This is due in part to the fact that there are further actions needed by DHS to address key cybersecurity areas, including fully addressing our recommendations. In addition, nationally recognized experts have identified improvements aimed at strengthening the strategy and in turn, our cybersecurity posture. Key improvements include developing a national strategy that clearly articulates strategic objectives, goals, and priorities; establishing White House leadership; improving governance; and creating a capable and respected operational lead organization. Until the recommendations are fully addressed and these improvements are considered, our nation's most critical federal and private sector infrastructure systems remain at unnecessary risk to attack from our adversaries. Consequently, in addition to fully implementing our recommendations, it is essential that the Obama administration consider these improvements as it reviews our nation's cybersecurity strategy and begins to make decisions on moving forward. Madam Chair, this concludes my statement. I would be happy to answer any questions that you or members of the subcommittee may have at this time. If you have any questions on matters discussed in this testimony, please contact me at (202) 512-9286, or by e-mail at [email protected]. Other key contributors to this testimony include Bradley Becker, Camille Chaires, Michael Gilmore, Nancy Glover, Kush Malhotra, Gary Mountjoy, Lee McCracken, and Andrew Stavisky. Steve D. Crocker, Chair, Security and Stability Advisory Committee, Internet Corporation for Assigned Names and Numbers. Robert Dix, Vice President of Government Affairs, Juniper Networks, Inc. Martha Stansell-Gamm, (Retired) Chief, Computer Crime and Intellectual Property Section, Department of Justice. Dr. Lawrence Gordon, Ernst & Young Alumni Professor of Managerial Accounting and Information Assurance, Robert H. Smith School of Business, University of Maryland. Tiffany Jones, Director, Public Policy and Government Relations, Symantec. Tom Kellerman, Vice President of Security Awareness, Core Security. Dr. Kathleen Kiernan, Chief Executive Officer, The Kiernan Group, and Chairman of the Board, InfraGard. Cheri McGuire, Principal Security Strategist, Microsoft Corporation, and former Acting Director, National Cyber Security Division, U.S. Department of Homeland Security. Allan Paller, Director of Research, SANS Institute. Andy Purdy, President, DRA Enterprises, Inc., and former Acting Director, National Cyber Security Division, U.S. Department of Homeland Security. Marcus Sachs, Executive Director of Government Affairs for National Security Policy, Verizon Communications; and Director, SANS Internet Storm Center. Howard Schmidt, President and Chief Executive Officer, Information Security Forum. David Sobel, Senior Counsel, Electronic Frontier Foundation. Amit Yoran, Chairman and Chief Executive Officer, NetWitness Corporation; former Director, National Cyber Security Division, U.S. Department of Homeland Security. 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.	Pervasive and sustained computerbased (cyber) attacks against federal and private-sector infrastructures pose a potentially devastating impact to systems and operations and the critical infrastructures that they support. To address these threats, President Bush issued a 2003 national strategy and related policy directives aimed at improving cybersecurity nationwide. Congress and the Executive Branch, including the new administration, have subsequently taken actions to examine the adequacy of the strategy and identify areas for improvement. Nevertheless, GAO has identified this area as high risk and has reported on needed improvements in implementing the national cybersecurity strategy. In this testimony, you asked GAO to summarize (1) key reports and recommendations on the national cybersecurity strategy and (2) the views of experts on how to strengthen the strategy. In doing so, GAO relied on its previous reports related to the strategy and conducted panel discussions with key cybersecurity experts to solicit their views on areas for improvement. Over the last several years, GAO has consistently reported that the Department of Homeland Security (DHS) has yet to fully satisfy its responsibilities designated by the national cybersecurity strategy. To address these shortfalls, GAO has made about 30 recommendations in key cybersecurity areas. While DHS has since developed and implemented certain capabilities to satisfy aspects of its cybersecurity responsibilities, it still has not fully satisfied the recommendations, and thus further action needs to be taken to fully address these areas. In discussing the areas addressed by GAO's recommendations as well as other critical aspects of the strategy, GAO's panel of cybersecurity experts identified 12 key areas requiring improvement. GAO found these to be largely consistent with its reports and its extensive research and experience in the area. Until GAO's recommendations are fully addressed and the above improvements are considered, our nation's federal and private-sector infrastructure systems remain at risk of not being adequately protected. Consequently, in addition to fully implementing GAO's recommendations, it is essential that the improvements be considered by the new administration as it begins to make decisions on our nation's cybersecurity strategy.	4,106	429
DOD is increasingly relying on contractor services to accomplish its missions. In fiscal year 2006, DOD awarded more than $294 billion in contracts. Despite this huge investment in buying goods and services, our work and the work of the DOD Inspector General (IG) has found that DOD's spending sometimes is inefficient and not managed effectively. Too often, requirements are not clearly defined; rigorous price analyses are not performed, and contractors' performance is not sufficiently overseen. In fact, we have identified overall DOD contract management as a high-risk area for the past several years. When a requirement needs to be met quickly and there is insufficient time to use normal contracting vehicles, federal regulations permit the use of a UCA. UCAs are binding commitments used when the government needs the contractor to start work immediately and there is insufficient time to negotiate all of the terms and conditions for a contract. UCAs can be entered into via different contract vehicles, such as a letter contract (a stand-alone contract), a task or delivery order issued against a pre- established umbrella contract, or a modification to an already established contract. The FAR and the Defense Federal Acquisition Regulation Supplement (DFARS) govern how and when UCAs can be used. The regulations also establish requirements as to how quickly UCAs must be definitized. Although each regulation contains two criteria, they are not the same. The FAR states that a letter contract needs to be definitized within 180 days after the award date or before 40 percent of the work is complete, whichever occurs first. While the DFARS includes the 180-day time frame, it addresses all UCAs (including undefinitized task and delivery orders and contract modifications) and adds a requirement to definitize before more than 50 percent of funds are obligated. It does not mention the 40 percent of work completed. Under FAR and DFARS respectively, a waiver of the 180-day requirement can be granted for extreme circumstances or when the agency is supporting a contingency or peacekeeping operation. The definitization time frame can also be extended an additional 180 days when a qualifying proposal is received from the contractor. The contractor does not receive profit or fee during the undefinitized period, but can recoup it once the contract is definitized. Under UCAs, the government risks paying unnecessary costs. For example, in a September 2006 report on contracts in support of Iraq reconstruction, we found that the timeliness of definitization can affect the government's costs. We reported that DOD contracting officials were more likely to adhere to the Defense Contract Audit Agency's advice regarding the disposition of questioned and unsupported costs when negotiations were timely and occurred before contractors had incurred substantial costs under UCAs. On the other hand, contracting officials were less likely to remove questioned costs from a contract proposal when the contractor had already incurred these costs during the undefinitized period. Similarly, the DOD IG found that untimely definitization of contracts transfers additional cost and performance risk from the contractors to the government. Contractors should bear an equitable share of contract cost risk and receive compensation for bearing additional risk based on the degree of risk assumed. Costs that have already been incurred on an unpriced action, such as a letter contract, have virtually no cost risk associated with them. As such, when negotiating profit with the contractor, the government may attribute a zero risk factor to the undefinitized period. DOD faces a potentially large gap in its data and thus does not know the extent to which it is using UCAs. The federal procurement data system is only able to identify UCAs that are awarded via letter contracts. Undefinitized task or delivery orders, as well as contract modifications, are not identified. DOD also lacks high-level oversight of its UCA activity since UCA monitoring has been delegated to the local commands, with upward reporting no longer required. At the local commands we visited, monitoring of UCAs varied in both detail of information and frequency of review. DOD understates its UCA usage due to a potentially significant gap in data. Because the government's federal procurement data system--managed by the Office of Federal Procurement Policy--only identifies letter contracts as undefinitized at award and does not identify undefinitized task or delivery orders or contract modifications, DOD does not know the extent of its UCA activity. As figure 1 shows, DOD's reported obligations for letter contracts have increased from $5.98 billion in fiscal year 2001 to $6.53 billion in fiscal year 2005. These obligations for letter contracts as a percentage of DOD's total obligations remained 4 percent or less during this time period. At the same time, DOD's task and delivery order obligations have increased significantly, as shown in figure 2. A DOD senior acquisition official stated that if DOD wanted to know the amount obligated under undefinitized task and delivery orders, it would have to ask for the information from all of the local commands. According to information maintained at the local commands we visited, most have issued some undefinitized task or delivery orders. As table 1 illustrates, one command obligated over $500 million in UCA orders during the 2-year period we reviewed. UCA oversight takes place at local commands, without any centralized reporting at the DOD headquarters or military services levels. Although UCA oversight was centralized in the past, a senior DOD acquisition official told us that DOD does not believe that UCA usage is a significant concern, given that letter contracts have represented no more than 4 percent of DOD's total obligations over the past several years. As such, DOD relies on its local commands to oversee the use of UCAs and inform upper management if any issues arise. The Air Force is the only military service that has a reporting requirement for UCA activity. A June 2002 policy requires commands to report to the headquarters acquisition office on UCAs that have remained undefinitized for more than 1 year. However, the acquisition office has not received any reports on delinquent UCAs, despite the fact that we found 9 UCAs that had remained undefinitized for over 1 year at the two Air Force commands we visited. An official from one of the commands told us it reported one of its delinquent UCAs, but, according to an Air Force headquarters acquisition official, it was never received. Since the reporting of delinquent UCAs is by a manual self-reporting system, it is possible that other delinquent UCAs have gone unreported. The local commands we visited performed oversight of their UCA usage to varying degrees. All of the military locations had some sort of reporting of UCA activity to the local acquisition management on a regular basis, ranging from monthly to quarterly reporting. The local commands also varied in whether all UCAs were tracked versus only those that remain undefinitized after the 180-day time frame. We found that the National Geospatial-Intelligence Agency was not tracking or monitoring its DOD UCAs, even though its acquisition regulation requires a monthly report on UCA activity. After we raised this issue, National Geospatial-Intelligence Agency officials stated that they will begin monitoring their UCA activity. DOD is using UCAs to rapidly fill needs in a variety of circumstances, many of which are directly or indirectly related to the war in Iraq. The message from management at the locations we visited is to limit the use of UCAs. However, this message seems to have resonated to different degrees with the frontline acquisition staff who requested and awarded the UCAs we reviewed. In some instances, inadequate acquisition planning drove the need for the UCA. The UCAs we reviewed were for a range of goods and services--from providing immediate support to the warfighter in theater to procuring long lead items to keep weapon system program schedules on time. The military services' commands awarded about half of the UCAs we reviewed for support of war efforts and one third to meet schedules on production contracts. In one instance, a UCA was awarded to immediately provide body armor on combat vehicles already in use in operations in the Middle East. In another, a UCA was awarded to obtain a jamming system that was needed to avoid grounding F-15 aircraft. The National Geospatial- Intelligence Agency awarded over half of the UCAs we reviewed for immediate intelligence needs and about half to avoid disruptions of services it was receiving under expiring contracts. Table 2 provides a summary of the reasons presented by the contract files and discussed with the contracting officers specifically for the 77 UCAs we reviewed. Poor acquisition planning is not an appropriate reason to award a UCA. However, for 10 of the UCAs we reviewed, the government may have been able to prevent the use of a UCA with better planning. These included, for example, 4 UCAs issued to procure long lead items that could have been contracted for earlier. The requirement for long lead items is typically established early in a program and is normally provided advanced funding in the annual budget process, which should provide sufficient time to acquire the items through normal acquisition procedures. Other inadequate planning situations included 4 UCAs--1 at the Naval Sea Systems Command and 3 at the National Geospatial-Intelligence Agency-- that we believe could have been prevented by the program office. In each instance, the requirement was known in a significant amount of time before the UCA was issued. These situations ranged from late issuance of the request for proposals (which had been planned earlier) to awards that were issued quickly to avoid disruptions in services (which could have been anticipated). For example, one National Geospatial-Intelligence Agency UCA for the continuation of ongoing services was awarded the day after the services from the prior contract ended. The agency should have been able to reasonably estimate the requirement and prices in advance based on the terms and work of the ongoing contract, which were already known. The remaining three inadequate planning situations were due to circumstances that were beyond the control of the program office. For example, a Navy UCA was issued because the senior acquisition executive, external to the program office, delayed the approval of the program's acquisition plan. Furthermore, one UCA added requirements that expanded the work beyond what was originally planned. Specifically, the National Geospatial-Intelligence Agency awarded a UCA to quickly obtain aerial data from the regions affected by hurricanes, but subsequently augmented it to establish a permanent facility that had been planned for some time. Several contracting officers across DOD expressed concern that program office staff need training on the appropriate use of UCAs because they do not always seem to be aware of the risks that these contract actions pose to the government. The "tone at the top" provided by the local commands we visited is to not use UCAs unless absolutely necessary. However, this message is emphasized differently from one location to another and has only recently come about in some locations. For example, an April 2000 Naval Air Systems Command memorandum says that the use of UCAs is to be kept to the "absolute minimum" and that they should not be used if the requirements are not fully defined. On the other hand, the National Geospatial-Intelligence Agency allowed its contracting officers to use UCAs without the need for higher-level approval until a May 2006 memorandum elevated the approval authority to the senior procurement executive. Representatives from the four companies we spoke with use UCAs with DOD to different degrees--ranging from considering UCAs to be a "normal part of business" to rarely using UCAs in recent years. One company said that its UCAs are mostly used for short duration work needed to maintain critical schedules in the development or production processes of other contracts. Another company recently entered into several indefinite delivery/indefinite quantity contracts with the government so that UCAs could be avoided in that area of work. DOD did not meet the definitization time frame requirement of 180 days after award for over half the UCAs we reviewed. This situation places the government at risk of paying increased costs, thus potentially wasting taxpayers' money. On average, the UCAs we reviewed were definitized more than 2 months past the required period, with 16 remaining undefinitized for a year or more. While DOD regulations allow up to half of the funding to be provided before definitization, we found that DOD tends to obligate this maximum amount of funding immediately at award--a practice that could provide a disincentive for the timely definitization of the UCA. In addition, DOD does not monitor its compliance with the FAR requirement to definitize letter contracts when 40 percent of the work is complete. Sixty percent of the UCAs we reviewed--46 of 77--were not definitized within the 180-day time frame required by FAR and DFARS. Table 3 shows the number of days elapsed before the UCAs were definitized. We found 16 UCAs that took more than a year to definitize, with the longest taking over 600 days. Each location we visited had at least 1 UCA in effect for over a year. In addition, we found no discernable relationship between the dollar value or contract type of the UCAs and the length of time it took to definitize. Approximately the same proportion of small and large dollar value UCAs were definitized in less than 180 days as were definitized in more than 180 days. Likewise, the final contract type did not appear to influence the timeliness of definitization. Approximately the same proportion of UCAs with final contract types of fixed-price and cost- type were definitized in less than 180 days as were definitized in more than 180 days. We also identified a number of UCAs that met provisions that allow an extension or waiver of the 180-day definitization requirement. FAR and DFARS allow an additional 180-day extension of the definitization time frame from the date a qualifying proposal (one that is complete and auditable) is received from the contractor. Our review showed that definitization occurred during this extended time frame in only 7 of the 36 cases. Two UCAs were permitted waivers of the 180-day requirement since they were in support of contingency operations, pursuant to a September 2003 Air Force memorandum waiving the time frame for actions related to Operation Iraqi Freedom. Figure 3 illustrates the average time frames and the range of days that lapsed before definitization. Contracting officials provided more than a dozen reasons for not definitizing UCAs within the original 180-day time frame. Based on our review of the contract files and discussions with contracting and program officials, the most common reasons for the delays were (1) delays in obtaining a qualifying proposal from the contractor, (2) acquisition workforce shortages that led to overly heavy workloads, and (3) complexity of requirements at award of the UCA or changing requirements after award. In many cases, multiple reasons contributed to the definitization delay. Some of the longest delayed definitizations occurred because of a combination of the three reasons stated above. Table 4 provides a summary of the number of instances each reason was provided as an explanation of the delay. Contracting officers stated that delays in obtaining a qualifying proposal were sometimes caused by the program office's changing requirements. Many contracting officials stated the government's requirement was inadequately described when the UCA was awarded or was subsequently changed after award once the requirement was better understood. Contractor representatives and contracting officers noted that it is difficult for a contractor to timely submit an adequate proposal when the government is unsure about the specifications of the product or service it requires. Officials at two companies noted that they attempt to submit qualifying proposals on time, but must redo them--sometimes multiple times--to reflect the government's revised requirements. In addition to timeliness of proposals and changing requirements, shortfalls in the government's acquisition workforce were another key reason for definitization delays. This issue was manifest in different ways, including inadequate numbers of contracting officials, the heavy workload of the Defense Contract Audit Agency, which is frequently called upon to perform audits of the proposal's pricing structure, and, in four cases, contracting officials who did not perform their duties to definitize the UCAs. Some contracting officers commented that UCAs require twice the work that a normal contract award does, because in essence they go through the contracting process twice--once for the undefinitized period and once for the definitized period. Problems with acquisition staff or workloads at the commands resulted, in some instances, in a UCA remaining undefinitized until someone turned attention to it. Some contracting officers told us that their focus is on getting the UCA awarded; after that, they often must turn to other pressing awards so that following up on definitizations becomes less of a priority. We also found one situation where a UCA simply fell through the cracks because it dropped off the local reporting system due to a computer error. In one case, the contracting officer awarded a UCA but took another job before it was definitized, and the contracting officer who inherited it was not aware for some time that it had not been definitized; thus, no one acted on it for over a year. Most of the UCAs we reviewed were awarded with the maximum obligations allowed. Specifically, 60 of the 77 UCAs--78 percent--were obligated with approximately 50 percent or more of the not-to-exceed price at award. As a result, contractors may have less incentive to hasten the submission of qualifying proposals and agencies have little incentive to demand their prompt submission, since funds are available to proceed with the work, leading to a protracted negotiation process. One contracting officer obligated a smaller percentage initially, but as time went by and various issues arose that slowed definitization, he raised the obligated amount little by little until it reached 50 percent. In hindsight, he said it would have been easier to just obligate the 50 percent at the beginning. Company officials said that the minimum amount needed to begin work under a UCA depends on the circumstances of the work. Officials from all four companies told us they usually receive 50 percent of the not-to-exceed price at award. While we found some evidence of monitoring the percentage of funds obligated, in accordance with the DFARS requirement to definitize UCAs before 50 percent of the funding is obligated, none of the commands we visited act proactively to ensure the obligations do not exceed this maximum amount. As a result, DOD is at risk of increasing the potential that it is paying additional unnecessary costs during the undefinitized period. The monitoring that does occur, at three local commands we visited, is not effective in ensuring compliance with the requirement because no alerts are generated if a UCA goes beyond the maximum obligations before definitization. An official at one command that does not monitor this requirement stated that the command does not do so because it is the responsibility of the contracting officer to ensure it is met. DOD is not monitoring compliance with the FAR requirement to definitize letter contacts when 40 percent of the work is complete. None of the local commands we visited had procedures in place to track this provision. Officials at two commands were not familiar with the requirement. As such, we were unable to assess whether DOD is in compliance with this requirement. Many contracting officers stated that the amount of work completed before definitization could not readily be determined because under a UCA there is no established baseline against which to measure the percentage of work completed. Policy officials at several locations we visited also stated that the FAR requirement would be difficult to implement. Based on our findings, a DFARS case was initiated in April 2007 to clarify defense acquisition regulations. Contracting officers are not usually documenting, when applicable, whether profit or fee is adjusted for work performed by the contractor at a lower level of risk during the undefinitized period. All UCAs are essentially cost-reimbursement contracts until definitized, as contractors are reimbursed for all incurred costs that are reasonable, allocable, and allowable during the undefinitized period. This contract type places the greatest cost risk on the government. When the UCA is definitized, the ultimate contract type is determined. Our sample included a variety of final contract types, including firm-fixed-price, cost-plus-award-fee, cost- plus-incentive-fee, and cost-plus-fixed-fee. Each contract type includes either profit (fixed-price contracts) or fee (cost-type contracts) for the contractor. During the undefinitized period, however, profit or fee is not paid. The profit rate or fee is derived at definitization and then applied across the entire period of performance, including the undefinitized period. "When the final price of a UCA is negotiated after a substantial portion of the required performance has been completed, the head of the contracting activity shall ensure the profit allowed reflects (a) Any reduced cost risk to the contractor for costs incurred during contract performance before negotiation of the final price; and (b) The contractor's reduced cost risk for costs incurred during performance of the remainder of the contract." When costs have been incurred prior to definitization, contracting officers are to generally regard the contract type risk to be in the low end of the designated range. If a substantial portion of the costs have been incurred prior to definitization, the contracting officer may assign a value as low as 0 percent, regardless of contract type. Table 5 shows the range of profit and fee rates negotiated at definitization for the UCAs we reviewed. We did not assess the reasonableness of the profit or fee percentages determined by the contracting officers. We found that these adjustments to profit or fee were usually not documented in the price negotiation memorandum, a contract document that sets forth the results of the negotiations and contains the contracting officer's determination that the negotiated price is fair and reasonable. Specifically, the memorandums for only 14 of the 77 UCAs we reviewed discussed how the negotiated profit or fee was affected by the UCA. As a result, for the majority of the UCAs we reviewed, no determination can be made whether the costs incurred during the undefinitized period were considered when the allowable profit or fee was determined. Similarly, in a 2004 report, the DOD IG found that contract records did not contain evidence that allowable profit factors, such as the reduced cost risk, were considered in the final profit rate awarded to the contractor. It was also not evident that already incurred costs were taken into account when determining profit. The majority of the contracting officers responsible for the UCAs we reviewed acknowledged that they are required to document how the shift in risk associated with the undefinitized period was accounted for in determining the profit or fee calculated for negotiations. UCAs are a necessary tool for DOD to use to meet urgent contracting needs, but DOD must ensure that their use is limited to appropriate circumstances. Even when UCAs are used appropriately, increased management attention is needed regarding definitization time frames so the government's position during subsequent negotiations is not overly weakened. Existing regulations and guidance governing UCAs are not always understood or followed. Actions are needed to strengthen management controls and oversight of UCAs; otherwise the department will remain at risk of paying unnecessary costs and potentially excessive profit rates. To improve oversight of UCAs, we recommend that the Administrator of the Office of Management and Budget's Office of Federal Procurement Policy assess whether the Federal Procurement Data System-Next Generation data fields need to be modified to require coding that will identify undefinitized task and delivery orders and undefinitized contract modifications, and the Secretary of Defense issue guidance to program and contracting officials on how to comply with the FAR requirement to definitize when 40 percent of the work is complete. To help ensure that UCAs are definitized in accordance with regulations, we recommend that the Secretary of Defense take the following two actions: put in place a reporting channel to headquarters that includes information on UCAs in place for 180 days or more and that outlines plans and time frames for definitization, and supplement acquisition personnel on an as-needed basis to quickly definitize UCAs once they are awarded. To mitigate the risks of paying increased costs under UCAs, we recommend that the Secretary of Defense set forth supplemental guidance to accomplish the following two actions: direct contracting officers, where feasible, to obligate less than the maximum allowed at UCA award to incentivize contractors to expedite the definitization process, and specify that the effect of contractor's reduced risk during the undefinitized period on profit or fee be documented in the price negotiation memorandum or its equivalent. We provided a draft of this report to DOD and the Office of Federal Procurement Policy for comment. In written comments, DOD concurred with our findings and recommendations and noted actions underway that are directly responsive. The department's comments are reproduced in appendix III. The Office of Federal Procurement Policy provided oral comments, stating that it had no concerns regarding our recommendation to add a data field in FPDS-NG that would identify undefinitized task and delivery orders and contract modifications at award. Such data are needed to provide DOD (and other agencies) more complete information on UCAs, which can then be used to improve oversight of their use. Although DOD concurred with our recommendation to issue guidance addressing the FAR definitization requirement, in its comments, DOD stated that our reference to the FAR requirements for UCA definitization schedules did not consider the difference in requirements for DOD that are specified in the U.S. Code. However, our report does address those differences. DOD also stated that the Defense Acquisition Regulation Council has initiated a DFARS case, based upon our discussions during this review, to clarify that DOD contracting officers should use the DOD definitization schedule criteria. DOD agreed that the need for enhanced oversight of UCAs is appropriate and said it will consider requiring the military departments to enhance oversight of UCAs and to provide periodic reports, with remediation plans, for those past the definitization time frames. The Department also published two notices in the Federal Register on May 22, 2007, seeking public comments on current DOD contract financing and funding policies, including the weighted guidelines that are used to determine appropriate profit or fee based on an assessment of contractor risk. We are sending copies of this report to the Secretary of Defense, the Director of the Office of Management and Budget, the Administrator of the Office of Federal Procurement Policy, and other interested congressional committees. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report or need additional information, please contact me at (202) 512-6986 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 were Michele Mackin, Assistant Director; R. Eli DeVan; Lily Chin; Matthew T. Drerup; Victoria Klepacz; John Krump; Jean K. Lee; and Lynn Milan. To determine the level of insight the Department of Defense (DOD) has into its use of undefinitized contract actions (UCA), we interviewed DOD senior-level acquisition officials and service-level acquisition officials to identify any additional policies specifically addressing the use of undefinitized contract actions at the locations selected for our review. We analyzed information from DOD's procurement system (DD350) and local commands for undefinitized contract actions from fiscal year 2001 through fiscal year 2005. We also reviewed the relevant sections of the Federal Acquisition Regulation and the Defense Federal Acquisition Regulation Supplement, as well as service-level guidance pertaining to the use of undefinitized contract actions. To identify how and when DOD is using UCAs and whether DOD is definitizing these actions in a timely manner, we reviewed a random sample of undefinitized contract actions from six military commands and one non military defense agency. While undefinitized contract actions may include letter contracts, task or delivery orders, and contract modifications, only letter contracts are recorded by DD350 in a manner that allowed GAO to identify them as undefinitized at the time of award. Therefore, the specific locations for our review were selected based on the total dollar value and volume of letter contracts issued during fiscal years 2004 and 2005 by various DOD buying organizations as recorded in the DD350 system. On the basis of this data, we selected the two commands with the largest dollar volume of letter contracts within each of the three military services (Air Force, Army, and Navy). As such, the six military locations represented over 75 percent of the total dollars awarded for letter contracts during the period. We also selected the non military defense agency with the largest number of letter contracts. The specific locations selected for our review were: Aeronautical Systems Center, Dayton, Ohio Warner Robins Air Logistics Center, Warner Robins, Georgia TACOM Life Cycle Management Command, Warren, Michigan Aviation and Missile Command, Huntsville, Alabama Naval Sea Systems Command, Washington, D.C . Naval Air Systems Command, Patuxent River, Maryland National Geospatial-Intelligence Agency, Washington, D.C. To include other types of undefinitized contract actions in our review, we requested a listing of task and delivery order and contract modifications issued as undefinitized contract actions during fiscal years 2004 and 2005 from each of the seven locations that we planned to visit. This request was necessary because these types of undefinitized actions are not identified in the federal procurement data system. We then established a population of undefinitized contract actions at each location and selected a random sample of contract actions to review. Not every location could provide us with a listing of other undefinitized contract actions prior to our site visit, and in some cases there were an insufficient number of such actions to meet our sampling needs. In such cases we reviewed additional letter contracts selected at random to achieve similar sample sizes at each location. A total of 77 undefinitized contract actions were sampled for this review. The six Army, Navy, and Air Force contracting organizations that we selected for our review initiated 70 of the undefinitized contract actions that we reviewed. The National Geospatial-Intelligence Agency initiated 7 of the undefinitized contract actions that we reviewed. Observations made from our review cannot be generalized to the entire population of undefinitized contract actions issued by DOD. We omitted undefinitized contractual actions for foreign military sales, purchases that did not exceed the simplified acquisition threshold, special access programs, and congressionally mandated long lead procurement contracts since these actions are not subject to compliance with the definitization requirements we were reviewing. We also excluded all undefinitized task orders issued under basic ordering agreements. The majority of pricing and contract terms are established under basic ordering agreements, leaving few terms and conditions to be definitized after award when orders are issued under this type of contract. At each location, we reviewed contract document files and interviewed officials from the local program office as well as the cognizant contracting officers. In a few cases the contracting officer could not speak to the reasons for definitization delays because that officer was not involved with the award or definitization of the UCA selected for our review. We relied on data provided to us by DOD and the buying commands we visited, which we verified where practical. For example, in determining the length of time to definitize the sampled actions, we verified the data reported in DD350 by tracing the reported award and definitization dates to the contract file documentation. We also verified contract obligation and not- to-exceed amounts reported in DD350 by reviewing contract file documentation available in hard copy at the sites we visited and electronically from DOD's Electronic Data Access Web-based system. To obtain insight into the issues surrounding the use of UCAs from a contractor's point of view, we interviewed representatives from four companies who entered into undefinitized contract actions with one or more of the buying organizations that were selected for this review. We conducted our work from August 2006 through April 2007 in accordance with generally accepted government auditing standards.	To meet urgent needs, the Department of Defense (DOD) can issue undefinitized contract actions (UCA), which authorize contractors to begin work before reaching a final agreement on contract terms. The contractor has little incentive to control costs during this period, creating a potential for wasted taxpayer dollars. Pursuant to the House of Representatives report on the National Defense Authorization Act for Fiscal Year 2007, we assessed (1) the level of insight DOD has into its use of UCAs, (2) how and when DOD is using UCAs, (3) whether DOD is definitizing UCAs in a timely fashion, and (4) whether contracting officers are documenting the basis for negotiated profit or fee. GAO reviewed 77 randomly-selected contracts at seven locations and interviewed DOD officials. DOD faces a potentially large gap in its data and thus does not know the extent to which it is using UCAs. DOD's reported obligations for UCAs increased from $5.98 billion in 2001 to $6.53 billion in 2005. However, the government's procurement system does not identify undefinitized task or delivery orders or undefinitized contract modifications. In light of DOD's reported increase in its use of task and delivery orders in recent years, the data gap could be large. Because DOD decentralizes oversight of its UCAs, the department would have to manually obtain data from each of its local commands in order to obtain a complete picture. The local commands GAO visited performed oversight of their UCAs to varying degrees. DOD is generally using UCAs to rapidly fill urgent needs, as permitted, in a variety of circumstances. Local managements' message to the contracting community is to not use a UCA unless absolutely necessary, but this message is emphasized differently from one location to another. GAO found 10 instances in the 77 UCAs we reviewed where UCAs could have been avoided with better acquisition planning. For example, one UCA for the continuation of ongoing services was awarded the day after the previous contract expired. DOD did not meet the definitization time frame requirement of 180 days after award on 60 percent of the 77 UCAs reviewed. The most common reasons for the delays were untimely receipt of an adequate proposal from the contractor, acquisition workforce shortfalls, and changing requirements. GAO also found that DOD tends to obligate the maximum amount of funding permitted--up to 50 percent of the not-to-exceed amount--immediately at award of UCAs. As a result, contractors may have little incentive to quickly submit proposals. In addition, since DOD does not track whether it meets the Federal Acquisition Regulation requirement to definitize letter contracts (one type of UCA) before 40 percent of the work is complete, GAO was unable to assess compliance with this requirement. Contracting officers are not documenting, as required, the basis for the profit or fee prenegotiation objective and the profit or fee negotiated. As such, it is unclear whether the costs incurred prior to definitization are considered when computing the profit rates or fee amounts. For the 40 fixed-price contracts GAO reviewed, profit ranged from 3 to 17 percent, and for the 37 cost-type contracts in our sample, fees ranged from 4 to 15 percent. Generally the rate was applied equally over the entire contract term, including the undefinitized period.	7,072	733
In September 1997, the District of Columbia Financial Responsibility and Management Assistance Authority (Authority) awarded a contract to acquire a new FMS. The overall objective of the FMS project is to improve the District's financial systems through faster, more efficient, and accurate processing providing increased functionality, flexibility, and reduced cost of operations. According to the Chair of the Authority, the new FMS is intended to (1) eliminate the principal problems that exist with the current system and ensure that all financial management guidelines are adhered to, (2) enable managers to more effectively and efficiently monitor and control financial resources, and (3) produce timely, accurate, and reliable information, providing decisionmakers with the basic financial information needed to make more informed decisions. The Authority awarded a contract for the new FMS in September 1997 and committed to an aggressive implementation schedule. The schedule anticipates (1) pilots in five agencies beginning in February 1998, (2) the accounting system to be implemented by October 1998, and (3) District-wide implementation by February 1999. We were asked to review the District's efforts to acquire a new financial management system. Our objective was to determine whether the District had implemented disciplined software acquisition processes for acquiring its new financial management system. To accomplish this, we applied the Software Engineering Institute's Software Acquisition Capability Maturity Model (SA-CMM) and its Software Capability Evaluation (SCE) method. SEI's expertise in, and methods for, software process assessment are recognized and accepted throughout the industry. Our evaluators were all SEI-trained software specialists. SA-CMM ranks organizational maturity according to five levels (see figure 1). Maturity levels 2 through 5 require the verifiable existence and use of certain software acquisition processes, known as key process areas (KPA). According to SEI, an agency that has these acquisition processes in place is in a much better position to successfully acquire software than an organization that does not have these processes in place. We evaluated the District's software acquisition processes against six of the seven level 2 KPAs (the transition to support KPA was not evaluated because the District does not plan to support FMS in-house) and one level 3 KPA (see table 1). We selected level 2 because it is the minimum level at which any assurance exists that software acquisition processes are mature enough to consistently deliver promised software capabilities on time and within budget. We included one level 3 KPA--acquisition risk management--because it is considered by software experts to be a very important process area. Basic project management processes are established to track performance, cost, and schedule. The necessary process discipline is in place to repeat earlier successes on projects in similar domains. The software acquisiton process is characterized as ad hoc, and occasionally even chaotic. Few processes are defined and success depends on individual effort. The purpose of software acquisition planning is to ensure that reasonable planning for the software acquisition is conducted and that all aspects of the total software acquisition effort are included in these plans at the proper level of detail. The software acquisition planning process, among other things, includes (1) addressing software life-cycle support in acquisition plans, (2) preparing life-cycle software cost estimates, (3) having a written software acquisition policy, (4) measuring and reporting on the status of software acquisition planning activities, and (5) having guidance on software training and experience requirements for project personnel. The FMS project had many strengths in this KPA. The District received pro bono assistance from several companies to help define the acquisition strategy and conduct the activities for software acquisition planning. An acquisition strategy was developed and the acquisition planning team was staffed with personnel with software and systems experience. The team developed a cost estimate and the District management was briefed by the team on a periodic basis. This enabled the District management to be informed on the progress of the acquisition planning and the various activities through the solicitation phase. However, the FMS project also had many weaknesses in this KPA. Weaknesses observed included a lack of policy on acquisition planning and no specific assignment of responsibility for acquisition planning. Furthermore, the FMS project did not always document significant project decisions or update the planning document to reflect these decisions. For example, when the District decided to not pursue a single contract to both acquire FMS and outsource data center operations, the capability assessment (a software acquisition planning document) was not updated to reflect this decision. Decisions should be documented and the planning documents updated to ensure that large acquisitions such as FMS can be effectively managed. Table 2 shows the strengths and weaknesses for the software acquisition planning KPA and the specific findings supporting these ratings. The purpose of solicitation is to prepare a request for proposal that delineates a project's software-related requirements and select a contractor that can most cost-effectively satisfy these requirements while complying with relevant solicitation laws and regulations. Specific requirements for a solicitation process include, among other things (1) having and following a solicitation plan, (2) assigning responsibility and ensuring sufficient resources for coordinating and conducting solicitation activities, (3) preparing and reviewing cost and schedule estimates for the software products and services being acquired, and (4) periodically measuring solicitation work completed and effort and funds expended, comparing these measures to plans, and reporting the results to management. The FMS project exhibited many process strengths during the solicitation. The District has a policy on solicitation and the FMS project followed this policy. The project had experienced personnel on the source selection team and these personnel briefed the team members on the objectives of the solicitation. However, the District did not measure either time or funds expended to conduct the solicitation. Specifically, no evidence was provided to show that the FMS project tracked personnel hours or costs during the conduct of the solicitation. Addressing this weakness would enable the District to better estimate the resources needed to conduct similar acquisitions in the future. For example, if these data were collected and made available to other projects, such as the tax systems upgrade, the District would be in a better position to understand its own capability to effectively conduct solicitation, to estimate how long such a solicitation was likely to take, and to eliminate problems that may have hampered the FMS solicitation. Table 3 shows the strengths, weaknesses, and observations for the solicitation KPA and the specific findings supporting these ratings. The purpose of requirements development and management is to establish and maintain a common and unambiguous definition of software requirements among the acquisition team, system users, and software development contractor. This KPA involves two subprocesses: (1) developing a baseline set of software-related contractual requirements and (2) managing these requirements and changes to these requirements for the duration of the acquisition. A number of requirements development and management practices are necessary to satisfy this key process area. These include (1) having a written organizational policy for establishing and managing requirements allocated to software, (2) documenting plans for the development and management of requirements, (3) having documented processes for requirements development, including elicitation, analysis, and verification, (4) measuring and reporting on the status of requirements development and management activities to management, (5) appraising the impact on software of system-level requirements changes and (6) having a mechanism to ensure that contractor-delivered work products meet specified requirements. The FMS project has some process strengths in the conduct of requirements development and management. The project team is performing requirements management activities in accordance with its documented plan and software-related contractual requirements have been baselined. In addition, District management periodically reviews the status of requirements development and management activities with the project team. However, in acquiring FMS, the District did not perform many of the requirements development and management practices necessary to satisfy this KPA. For example, the District does not have an organizational policy for establishing and managing software-related requirements, there is no clear assignment of responsibility for requirements development and management and no documented evidence exists to show either resource requirements or resources expended for requirements development activities. Currently, the FMS project has begun to hold "requirements confirmation meetings" with the users to validate the requirements already specified in the FMS contract. Although requirements should be validated, this should have been done prior to releasing the request for proposal to ensure that the proposal accurately reflects the District's requirements. Changing requirements after contract award may adversely impact project cost, schedule, and/or performance. Table 4 shows the strengths, weaknesses, and observations for the requirements development and management KPA and the specific findings supporting these ratings. The purpose of project management is to manage the activities of the project office and supporting contractors to ensure a timely, efficient, and effective software acquisition. Effective project management requires, among other things, that project teams (1) be organized to accomplish the project's objective, (2) have a written policy for the management of the software project, (3) document their plans for the activities of the project team, (4) have the authority to alter either the project's performance, cost, or schedule baseline while maintaining the other two, and (5) periodically brief management on the status of project management activities. The FMS project has many process strengths in project management. For example, a team was assigned responsibility for managing the project and staffed with experienced individuals whose roles and responsibilities were defined. The program management plan was written and a corrective action system to track issues and problems was implemented. However, the District has no written policy for the execution of the software project. As a result, the District has no assurance that FMS or any other software acquisition project it undertakes will be conducted in a disciplined manner. Table 5 shows the strengths, weaknesses, and observations for the project management KPA and the specific findings supporting these ratings. The purpose of contract tracking and oversight is to ensure that (1) the software development contractor performs according to the terms of the contract, (2) needed contract changes are identified, negotiated, and incorporated into the contract, and (3) contractor performance issues are identified early, when they are easier and less costly to address. An effective contract tracking and oversight process, among other things, includes (1) having a written organizational policy for contract tracking and oversight, (2) having a documented plan for contract tracking and oversight, (3) conducting tracking and oversight activities in accordance with the plan, and (4) ensuring that individuals performing contract tracking and oversight are suitably experienced or trained. The FMS project had many strengths in this KPA. The project has a designated project manager, a group is responsible for managing contract tracking and oversight activities, and the team is meeting periodically with the contractor and tracking issues in a corrective action system. However, at the time of our review, there was no contracting specialist supporting the team in the execution of the contract. In addition, the District has no documented policy for contract tracking and oversight activities. Table 6 shows the strengths, weaknesses, and observations for the contract tracking and oversight KPA and the specific findings supporting these ratings. The purpose of evaluation (testing) is to determine that the acquired software products and services satisfy contract requirements prior to acceptance. The evaluation process includes (1) documenting evaluation plans and conducting evaluation activities in accordance with the plan, (2) developing and managing evaluation requirements in conjunction with developing software technical requirements, (3) incorporating evaluation requirements into the solicitation and the resulting contract, (4) tracking contractor performance of evaluation activities for compliance with the contract, (5) ensuring that adequate resources are provided for evaluation activities, and (6) measuring and reporting on the status of evaluation activities to management. The FMS project has some process strengths in this KPA. For example, responsibility for evaluation activities has been designated to the project manager, individuals designated to perform evaluation activities have experience, and members of the evaluation team received briefings on the objectives of the evaluation. However, there is no documented evaluation policy or plan, no evidence that evaluation requirements have been developed, and neither the Authority nor the project manager reviews the status of evaluation activities. Table 7 shows the strengths, weaknesses, and observations for the evaluation KPA and the specific findings supporting these ratings. SEI defines risk as the possibility of suffering a loss. The purpose of acquisition risk management is to formally identify risks as early as possible and adjust the acquisition to mitigate those risks. An effective risk management process, among other things, includes (1) having a written policy on acquisition risk management, (2) developing a software acquisition risk management plan, (3) conducting software risk management activities in accordance with the plan (e.g., identifying risks, taking mitigation actions, and tracking risk mitigation actions to completion), and (4) measuring and reporting on the status of acquisition risk management activities to management. The FMS project had one strength for this KPA. The project has designated responsibility for risk management to the project management team. However, the District is not performing any of the other practices to satisfy this KPA. For example, there is no written policy or plan for acquisition risk management, resource requirements for risk management have not been identified, and at the time of this audit, neither the Authority nor the project manager were reviewing the activities for risk management. Table 8 shows the strengths, weaknesses, and observations for the acquisition risk management KPA and the specific findings supporting these ratings. Leading software acquisition organizations rely on defined and disciplined software acquisition processes to deliver promised software capabilities on time and within budget, first on a project-by-project basis, and later, as the organization's processes become more mature, consistently across the institution. While the District has many strengths in its acquisition processes for FMS, it also has many weaknesses that, overall, make its processes undisciplined and immature. As a result, the District's success or failure in acquiring FMS depends largely on specific individuals rather than on well-defined software acquisition management practices. This greatly reduces the probability that the system will consistently perform as intended and be delivered on schedule and within budget. To satisfy the intent of all the software acquisition key process areas and thereby have a reasonable assurance that acquisition efforts are effectively planned, managed, evaluated, and tracked, the District must address the many weaknesses identified in this report. This would entail the District formulating and implementing a written policy for software acquisition planning, requirements development and management, project management, contract tracking and oversight, evaluation, and acquisition risk management. In addition, it is important for the District to track the various activities for each KPA to ensure that they are being performed and that evaluation and risk management activities are being planned and effectively conducted. We recommend that the Chairman of the District of Columbia Financial Responsibility and Management Assistance Authority direct the District's Chief Financial Officer to (1) take the following actions for the six KPAs we reviewed to ensure that the current FMS acquisition and implementation is satisfactorily completed and (2) apply these actions to any future software acquisitions. Document decisions and update the planning documents to ensure that large acquisitions such as FMS can be effectively managed. Designate responsibility for software acquisition planning activities. Determine required resources for acquisition planning. Ensure that measurements of software acquisition activities are taken. Ensure that the software acquisition planning documentation is updated as well as make program changes regarding outsourcing of the data center and upgrading the current system versus buying off-the-shelf. Ensure that the software acquisition planning documentation addresses life-cycle support of the software. Develop a written policy for software acquisition planning. Requirements Development and Management: Develop an organizational policy for establishing and managing software-related requirements. Clearly assign responsibility for requirements development and management. Document either resource requirements or resources expended for requirements development activities. Develop the capability to trace between contractual requirements and the contractor's work products. Develop measurements to determine the status of the requirements development and management activities. Develop a written policy for the execution of the software project. Authorize the project manager to independently alter either the performance, cost, or schedule. Require that measurements be taken to determine the status of project management activities. Contract Tracking and Oversight: Develop written policy for contract tracking and oversight activities for the financial management system project. Support the project team with contracting specialists. Require that the project team review the contractor's planning documents (for example, the project management plan, software risk management plan, software engineering plan, configuration management plan). Assign someone responsibility for maintaining the integrity of the contract. Take measurements to determine the status of contract tracking and oversight activities. Develop written policy for managing the evaluation of acquired software products and services. Develop a documented evaluation plan. Develop evaluation requirements in conjunction with system requirements. Assess the contractor's performance for compliance with evaluation requirements. Develop measurements to determine the status of evaluation activities. Ensure that the Authority and the project manager review the status of evaluation activities. Develop written policy for software acquisition risk management. Designate a group to be responsible for coordinating software acquisition risk management activities. Define resource requirements for acquisition risk management. Ensure that individuals designated to perform software acquisition risk management have adequate experience and training. Integrate software acquisition risk management activities into software acquisition planning. Develop a software acquisition risk management plan in accordance with a defined software acquisition process. Develop a documented acquisition risk management plan and conduct risk management as an integral part of the solicitation, project performance management, and contract performance management processes. Track and control software acquisition risk handling actions until the risks are mitigated. Ensure that risk management activities are reviewed by the Authority and the project manager. GAO requested comments on a draft of this report from the Chairman, District of Columbia Financial Responsibility and Management Assistance Authority, and the District's Chief Financial Officer. They provided us with written comments that are reprinted in appendixes I and II. In their comments, the District of Columbia Financial Responsibility and Management Assistance Authority's Executive Director and the District of Columbia's Chief Financial Officer acknowledged that the software acquisition project for the new financial management system was a high risk initiative and that the District's processes were not sufficiently mature. The District Chief Financial Officer identified initiatives in each of the key process areas. Both cited ongoing corrective actions, which, if properly implemented, will address several of our recommendations. For example, the Chief Financial Officer stated that the District is developing a Risk Management Plan and is evaluating various strategies to identify and manage risks, and that the Chief Technology Officer for the District of Columbia is developing policies and procedures for information resource management which will include software acquisition. However, the District Chief Financial Officer also added that their efforts to date have achieved a sound acquisition state consistent with the intent of the SA-CMM. As discussed in the report, significant improvements would be necessary to achieve the minimally acceptable level of maturity as defined by the Software Engineering Institute's Software Acquisition Maturity Model to satisfy the intent of all the software acquisition key process areas. Accordingly, the District has not yet achieved a sound acquisition state consistent with the intent of the SA-CMM. If the District is to instill the needed discipline into its systems acquisition processes consistent with the intent of SA-CMM, it will need to effectively implement all of our recommendations. We are sending copies of this report to the Ranking Minority Member of your Subcommittee and to the Chairmen and Ranking Minority Members of the Subcommittee on Oversight of Government Management, Restructuring, and the District of Columbia, Senate Committee on Governmental Affairs, the Subcommittee on the District of Columbia, Senate Committee on Appropriations, and the Subcommittee on the District of Columbia, House Committee on Government Reform and Oversight. We are also sending copies to the Director of the Office of Management and Budget, the Chairman of the District of Columbia Financial Responsibility and Management Assistance Authority, and the Chief Financial Officer of the District of Columbia. Copies will be made available to others upon request. If you have questions or wish to discuss the issues in this report, please contact me at (202) 512-6412. Major contributors to this report are listed in appendix III. Richard Cambosos, Senior Attorney The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. 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.	Pursuant to a congressional request, GAO reviewed whether the District of Columbia had implemented disciplined software acquisition processes for its new financial management system (FMS). GAO noted that: (1) while the District has many strengths in its acquisition processes for FMS, it also has many weaknesses; (2) when compared to standards established by the Software Engineering Institute, the District's processes for software acquisitions are not mature; (3) of the six key process areas (KPA) evaluated for the repeatable level, the District fully satisfied only one--solicitation; (4) severe weaknesses were found in other critical key processes, including requirements development and management and evaluation; (5) for example, the District does not have a policy for establishing and managing software-related requirements, does not at present have adequate resources for requirements development, and has not formally designated responsibility for requirements development and management; (6) similarly, the District does not have an effective evaluation process, and is currently unable to objectively determine if the acquired systems will satisfy the contract requirement; (7) finally, the District has not satisfied the one KPA evaluated for the defined level of maturity, acquisition risk management; and (8) the FMS project does not have a risk management plan and does not track project risk.	4,421	266
By "home care," we mean not only health care services delivered in the home, but also assistance with basic and instrumental activities of daily living, such as eating, dressing, bathing, toileting, transferring from bed to chair, shopping, cooking, and laundry. These services are provided by a variety of organizations, including temporary employment firms, nurse registries, and home health agencies. The types of individual workers providing home care services are equally varied, including home health aides, homemakers, and choreworkers, as well as professional social workers, occupational therapists, and physical therapists. However, it is believed that 70 to 80 percent of all paid long-term home care is provided by workers variously known as home health aides, personal care aides, personal care attendants, or homemakers. The federal government finances home care services through several means, including Medicare, Medicaid, Veterans' Administration programs, Older Americans Act funds, Social Services Block Grants, and various demonstration and waiver programs. However, the broadest federal programs for supporting these services are generally recognized to be Medicare and Medicaid. The federal government indirectly regulates some home care workers through the requirement that agencies or individual providers that participate in the Medicare and Medicaid programs meet various conditions of participation. In addition to these conditions of participation, the Medicare and Medicaid Patient and Program Protection Act of 1987 requires that the Secretary of Health and Human Services (HHS) exclude from participation in title XVIII (Medicare), and direct states to exclude from participation in programs authorized by title XIX (Medicaid) and title XX (Social Services Block Grants), any individual or entity convicted of program-related crimes or who has been convicted under federal or state law of a criminal offense related to neglect or abuse of patients in connection with delivery of a health care item or service. Also, the Secretary may direct a state to disqualify those convicted of other crimes, such as fraud in the delivery of health care services, obstruction of justice, or crimes related to the manufacture, distribution, prescription, or dispensing of a controlled substance. HHS has issued related regulations (see 42 C.F.R sections 1001.101 to 1001.102 and 1002.203), but these regulations do not require home care worker background investigations and apply only to offenses occurring in connection with the delivery of health care services. State or local governments or professional boards also impose requirements on home care organizations and independent workers in connection with agency or individual licensure or registration processes. The coverage of these nonfederal requirements varies from large segments of the home care industry to particular types of workers. Some states also assist consumers in distinguishing licensed or registered workers from others by limiting the advertisement of particular services to those who are licensed or registered. (See appendixes I and II.) Several factors contribute to recent interest in background screening requirements for home care workers. These include the increasing size and obvious vulnerability of the population in need of home care services, the challenges the home care setting poses for worker supervision, rapid expansion of the home care industry, unrelenting demand for home care services in the face of worker shortages, the low wages typically available to paraprofessional workers serving a largely low- or fixed-income population, diffuse responsibility for worker selection, and anecdotal reports of abuses by home care workers with criminal history. Home care is provided to persons living at home who, because of a chronic condition or illness, often cannot care for themselves. Studies of home health care utilization have found that the typical recipient is a woman with functional limitations who is very elderly, has a low income, and lives alone. The number of persons needing home care is expected to increase as the very elderly population grows from the 3 million persons over age 85 in 1990 to more than 15 million in 2050. Among those in need of home care, reliance on paid home care workers is also expected to rise, partly because adults in the baby boom generation have had smaller numbers of children and will therefore have fewer available to provide or supervise their care in old age. In addition, projections indicate that labor force participation will continue to increase among women, who have traditionally provided much of the informal care for the elderly. Although future cohorts of elderly persons may be better off financially, long-term care costs are expected to increase faster than personal income. Although the home care work force is entrusted with significant responsibilities and sometimes demanding work with little supervision or assistance, home care work is often characterized by part-time employment, lower wages, and an absence of fringe benefits. Moreover, workers are in high demand, and managers of proprietary home care agencies indicate that the speed with which they can provide workers to fill newly identified needs is often critical to their firms' success. In this context, the expanding demand for home care services and the rapid growth of the home care industry combined with an absence of appropriate safeguards could create pressures to hire potentially unqualified job applicants. In addition, in an effort to stretch home care funding and empower consumers, some states are adopting policies that encourage or require aged and disabled beneficiaries to take direct responsibility for hiring and supervising their home care workers who are paid with state or federal funds. Thus, vulnerable home care consumers increasingly need access either to the tools for evaluating potential workers or to a list of prequalified candidates. In the absence of the ability to offer attractive salaries, however, individual consumers may feel hard-pressed to impose extensive requirements on workers, for fear they will lose potentially good workers to less demanding employers. Finally, anecdotal reports of abuses by a small number of home care workers with criminal history have raised the issue of whether and how such workers should be screened for criminal background. Limited experience in screening for criminal background among home care workers suggests that a segment of workers have criminal history, but that such history does not always portend criminal behavior. However, advocates of criminal background screening argue that the use of this process may deter any individuals with criminal intent from entering the field. While some localities have experimented with other methods for screening applicants for home care work, this report is concerned primarily with two potential forms of background screening: use of worker registries and use of mandatory criminal background checks. Under the Omnibus Budget Reconciliation Act of 1987, states must keep registries of individuals qualified to work as nurses' aides in nursing homes that participate in Medicaid and Medicare, and these registers must note any instances in which states find that such aides have been involved in resident abuse, neglect, or misappropriation of property from a nursing home patient. Before employing someone as an aide, a nursing home that participates in Medicare or Medicaid must check the registry for prior incidents involving the prospective worker and verify that the worker meets appropriate training standards. This registry is important for two reasons: (1) there is some overlap between the nursing home and home care work force; and (2) it is a model for worker screening that has already been incorporated in the Medicare and Medicaid programs that some states have extended to cover other types of workers, including home care workers. With respect to criminal background checks, several variations are possible. Federal, state, or local law enforcement data may be used by states for criminal background checks, and each has advantages and limitations. Although checks using state and local data are more readily implemented, they are not as comprehensive as those employing national records because they miss convictions that have occurred even in neighboring states or communities. Also, if they are based primarily on the name, birthdate, and social security number provided by the job applicant, they can result in false positives or false negatives. The FBI may share interstate criminal history data with state officials if authorized by a state statute approved by the U.S. Attorney General for the purpose of determining the fitness of persons to work with children, the elderly, or individuals with disabilities. Under the law, an entity qualified under such a state law (for example, a licensed home care agency), may request that an FBI-authorized state agency conduct a national background check of an applicant provider. Such checks employ the national criminal history background check system, which contains state and federal criminal history records, and may be requested only when the person to be checked provides fingerprints and a signed statement regarding the presence and nature of any previous criminal convictions. The FBI routinely charges states at least $22 for processing each fingerprint check for a nonvolunteer care provider. The law requires that the FBI-authorized state agency make "reasonable efforts" to respond to such inquiries within 15 business days. We report results on the extent to which states have taken advantage of this law in connection with home care workers, who primarily serve the elderly. To describe federal and state requirements applying to home care organizations and workers, we reviewed federal conditions for participation in Medicare and Medicaid and surveyed state governments regarding their methods for regulating organizations and individuals who provide home care. The terminology used to refer to various types of home care workers is highly variable, and thus, our survey adopted the standard definitions we present in the glossary. Although licensure or registration does not necessarily ensure a better standard of care, we asked about these practices because they indicate that a state has identified certain organizations or individuals and thus has the capacity to apply additional requirements, such as criminal background checks or special training. We also asked about states' experience in operating the federally mandated registry for nursing home aides that records documented findings of abuse, neglect, or misappropriation of a resident's property and the states' use of this or similar registries for home care workers. Finally, we inquired about the presence of state requirements for criminal background checks of workers and the records covered by these checks. We completed our survey between August 1994 and April 1996. We received responses from 49 states and the District of Columbia. We did not independently verify the accuracy of state officials' responses to our survey questions regarding state laws and policies. In addition to surveying state officials, we interviewed home care providers and state and local officials in California, New York, and Oregon regarding their approaches to screening home care workers. We also spoke with home care consumers in Oregon and with officials from the FBI and the Health Care Financing Administration (HCFA) and reviewed relevant literature on the utilization, regulation, and characteristics of home care. Our work was conducted in accordance with generally accepted government auditing standards. We did not assess the extent of the problems linked to home care providers, nor did we determine to what extent the use of a criminal background check is linked to a lower incidence of abuse, theft, or misappropriation of property. Although in our interviews with consumers we received some anecdotal reports of rough handling, verbal abuse, and theft, we were unable to assess the extent of such problems. Doing so is generally complicated because investigating and documenting such incidents is difficult; they tend to be underreported, and the reports that do exist are scattered among various administrative and law enforcement record systems. We also did not assess the extent to which the operators of home care organizations voluntarily purchase fidelity bonds, which protect covered employers against losses due to employee dishonesty and may be conditioned on certain employee screening practices. Of those persons who received paid home care in 1989, half paid for their care without any assistance from public sources or insurance. Some of this privately financed home care is provided by agencies that participate in Medicare and Medicaid and are therefore subject to limited federal requirements; however, the existence of such a large private market suggests that a substantial portion of assistance may be provided by organizations and individuals that function outside these programs. Care provided outside federal programs is governed by state and local requirements, which may also apply to federally financed care in the state in which it is delivered. States take a wide variety of approaches to categorizing and licensing home care organizations. Among the 50 jurisdictions responding to our survey, 41 required that at least certain organizations obtain a specific license before providing home care services, with 35 licensing at least some of the home care organizations that do not participate in the Medicare program. In fact, 11 states indicated that all home care organizations were publicly regulated through state licensure. (See table 1.) However, even states that regulate some home care services may not prohibit advertisement of similar-sounding services by organizations that are not licensed, registered, or certified. In 45 states, companion, housekeeping and homemaker, or shopping services may be legally advertised by organizations that are not licensed, registered, or certified. (See appendix I.) More states regulated the advertisement of personal care, home health, and home nursing. However, 30 states told us that unlicensed and uncertified organizations might legally advertise personal care; 14 did not specifically prohibit such organizations from advertising home health care, and 22 did not prohibit their advertisement of home nursing or related home care services. Although most states require that at least certain professionals who provide paid home care obtain a state license, they are not likely to require licensure or registration of some common types of home care workers. While individual licensure is a common practice for the regulation of practical nurses, physical therapists, occupational therapists, social workers, and registered nurses, it is not common for home health aides, homemakers, or choreworkers. As shown in appendix II, we found that individuals who were neither licensed nor state-registered could advertise personal care, companion, housekeeping and homemaker, or shopping services in most states. Even home health and home nursing services could legally be advertised by unlicensed and unregistered individuals in about a third of the states. Some state officials also identified related categories of service, such as adult day care and case management, that unlicensed and unregistered providers could legally advertise. Consumers seeking to file complaints against home care workers are faced with a somewhat complex regulatory structure in some states, while in other cases, no administrative complaint is possible, and they must file a criminal complaint with the local police or a civil suit. In most states, the responsibility for licensure of nursing home and home care workers was spread across multiple agencies, units, or professional boards. Similarly, although 20 states issued only one type of license to home care organizations, nearly as many recognized two or more types of home care organizations in their licensing processes. A minority of states (14) reported routinely including at least some types of home care workers in their state's mandatory registry for nurses' aides. When we interviewed officials of home care organizations, some expressed concerns about entering qualified employees on any public register that their competitors might use for recruitment. In addition, while administrative expenses for the initiation of the nurse's aide registry have already been incurred, adding home care workers to the established registry process would require additional resources, such as increased time for data entry. More importantly, there may be greater difficulty in substantiating complaints about home care workers since they are generally subject to less oversight than nursing home workers. Fifteen states reported requiring criminal background checks of at least some of the individuals who may be employed as home care workers. In these states, checks were usually a condition of agency licensure or certification, although in a few states, they were also a condition of individual licensure or registration. States reporting criminal background check requirements for home care workers included Alaska, California, Florida, Idaho, Indiana, Louisiana, Nevada, Ohio, Oklahoma, Oregon, Rhode Island, Texas, Utah, Virginia, and Washington. Twelve of these states indicated that state statutes or regulations specified the jurisdictions that these checks must cover, but the breadth of the check was generally limited to a state's own criminal records, which may be problematic where many workers come from neighboring states. At least three states--Idaho, Nevada, and Ohio--reported using national FBI data, but officials of other states we interviewed cited the expense of FBI data as a reason for not using it. Almost all states that reported requiring such checks indicated that a criminal background could be grounds for denying employment or refusing licensure or for some other type of adverse action, such as probationary certification. While it is difficult to assess the extent of problems with abuse, neglect, or misappropriation of property in the home care industry, we found that federal regulations do not require criminal background checks of home care workers. While some states and localities have instituted criminal background checks or other safeguards, states' approaches to regulating home care are quite varied, and in some instances, there may be few formal safeguards to protect potentially vulnerable elderly persons from unscrupulous operators. Every state must maintain a registry of nursing home workers noting those who have been involved in incidents of abuse, neglect, or misappropriation from patients. Although some states incorporate home care workers in a registry, and such registries may be valuable for identifying individuals who have met particular training standards, the effectiveness of such registries in identifying workers with histories of poor performance may depend heavily on the capacity to document incidents occurring in a largely unsupervised environment. While some states have instituted criminal background checks for some home care providers, few have used the FBI's national data, citing cost concerns. "While we agree with and support efforts designed to eliminate fraud and abuse and increase quality of care, we are unconvinced that there is enough consensus on the mechanisms which should be employed to address these concerns. Consequently, we believe States should be given the flexibility to determine how best to address these issues." "The FBI's user-fee program is the sole basis by which it funds processing of noncriminal justice applicant fingerprints card submissions for licensing and employment purposes. The FBI's budget does not contain any Congressional authorization or appropriation for funding of this part of its fingerprints operation." As we arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies of the report to interested congressional committees, the Secretary of HHS, the Administrator of HCFA, the Assistant Secretary for Aging, the Director of the FBI, and other federal and state officials. We will also make copies available to others upon request. If you have any questions or would like additional information, please contact me at (202) 512-3092 or Sushil K. Sharma, Assistant Director, at (202) 512-3460. Other major contributors to this report are listed in appendix III. (continued) No response provided for this item. (continued) No response provided for this item. Performance of tasks such as shopping, yard work, and housecleaning that generally do not require hands-on contact with the consumer. A title sometimes given to home care workers who perform chore services. A title sometimes given to home care workers who perform companion services. "Friendly visitor" services that may include assisting home care clients as they perform basic or instrumental activities of daily living. This term may connote services to clients who are less dependent than those receiving services labeled "home health" or "personal care." A review of police or other law enforcement records designed to determine whether a particular person has been convicted of unlawful acts. A for-profit or nonprofit entity that provides any of or all the home care services described below under "home care services." This term excludes home care providers who are self-employed or personal employees of home care consumers. Services provided to ill or disabled persons in private residences to assist them either in recovering from illness or in continuing to live in their own homes. Such services may be of any duration (short term, long term). They include assistance with basic activities of daily living (for example, bathing, eating, toileting), instrumental activities (for example, shopping, meal preparation, laundry), or chronic medical conditions (for example, catheter care, parenteral nutrition, wound care). Home care services are provided under the rubric of home health care, personal care, companionship, homemaker services, chore services, occupational therapy, and physical therapy. The services are provided by a range of personnel, from nurses and therapists to workers with little formal training or education. Anyone who performs home care services. This designation includes professional nurses and therapists as well as paraprofessional workers with little formal training. A title sometimes applied to a paraprofessional home care worker who generally provides basic home health care and incidental personal care services. Agencies that are Medicare-certified must ensure that home health aides in their employ meet specific Medicare training requirements. Assistance with health care provided in private residences to persons with disabilities. This designation may include services of professional nurses and therapists as well as those of paraprofessionals, such as home health aides and personal care aides. Specific services may include administration of medication, catheter care, wound care, and occupational or physical therapy. Housekeeping assistance that may include cooking, cleaning, and laundry and generally does not involve hands-on contact with the consumer. Permission to practice or operate in a certain capacity (for example, as a home health aide) that is extended only to license holders. Licenses may be extended to either businesses or individual workers. They are generally subject to renewal at designated intervals and may presume satisfaction of certain standards or submission to certain oversight processes. A designation given to an entity that is approved for participation in the Medicare program and is therefore eligible for Medicare reimbursement (for example, a "certified" home health agency). Nurse's aides who are qualified to work in nursing homes that participate in Medicare or Medicaid are also sometimes called "certified" nurse's aides. A title used by professionals who help persons with disabilities to develop, recover, or maintain daily living and work skills or to compensate for loss of function. An occupational therapist may also design or make special equipment needed at home or at work. Persons who use this title generally hold a bachelor's degree in occupational therapy. A title sometimes given to paraprofessional home care workers who perform personal care services. People who perform these functions are also sometimes known as personal attendants or personal care workers. Functional assistance, including help with basic activities of daily living (such as eating, bathing, toileting, and transferring from bed to chair), that generally involves hands-on contact with the consumer. A title used by professionals who perform tasks designed to improve mobility, relieve muscle pain, and prevent or limit the permanent physical disabilities of patients suffering from injuries or disease. Unlike an occupational therapist, a physical therapist focuses exclusively on physical disabilities. Physical therapists are usually licensed and graduates of an accredited physical therapy program. A home care worker who cares for the sick, injured, convalescing, and handicapped under the direction of a physician or registered nurse. Such workers perform tasks such as taking vital signs, treating bedsores, administering injections and enemas, providing assistance with personal care, giving alcohol rubs and massages, and inserting catheters. In some states, practical nurses are referred to as vocational nurses. Many of the functions performed by workers in this category are also performed by persons called home health aides, but practical nurses are more likely to have passed through a state licensing process and are consequently referred to as licensed practical nurses or licensed vocational nurses. A graduate of any accredited nursing school who has passed the national licensing examination. A registered nurse may include a person with an associate's degree in nursing (A.D.N.), a bachelor's degree in nursing (B.S.N.), or a hospital nursing diplomate. A list of individuals who work in a designated capacity or meet specific qualifications. Depending on state rules, participation in a registry may either be voluntary or mandatory. The content of registry entries may range from worker name and address to detailed information about worker qualifications, background, and past performance. Registration, unlike licensure, may not imply possession of a document, evidence of fulfillment of particular requirements, or periodic submission to oversight. A person who helps individuals and families cope with problems such as inadequate housing, serious illness, financial mismanagement, handicaps, or substance abuse, generally through direct counseling or referral. Social workers generally hold a bachelor's degree in social work or a related field. A type of temporary employment service that provides health care workers on a contract basis. Such workers are generally considered employees of the temporary staffing agency rather than of the organizations or individuals for whom they perform services. 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.	Pursuant to a congressional request, GAO examined federal and state provisions for protecting vulnerable elderly and disabled persons from home care wokers with histories of crime and patient abuse, focusing on: (1) federal or state requirements for licensure, registration, or certification of home care workers and organizations; (2) the extent to which states have used the federally mandated registry for nursing home aides, or a similar mechanism, to identify home care workers with past involvement in abuse, neglect, or misappropriation of property; and (3) the extent to which states have required criminal background checks of home care workers. GAO found that: (1) assessing the extent of problems with abuse, neglect, or misappropriation in the home care industry is a difficult task; (2) formal safeguards for home care consumers vary widely across political jurisdictions, public programs, and types of providers; and in some instances, few safeguards exist; (3) GAO has three key results of its evaluation to report; (4) few states have licensure requirements for types of workers that are among the most common providers of home care services; (5) however, the vast majority of states license or otherwise regulate some types of home care organizations or professionals, and some states indicate that all types of home care organizations are subject to a state licensure requirement; (6) while all states must maintain a registry for nursing home aides in accordance with federal law, only about a quarter have incorporated home care workers into it or have developed a separate registry for home care workers; (7) finally, GAO found that slightly over a quarter of the states require criminal background checks on some types of home care workers, though these checks are generally limited to a state's own criminal records; (8) states with a statute requiring such checks may access Federal Bureau of Investigation (FBI) data for this purpose, but few states have made use of this capacity with respect to home care workers; and (9) although there is no charge for checking these data for criminal justice purposes, fees are charged for checks for employment screening, and some state officials have cited these fees as a factor in reluctance to make greater use of the FBI data.	5,438	462
In 1862, Congress enacted the Morrill Act to help states establish and maintain land-grant colleges. The act carefully specified the grant's objectives, placed conditions on the use of revenue derived from the sale of the granted lands, and required annual reports. This established the pattern of categorical grants--providing needed resources for specific purposes in exchange for acceptance of minimum national standards. In the 1960s, the number and dollar amount of federal assistance programs grew substantially. (See fig. 1.) During this timeframe, major steps were taken to broaden elementary, secondary, and higher education opportunities; promote development in economically depressed areas; to help finance health services and medical care for the indigent; launch a war on poverty; and attempt a comprehensive physical, social, and economic program to transform slum and blight-ridden cities into model neighborhoods. Growth in the both the numbers of new grant programs and the level of funding created greater complexity. During the 1960s and into the 1970s, various reforms were begun to address the complexity in the grant system. In 1968, Congress passed the Intergovernmental Cooperation Act of 1968 that sought to improve the cooperation and coordination of activities among levels of government. From 1969-1973, the President initiated the Federal Assistance Review--a government-wide effort with a goal to streamline, simplify, and speed up the flow of federal assistance and improve the federal government's responsiveness to its state and local partners. In addition, Federal Management Circular 74-7, issued in 1974, provided for standardized administrative provisions across grant programs. The Joint Funding Simplification Act of 1974 permitted grantees to streamline federal assistance by enabling them to combine funding from several grants administered by one or more federal agencies. As previous congressional committee reports have noted, these administrative simplification initiatives, while useful in addressing certain administrative burdens associated with grants, did not address the more fundamental challenges stemming from the fragmented nature of the grant system. For example, the House Government Operations Committee, the predecessor to the House Government Reform Committee, noted that the legislative consolidation of closely related categorical programs into broader purpose grants and the placement of similar programs in a single federal agency have more potential for significantly improving grant-in-aid administration. Over the years, Congress at times has acted to improve the grant system through consolidation. The Omnibus Budget Reconciliation Act of 1981 consolidated a number of social service programs into nine block grants which allowed for greater state and local autonomy and flexibility in the fashioning of local strategies to address federal objectives. More recently, in 1996 the 104th Congress consolidated a number of welfare-related programs into the Temporary Assistance for Needy Families block grant. Notwithstanding these efforts, as figure 2 shows, over the last 20 years each period of consolidation was followed by a proliferation of new federal programs. Moreover, some of the block grants were later recategorized, as Congress added new set-asides and cost-ceilings to address national programmatic concerns, thereby limiting the grants' flexibility. A sizable increase in the number of grant programs could be justified and simply be an indication that as society evolves the nation's needs also change and we need new tools--in the form of new programs--at our disposal to address those needs. As such, program proliferation may be an indication that there is heightened congressional interest in ensuring that federal funds are directed in such a way as to meet specific--more narrowly defined--national goals and objectives. Nonetheless, the problems associated with a proliferation of federal programs are compounded when multiple grants are available for the same or similar purposes, forcing grant recipients to package different programs with potentially conflicting requirements to address common problems. Moreover, the total funds available for many of these programs are quite small. As figure 3 shows, the vast majority of available federal funds--78 percent--are concentrated in 20 large grant programs. Stated differently, Mr. Chairman, in 2001 169 federal grant programs were funded at less than $5 million. Cumulatively, these small programs receive less than 1 percent of all federal funds provided through the grant system. As you can imagine, at the recipient level, the funds available can be quite small, particularly--as you may hear in the statements of members of the second panel--in relation to the administrative effort and costs incurred in applying for and managing the grant. For example, FEMA's Hazardous Materials Assistance program provided grants from "a few dollars to $20,000" per applicant, according to the Catalog of Federal Domestic Assistance. FEMA's State Fire Training Systems Grants ranged from only $25,000 to $30,000 per state. While these funds undoubtedly served important purposes, the question is whether the funds could have been provided through more efficient means. Many of the same grants management challenges from the past are still with us today. GAO's work over the years has repeatedly shown that mission fragmentation and program overlap are widespread in the federal government and that crosscutting program efforts are not well coordinated. As far back as 1975, GAO reported that many of the fundamental problems in managing federal grants were the direct result of the proliferation of federal assistance programs and the fragmentation of responsibility among different federal departments and agencies. While we noted that the large number and variety of programs tended to ensure that a program is available to meet a defined need, we found that substantial problems occur when state and local governments attempt to identify, obtain, and use the fragmented grants-in-aid system to meet their needs. More recently, GAO has addressed mission fragmentation through the framework provided under the Government Performance and Results Act (the Results Act). The Results Act's key stages include defining missions and outcomes, developing a strategy, measuring performance, and using performance information. For example, we reported in 2000 on the 50 programs for the homeless that were administered by 8 federal agencies. Housing services were provided under 23 programs operated by 4 agencies, and food and nutrition services were under 26 programs administered by 6 agencies. We recently identified 44 programs administered by 9 different federal agencies that provided a range of employment and training services. In the late 1990s, the Congress tried to bring some unity to this fragmented employment and training system by requiring states to provide most federally funded employment-related services through a centralized service delivery system--one-stop centers. Two years earlier, welfare reform legislation provided states with the flexibility to focus on helping needy adults with children find and maintain employment. Despite the similar focus, the welfare program was not required to be a part of the new workforce investment system. We recently reported that nearly all states report some coordination of their welfare and workforce systems services at the state and local level, but that several challenges remain. For example, different definitions of what constitutes work as well as complex reporting requirements under both programs hamper state and local coordination efforts. Though some states and localities have found creative ways to work around these issues, the differences remain barriers to coordination for many others. Each of these programs is operated out of a different federal agency; the welfare program is administered from the Department of Health and Human Services (HHS), and the Department of Labor (Labor) administers the workforce investment program. We found that HHS and Labor have not addressed differences in program definitions and reporting requirements. It falls to the 108th Congress to redesign the nation's homeland security grant programs in light of the events of September 11, 2001. In so doing, Congress must balance the needs of our state and local partners in their call for both additional resources and more flexibility with the nation's goals of attaining the highest levels of preparedness. This goal is too important, and federal resources too scarce, to worry about holding our partners accountable after they have already spent the funds. Funding increases for combating terrorism have been dramatic and reflect the high priority that the administration and Congress place on this mission. These increases bring an added responsibility to ensure that this large investment of taxpayer dollars is wisely applied. We recently reported on some of the management challenges that could stem from increased funding and noted that these challenges--including grants management--could impede the implementation of national strategies if not effectively addressed. GAO testified before this subcommittee last year on the development of counter-terrorism programs for state and local governments that were similar and potentially duplicative. We have identified at least 16 different grant programs that can be used by the nation's first responders to address the nation's homeland security. These grants are currently provided through two different directorates of the new Department of Homeland Security, the Department of Justice, and HHS and serve state governments, cities and localities, as well as counties and others. Multiple fragmented grant programs can create a confusing and administratively burdensome process for state and local officials seeking to use federal resources for pressing homeland security needs. This is illustrated in figure 4 which shows the complex delivery structure for these 16 preparedness grant programs. To illustrate the level of fragmentation across homeland security programs, we have shown in table 1 significant features for the major assistance programs targeted to first responders. As the table shows, substantial differences exist in the types of recipients and the allocation methods for grants addressing similar purposes. For example, some grants go directly to local first responders such as firefighters, others go to state emergency management agencies, and at least one goes to state fire marshals. The allocation methods differ as well--some are formula grants while others involve discretionary decisions by federal agency officials on a project basis. Grant requirements differ as well--DHS' Assistance to Firefighters Grant has a maintenance of effort requirement (MOE) while the State Fire Training Systems Grant has no similar requirement. Table 2 shows considerable overlap in the activities that these programs support--for example, funding from both the State and Local Domestic Preparedness Exercise Support Program and the State Domestic Preparedness Equipment Support Program can be used for planning and conducting exercises. The fragmented delivery of federal assistance can complicate coordination and integration of services and planning at state and local levels. Homeland security is a complex mission requiring the coordinated participation of many federal, state, and local government entities as well as the private sector. As the National Homeland Security Strategy recognizes, preparing the nation to address the new threats from terrorism calls for partnerships across many disparate actors at many levels in our system. Within local areas, for example, the failure of local emergency communications systems to operate on an interoperable basis across neighboring jurisdictions reflects coordination problems within local regions. Local governments are starting to assess how to restructure relationships along contiguous local entities to take advantage of economies of scale, promote resource sharing, and improve coordination on a regional basis. The complex web of federal grants depicted in figure 4 suggests that by allocating federal aid to different players at the state and local level, federal grant programs may continue to reinforce state and local fragmentation. Some have observed that federal grant restrictions constrain the flexibility state and local officials need to tailor multiple grants to address state and local needs and priorities. For example, some local officials have testified that rigid federal funding rules constrains their flexibility and cannot be used to fund activities that meet their needs. We have reported that overlap and fragmentation among homeland assistance programs fosters inefficiencies and concerns in first responder communities. State and local officials have repeatedly voiced frustration and confusion about the burdensome and inconsistent application processes among programs. We concluded that improved coordination at both federal and state and local levels would be promoted by consolidating some of these first responder assistance programs. In addressing the fragmentation prompted by the current homeland security grant system, Congress has several alternatives available. Actions taken by federal agencies under the rubric of the Federal Financial Assistance Management Improvement Act of 1999 will help to streamline the process for obtaining aid across the myriad of programs and standardize administrative requirements. These initiatives promise to reduce administrative burdens at all levels and promote a more efficient grants management process in general. Going beyond these initiatives to address the underlying fragmentation of grant programs remains a challenge for our federal system in the homeland security area, as well as across other program areas. Several alternatives have been pursued in the past to overcome problems fostered by fragmentation in the federal aid structure. I will discuss three briefly here-- block grants, performance partnerships, and grant waivers. Block grants are one option that Congress has chosen to consolidate related programs. Block grants currently are used to deliver assistance in such areas as welfare reform, community development, social services, law enforcement, public health and education. While such initiatives often involved the consolidation of categorical grants, block grants also typically devolve substantial authority for setting priorities to state or local governments. Under block grants, state and local officials bear the primary responsibility for monitoring and overseeing the planning, management, and implementation of activities financed with federal grant funds. Accordingly, block grant proposals generally call for Congress to make a fundamental decision about where power and authority to make decisions should rest in our federal system for a particular program area. While block grants devolve authority for decisions, they can and have been designed to facilitate some accountability for national goals and objectives. Since federal funds are at stake, Congress typically wants to know how federal funds are spent and what state and local governments have accomplished. Indeed, the history of block grants suggests that the absence of national accountability and reporting for results can either undermine continued congressional support or prompt more prescriptive controls to ensure that national objectives are being achieved. For instance, the block grants enacted as part of the Omnibus Reconciliation Act of 1981 were not implemented in a manner that encouraged consistent reporting of program data. These block grants have been subject to at least 58 subsequent congressional actions, many of which served to recategorize the programs by tightening program requirements and limiting the grantees' flexibility. The consolidation of categorical grants, however, need not be structured as a block grant. In fact, federal funding streams can be combined while retaining strong performance oriented accountability by state and local governments for discrete federal goals and objectives. State and local governments can be provided greater flexibility in using federal funds in exchange for more rigorous accountability for results. One example of this model involves what became known as "performance partnerships," exemplified by the initiative of the Environmental Protection Agency (EPA). Under this initiative, states may voluntarily enter Performance Partnership Agreements with their EPA regional offices which can include major federal environmental grant programs. These agreements delineate which problems would receive priority attention within a state and how the state's performance will be measured. Congress provided states with flexibility to use funds from two or more environmental program grants in a more flexible and streamlined manner. The benefits of the EPA performance partnership system are ones that should also be helpful for other areas such as homeland security. EPA partnerships (1) allowed states to shift resources to address priority needs and fund crosscutting efforts that are difficult to support with traditional grants, (2) provided a way to support innovative or unique projects, (3) increased the focus on environmental results and program effectiveness, and (4) fostered reduced reporting burden and improved information management. But we reported some significant implementation issues for the performance partnership approach as well. In 1999, we reported that the initiative was hampered by an absence of baseline data against which environmental improvements could be measured and the inherent difficulty in quantifying certain results and linking them to program activities and the considerable resources needed for high-quality performance measurement. The challenge for developing performance partnerships for homeland security grants will be daunting because the administration has yet to develop clearly defined federal and national performance goals and measures. We have reported that the initiatives outlined in the National Strategy for Homeland Security often do not provide performance goals and measures to assess and improve preparedness at the federal or national levels. The strategy generally describes overarching objectives and priorities, but not measurable outcomes. Lacking such measures and outcomes at the national level will surely encumber the federal, state, and local partners' ability to establish agreements on what sort of goals are expected of our state and local partners, much less how they could be measured. A third approach to overcoming fragmentation could be to provide in law for waivers of federal funding restrictions and program rules when requested and sufficiently justified by state or local governments. In the homeland security area, legislation has been introduced to provide waivers for states to use funds from one category of federal assistance, such as equipment, to support other homeland security activities such as training. This approach could help recipients adjust available federal funds to unique needs and conditions in each state. Unlike full grant consolidation--which is legislated--each waiver must be approved by federal agency officials before grantees could have the kind of flexibility they desire. Some might view the approval requirement as an additional administrative burden while others consider the federal role essential to ensuring accountability. Mr. Chairman, we are eager to work with your subcommittee and others to improve the efficiency and effectiveness of our federal grant system. Improving the grant partnership among federal and nonfederal officials is vital to achieving important national goals. The Federal Financial Assistance Management Improvement Act of 1999 offers promising opportunities to help those officials achieve their mutual goals through the use of federal assistance programs. We look forward to reviewing the activities undertaken pursuant to the Act with an eye toward both highlighting progress as well as identifying further improvements that can be made at all levels of our federal system. We are also ready to assist Congress in identifying the problems stemming from the underlying nature of the grant system and in sorting through the tradeoffs Congress will face in resolving these problems. This concludes my prepared statement. I would be pleased to answer any questions you or the members of the subcommittee may have at this time.	The Federal Financial Assistance Management Improvement Act of 1999 is one of the most recent in a series of efforts to reform the federal grants management system. The act seeks to improve the effectiveness and performance of Federal financial assistance programs; simplify application and reporting requirements; improve delivery of services to the public; and facilitate greater coordination among those responsible for delivering such services. GAO has a responsibility to evaluate the implementation of this Act by 2005 and will soon begin developing an approach and methodology for the study. This testimony describes the problems fostered by proliferation and fragmentation, which the Act addresses indirectly. While the Federal Financial Assistance Management Improvement Act of 1999 (FFAMIA) offers promising opportunities to improve the federal grant system, there remain over 600 different federal financial assistance programs to implement domestic policy. Federal grant recipients must navigate through a myriad of federal grant programs in order to find the appropriate source of funds to finance projects that meet local needs and address local issues. Despite the process reforms initiated under FFAMIA, the federal grant system continues to be highly fragmented, potentially resulting in a high degree of duplication and overlap among federal programs. Since the 1960s the number and dollar amount of federal grant programs has grown substantially. Growth in both the number of grant programs and the level of funding have created a high level of complexity in the system. While the act seeks to improve the effectiveness and performance of federal assistance programs by simplifying grant administration and facilitating coordination among grant recipients, Congress could also consider consolidating grants that have duplicative objectives and missions. Consolidation can be achieved through a variety of ways including combining multiple programs into block grants, establishing performance partnerships, and providing for waiver authority of federal funding restrictions and program rules when requested and sufficiently justified by state or local governments. Each of these alternatives has implications for accountability that Congress will face as it considers improvements to the federal grant system.	3,749	395
The United States, along with its coalition partners and various international organizations and donors, has embarked on a significant effort to rebuild Iraq. The United States is spending billions of dollars to reconstruct Iraq while combating an insurgency that has targeted military and contractor personnel and the Iraqi people. The United States has relied heavily on private-sector contractors to provide the goods and services needed to support both the military and reconstruction efforts in Iraq. DCAA is responsible for providing contract audits for DOD, along with general accounting and financial advice to DOD acquisition officials negotiating government contracts. DCAA performs many types of audits for DOD, including audits of contractor proposals, audits of estimating and accounting systems, and incurred cost audits. Generally, the results of a DCAA audit are intended to assist contracting officials in negotiating reasonable contract prices. Normally, DCAA audits contractors' proposals and provides contracting officials advice on the reasonableness of contractor costs prior to negotiations. DCAA also conducts audits of cost- type contracts after they are negotiated to ensure costs incurred on these contracts are acceptable. Relying on cost information provided by the contractor and assessing whether the costs comply with government regulations, DCAA may identify certain costs as questioned or unsupported. DCAA defines questioned costs as costs considered to be not acceptable for negotiating a reasonable contract price, and unsupported costs as costs that lack sufficient supporting documentation. DCAA reports its findings to contracting officers for consideration in negotiating reasonable contract prices. DCAA audit reports represent one way DCAA can assist contracting officials as they negotiate government contracts. Also, contracting officials may invite DCAA to participate in contract negotiations to explain audit findings and recommendations, and may factor DCAA audit findings into evaluations of contract proposals. The Federal Acquisition Regulation (FAR) acknowledges that DCAA's role is advisory, and assigns the contracting officer responsibility for ensuring that the contractor's proposed price is fair and reasonable. While DCAA audit recommendations are nonbinding, DCAA's Contract Audit Manual states that contracting officials deviating from DCAA advice during negotiations should explain the reasons why they disagreed with DCAA. DOD Directive 5105.36 also enables DCAA to withhold payments by (1) suspending payment for specific incurred costs lacking documentation or (2) disapproving costs that do not conform with applicable regulations. DCAA can issue a Form 1 to a contractor notifying it that funds will be withheld, which initiates review of the challenged costs by the contracting officer. Between February 2003 and February 2006, DCAA issued hundreds of audit reports that collectively identified $3.5 billion in questioned and unsupported costs on Iraq-related contracts, primarily through audits of contractor proposals. In some cases, DCAA was asked to audit multiple iterations of contractor proposals as these proposals were revised over a period of time. Based on information provided by DCAA, contracting officials have responded to audit findings that questioned $1.4 billion. As a result, contracting officials negotiated contract cost reductions of $386 million according to DCAA. DCAA does not render an opinion about costs it determines to be unsupported; therefore they do not track the resolution of unsupported costs. Between February 2003 and February 2006, DCAA tracked 349 audit reports that identified about $3.5 billion in questioned and unsupported costs on Iraq contracts. Of this total, DCAA classified $2.1 billion as questioned, and $1.4 billion as unsupported. DCAA identified these questioned and unsupported costs in audits related to 99 different contractors. Most of the questioned and unsupported costs were identified through audits of contractor proposals. Specifically, in DCAA's database, more than three-quarters of the audits with questioned and unsupported costs were classified as "forward pricing activity," which primarily involves auditing contractor proposals or parts of proposals. In some cases, DCAA reviewed multiple contractor proposals for the same work. DOD officials told us that contractors submitted multiple proposals because requirements changed or the proposal was considered inadequate for negotiations. For example, over a 6-month period, DCAA issued four audit reports on three different proposals for a task order related to an oil mission. Each audit superseded the prior one, and DCAA updates its information to reflect the most recent report. While DCAA tracks and records how questioned costs are addressed by the contracting official in negotiation, it does not track similar information about unsupported costs. Based on the data provided to us by DCAA, as of July 3, 2006, contracting officials had responded to 169 of DCAA's 349 Iraq audit reports. DCAA considered the findings to be addressed because the contracting official had documented the result of negotiations with the contractor. Based on information provided by DCAA, for the $1.4 billion in questioned costs addressed by contracting officials, contracting officials sustained $386 million of the total questioned costs. DCAA defines sustained costs as the costs reduced through negotiations directly attributable to findings reported by the DCAA auditor for proposal audits. Based on the information provided by DCAA, as of July 2006, the remaining $700 million in questioned costs is still in process. DCAA's information does not reflect what actions, if any, the contracting officials have taken to respond to these audit report findings. According to a DCAA official, DCAA does not track how unsupported costs are addressed. DCAA guidance implementing the FAR requires the contracting official to report on the disposition of questioned amounts, but not specifically on whether contractors provided sufficient documentation to eliminate unsupported costs. Because unsupported costs indicate a lack of contractor information that is needed to assess costs, DCAA cannot and does not render an opinion on those costs. Therefore, DCAA does not track the resolution of unsupported costs. For the 18 audit reports selected for this review, we found that DOD took a variety of actions in response to audit findings, including not allowing some contractor costs. Based on contract documentation we reviewed, the DOD contracting officials generally considered DCAA's questioned and unsupported cost findings when negotiating with the contractor. We found that DOD contracting officials were more likely to use DCAA's advice when negotiations were timely and occurred before contractors had incurred substantial costs. In contrast, DOD officials were less likely to remove questioned costs from a contract proposal when the contractor had already incurred these costs. In addition to identifying questioned and unsupported costs, DCAA can also withhold funds from the contractor, which it chose to do in eight of the cases included in our review. Other actions taken by the DOD contracting officials included inviting DCAA to attend meetings or negotiations with the contractor and conducting additional analyses to respond to audit findings. Our review of the government's documentation of contract negotiations for the selected audit reports showed that DOD generally considered DCAA audit findings. The majority, or 13 of the 15 memorandums, identified how the contracting officials addressed DCAA audit findings. Most memorandums discussed questioned and unsupported costs identified by DCAA in areas such as labor, equipment, material, and subcontracts, but some lacked specific detail on how DCAA audit findings were addressed. However, in two cases we were unable to determine from the negotiation documentation how DCAA audit findings were used. To address the more than $1 billion in questioned costs related to the audits selected, we found that the DOD contracting officials were less likely to remove questioned costs from a contractor proposal when the contractor had already incurred these costs. For example, in 5 audit reports comprising about $600 million of questioned costs reviewed, we found that the DOD contracting officials determined that the contractor should be paid for nearly all of the questioned costs (all but $38 million), but reduced the base used to calculate the contractor's fee (by $205 million). By reducing the base, the DOD contracting official reduced the contractor's fee by approximately $6 million. Generally, when entering into a contract, the government and contractor reach agreement on the key aspects of the contract, including the scope and price of the work, before the work is authorized to start. However, the FAR enables the government to authorize the contractor to begin work before doing so in certain cases, such as when the government demands the work start immediately and it is not possible to negotiate a fully defined contract in sufficient time to meet the requirement. Our past work has shown that the use of undefinitized contract actions can pose risks to the government, such as potentially significant additional costs. Acquisition regulations generally require that the contracting official define the scope and costs of such contracts within 180 days of the contract's start date. According to contract officials, urgent conditions in Iraq led the government to initiate such contract actions without first specifying their scope of work and agreeing to the contract price. In many cases we reviewed, contractors completed some work and incurred substantial costs well before the government negotiated the contract price. Of the 18 audits covered in our review, 11 audit reports corresponded to contract actions where more than 180 days had elapsed from the beginning of the period of performance to final negotiations. For nine of these audits, the period of performance DOD initially authorized for each contract action concluded before final negotiations took place. For example, DCAA questioned $84 million in its audit of a task order proposal for an oil mission. In this case, the contractor did not submit a proposal until a year after the work was authorized, and DOD and the contractor did not negotiate the final terms of the task order until more than a year after the contractor had completed work (see fig. 1). The DOD contracting officer paid the contractor for all questioned costs but reduced the base used to calculate contractor profit by $45 million. As a result, the contractor was paid about $3 million less in fees. In the final negotiation documentation, the DOD contracting official stated that payment of incurred costs is required for cost-type contracts, absent unusual circumstances. This same rationale was used in negotiations on several other task orders. In contrast, in the few audit reports we reviewed where the government negotiated prior to starting work, we found that the portion of questioned costs removed from the proposal was substantial. For example, in 3 audit reports related to a logistics support task order, DCAA questioned $204 million. Since the government and the contractor negotiated the terms of this task order prior to the onset of work, the contractor had not incurred any costs at the time of negotiation (see fig. 2 for timeline). According to DCAA's calculations, $120 million of these questioned costs was removed from the contractor's proposal as a result of its audit findings. In addition to identifying questioned and unsupported costs, DCAA can withhold funds from contractors in certain situations. The cognizant administrative contracting officer may subsequently determine that the withheld costs should be approved for payment to the contractor. We found DCAA withheld $236 million from contractors related to 8 of the audits included in our review. Subsequently, as a result of either additional documentation provided by the contractor or the DOD administrative contracting officer determination, $148 million of the withheld funds was released to the contractor and the government did not pay $36 million to the contractor. The remaining $51 million has not been settled yet--a DOD contracting official is reviewing the available information to make a decision about whether or not these costs will be reimbursed. In the audit reports reviewed, the vast majority of funds withheld by DCAA ($171 million of the $236 million) related to dining facilities services provided at U.S. troop camps in Iraq. The contractor was directed by the Army to build, equip, and operate the dining facilities located at U.S. troop base camps in Iraq and to provide four meals a day to the camp populations. The population at each camp was specified in the Army's description of the work to be performed by the contractor. In addition, contractor and government representatives counted the number of troops served at each mealtime. However, the Army's description of the work did not specify whether the contractor should bill the government for the camp population identified in the work description or the actual head count for each meal. Generally, the government was billed based on the estimated base camp population, but DCAA stated that the billings should be based on the actual head count, which was lower than the estimated base camp population included in the work description. As a result, DCAA withheld funds by reducing payment for dining facilities costs on contractor billings by 19.35 percent. Ultimately, the DOD and the contractor negotiated a settlement where it was agreed that $36 million would not be paid to the contractor. In another example, DCAA withheld a payment to the contractor for its subcontractor's costs of $12 million related to electrical repair services. DCAA determined the cost to be unreasonable based on a comparison of price quotes from other subcontractors for similar electrical repair services. As a result of the action taken by DCAA to withhold payment, an Army Corps of Engineers contracting official reviewed contractor data. The contracting official determined the subcontractor's price was reasonable given the short contract time frames. A memo outlining the Army Corps of Engineers' rationale for paying the contractor for the subcontractor costs states, "Corps of Engineers representatives in Baghdad directed all of the contractors there to do whatever was necessary, regardless of cost, to meet schedule commitments." The $12 million withheld was released to the contractor. DCAA officials expressed concerns that the DOD contracting official had not sought their assistance when settling this issue with the contractor. We found that DOD contracting officials took a variety of other actions to address DCAA audit findings. In many of the cases we reviewed, DCAA was invited to participate in meetings or negotiations with the contractor. For example, To address the questioned costs identified in the task orders for the oil mission, the DOD contracting official convened a meeting to include the contractor representatives, DCAA officials, and Army Corps of Engineers officials. As a result of discussions in this meeting, a DCAA official told us that DCAA stopped questioning some costs such as the percentage paid to contractor employees for working in a dangerous area and price adjustments the contractor paid to its subcontractors for fuel from Turkey. In addition, the DOD contracting official asked DCAA to provide alternative negotiation positions, and in response DCAA developed memorandums outlining several options for each task order. Ultimately the DOD contracting official used a negotiation position presented in each memorandum to establish the government's negotiation position with the contractor. When asked if he was satisfied with the resolution of the questioned costs, a DCAA official involved in the process told us he thought the DOD contracting official did the best job he could. In another example, DCAA attended negotiations between the contractor and the government for an electricity contract. DCAA's role at this meeting was to answer questions and to reiterate its opinion. Subsequent to negotiations, DCAA participated in additional meetings with the contractor and the Army Corps of Engineers to ensure that its concerns with the contractor purchasing system were addressed. DCAA officials told us that problems with the contractor purchasing system were related to the unsupported costs identified in the audit. DCAA officials involved in this process told us that they were generally satisfied with the actions taken by DOD and the contractor to resolve their audit findings. In some cases, DOD officials conducted additional analyses in response to DCAA's audit findings. For example, for the audit reports we reviewed related to the oil mission, DCAA questioned the cost of fuel and transportation based on a comparison between the price paid by the contractor and the price paid by the Defense Energy Support Center (DESC) when it took over the mission from the contractor in April 2004. In response, DOD collected additional information to update the fuel and transportation cost comparison. For example, although DESC negotiated prices based on trucks shipping fuel to Iraq three times per month, in practice the trucks were only able to make two trips per month, a fact that increased the cost of the mission to DESC. Overall, the additional analyses provided a rationale for the DOD contracting official to pay the contractor for some of DCAA's questioned costs. We requested comments from DOD on a draft of this report, but none were provided. We are sending copies of this report to the Secretary of Defense, appropriate congressional committees, and other interested parties. We will make copies of this report available on request. In addition, this report will be available at no charge on GAO's Web site at http://www.gao.gov. If you have any questions concerning this report, please contact me at (202) 512-4841 or by e-mail at [email protected]. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. Other major contributors to this report were Penny Berrier Augustine, Tim Bazzle, Greg Campbell, David E. Cooper, Tim DiNapoli, Julia Kennon, John Krump, Eric Lesonsky, Janet McKelvey, Guisseli Reyes-Turnell, Raffaele Roffo, and Jeffrey Rose. To determine the costs identified by the Defense Contract Audit Agency (DCAA) as questioned or unsupported, we analyzed data from DCAA's management information system on all DCAA Iraq-related audit reports with questioned or unsupported costs issued between February 2003 and February 2006. To develop an understanding and assess the reliability of the information included in the database, we held discussions with and obtained documentation from DCAA officials located in Fort Belvoir and we conducted electronic testing for obvious inconsistencies and completeness. During our review of the database we identified records for 20 audits, 1 percent of the database, which listed 2 different totals for questioned and/or unsupported costs. For these 20 audits, based on our conversation with a DCAA official, we selected the amount that reflected the most current total for questioned and/or unsupported costs. We determined the data used in our review to be sufficiently reliable for our purposes. To determine the actions taken by the Department of Defense (DOD) in response to DCAA audit findings, including the extent to which funds were withheld from contractors, we selected 18 audit reports comprised of (1) the 10 reports with the highest dollar amounts of questioned and unsupported costs and (2) a selection of 8 of the remaining audit reports with questioned and unsupported cost dollars above $5 million. We excluded audit reports issued after November 1, 2005 from the selection to ensure that DOD contracting officials had adequate time to resolve the audit findings. The questioned and unsupported costs for the 18 audits total approximately $1.8 billion, or about 50 percent of all questioned and unsupported costs identified through DCAA's database on Iraq contracts. These reports include (1) 11 audits of 8 task order proposals to provide logistics support for U.S. troops, (2) 3 audits of task order proposals to provide fuel and fuel transportation, (3) 3 audits of task order proposals for electricity services, and (4) 1 audit of a proposal for contract management and administrative support functions. The 18 selected audit reports represent work performed by 4 contractors. For the selected audits, we held discussions with DCAA officials located in Fort Belvoir; Arlington, Texas; Lexington, Massachusetts; Seattle, Washington; Kent, Washington; and Iraq. We collected key documentation related to each audit report, such as DCAA's calculation of the resolution of questioned costs and dollars withheld (Form 1). For each audit, we also held discussions with DOD contracting officials located in Rock Island, Illinois; Dallas, Texas; Winchester, Virginia; and Iraq. We interviewed these officials to determine the actions taken by DOD to address DCAA's audit findings and obtained key documentation such as price negotiation memorandums. We conducted our review from March 2006 through September 2006 in accordance with generally accepted government auditing standards.	The government has hired private contractors to provide billions of dollars worth of goods and services to support U.S. efforts in Iraq. Faced with the uncertainty as to the full extent of rebuilding Iraq, the government authorized contractors to begin work before key terms and conditions were defined. This approach allows the government to initiate needed work quickly, but can result in additional costs and risks being imposed on the government. Helping to oversee their work is the Defense Contract Audit Agency (DCAA), which examined many Iraq contracts and identified costs they consider to be questioned or unsupported. The Conference Report on the National Defense Authorization Act for Fiscal Year 2006 directed GAO to report on audit findings regarding contracts in Iraq and Afghanistan. As agreed with the congressional defense committees, GAO focused on Iraq contract audit findings and determined (1) the costs identified by DCAA as questioned or unsupported; and (2) what actions DOD has taken to address DCAA audit findings, including the extent funds were withheld from contractors. To identify DOD actions in response to the audit findings, GAO selected 18 audit reports representing about 50 percent of DCAA's questioned and unsupported costs on Iraq contracts. GAO requested comments from DOD on a draft of this report, but none were provided. Defense Contract Audit Agency audit reports issued between February 2003 and February 2006 identified $2.1 billion in questioned costs and $1.4 billion in unsupported costs on Iraq contracts. DCAA defines questioned costs as costs that are unacceptable for negotiating reasonable contract prices, and unsupported costs as costs for which the contractor has not provided sufficient documentation. This information is provided to DOD for its negotiations with contractors. Based on information provided by DCAA, DOD contracting officials have taken actions to address $1.4 billion in questioned costs. As a result, DOD contracting officials negotiated contract cost reductions of $386 million according to DCAA. Based on the information provided by DCAA, as of July 2006, the remaining $700 million in questioned costs is still in process. Because unsupported costs indicate a lack of contractor information that is needed to assess costs, DCAA cannot and does not render an opinion on those costs. Therefore, DCAA does not track the resolution of unsupported costs. For the 18 audit reports selected for this review, GAO found that DOD contracting officials took a variety of actions to address DCAA's audit findings, including not allowing some contractor costs. In the contract documentation GAO reviewed, DOD contracting officials generally considered DCAA's questioned and unsupported cost findings when negotiating with the contractor. GAO found DOD contracting officials were more likely to use DCAA's advice when negotiations were timely and occurred before contractors had incurred substantial costs. For example, in three audit reports related to a logistics support task order negotiated prior to the onset of work, DCAA questioned $204 million. According to DCAA's calculations, $120 million of these questioned costs was removed from the contractor's proposal as a result of its audit findings. In contrast, DOD officials were less likely to remove questioned costs from a contract proposal when the contractor had already incurred these costs. For example, in five audit reports comprising about $600 million of questioned costs reviewed, GAO found that the DOD contracting officials determined that the contractor should be paid for all but $38 million of the questioned costs, but reduced the base used to calculate the contractor's fee by $205 million. By reducing the base, the DOD contracting official reduced the contractor's fee by approximately $6 million. In addition to identifying questioned and unsupported costs, DCAA has the option of withholding funds from the contractor and chose to withhold a total of $236 million for eight cases included in this review.	4,305	800
Prior to recent congressional deliberations on the Navy's fiscal year 1995 budget, the Navy planned to spend over $2.5 billion to add limited ground attack capability and other improvements to 210 F-14 Tomcat fighter aircraft (53 F-14Ds, 81 F-14Bs, and 76 F-14As). According to the Navy, the ground attack capabilities were required to partially compensate for the loss in combat capabilities during the period starting in 1997, when all of its A-6E Intruder attack aircraft are scheduled to be retired, to the turn of the century when the F/A-18E/F, the next generation strike fighter, is scheduled to arrive. The F-14 was to undergo two upgrades. An initial upgrade, commonly called the A/B upgrade, included structural modifications to extend the F-14's fatigue life to 7,500 hours, improved defensive capabilities and cockpit displays, and incorporation of digital architecture and mission computers to speed data processing time and add software capacity. The A/B upgrade had to be incorporated into 157 F-14 aircraft before the second upgrade, called the Block I, could be added. Block I was to add a Forward-Looking Infrared (FLIR) pod with a built-in laser to designate targets and allow F-14s to independently drop laser guided bombs (LGBs), a modified cockpit for night attack operations (night vision devices and compatible lighting), and enhanced defensive countermeasures. Concerned about the Navy's capability to maintain carrier-based power projection without A-6Es and with only limited F-14 upgrades, the Joint Conference Committee on the fiscal year 1994 Defense Authorization Act directed the Navy to add an F-15E equivalent capability to its F-14D aircraft, including the capability to use modern air-to-ground stand-off weapons. The act restricted the obligation of fiscal year 1994 F-14 procurement funds until 30 days after the Navy submitted a report outlining its plans to add more robust ground attack capability. The report, submitted on May 20, 1994, reiterated the Navy's intent to add only the A/B and Block I upgrades. During recent fiscal year 1995 deliberations, the defense authorization act conferees eliminated funding for F-14 Block I ground attack upgrades, authorizing funds for only the A/B structural and survivability modifications. In a subsequent similar action, defense appropriation act conferees did not appropriate funds for the Block I upgrades. The Navy eliminated the Block I ground attack upgrade from its Program Objectives Memorandum. However, Navy officials continue to believe a ground attack upgrade is necessary. A final decision on the extent of the upgrade depends upon the results of a COEA and an acquisition milestone decision scheduled for the first quarter of fiscal year 1995. In a related response to congressional direction to add more robust capability to the F-14, beyond that mentioned above, the Navy estimated it would cost $1.8 billion to add F-15E-equivalent capability to 53 F-14Ds and another $9 billion to upgrade 198 F-14A/Bs. According to the Navy, an upgrade of that magnitude was not affordable. Most F-14s, even after receiving the Block I upgrade, will lack some important capabilities that the F/A-18C currently has or will gain in the near future. The absence of these capabilities could limit the combat effectiveness and utilization of the F-14 under some adverse conditions. The Block I upgrade will permit F-14s to drop LGBs, which are more accurate than unguided gravity bombs. But the usefulness of laser targeting is limited when targets are obscured by clouds, smoke, haze, and moisture that prevent laser beams from illuminating and marking the targets and from providing a clear path for the bomb guidance system to follow. Thus, to assist crews in locating and identifying targets, attack aircraft need synthetic aperture radar with ground mapping capability. The F-14A/B models' AWG-9 radar is one of the most powerful U.S. military aircraft radars for detecting multiple air targets approaching at long range, but it is not ideally suited to pinpointing ground targets under some conditions. For example, it does not provide a ground mapping capability that permits crews to locate and attack targets in adverse weather and poor visibility or to precisely update the aircraft's location relative to targets during the approach, a capability that improves bombing accuracy. Only the 53 F-14Ds, with their improved APG-71 synthetic aperture ground mapping radar, will have this capability. The 157 F-14A/Bs in the Block I program, lacking the APG-71 radar, will not be as effective in locating, identifying, and attacking targets, except in daylight and clear visibility conditions. F/A-18Cs, which have synthetic aperture ground mapping radar with a doppler beam sharpening mode to generate ground maps, have greater capability, and they will get even more precise and clear radar displays when they receive the APG-73 radar upgrade later this decade. New production F/A-18Cs are scheduled to receive APG-73 radars later in 1994. The Navy, in a COEA summary dated May 1992 comparing the F/A-18 to various alternatives, wrote that "a strike fighter should be capable of effectively employing all Navy strike and fighter weapons in the inventory and under development." However, the Block I upgrade will not add any weapon capability new to the F-14, except the ability to independently drop LGBs. No Block I F-14s will be able to launch precision stand-off attack weapons such as the High-speed Anti-Radiation Missile (HARM), Harpoon antiship missile, Maverick anti-armor missile, Walleye guided bomb, and Stand-off Land Attack Missile (SLAM). F/A-18Cs and A-6Es can. Block I aircraft will not be able to employ future precision stand-off weapons, including the Joint Direct Attack Munition (JDAM) and the Joint Stand Off Weapon (JSOW). F/A-18Cs will. The Navy does plan to add the capability to launch the Advanced Medium Range Air-to-Air Missile (AMRAAM) to F-14Ds when their computer software is updated. (AMRAAM is the Defense Department's newest air-to-air missile.) The Navy has stated that it cannot afford to add stand-off weapon capability to other F-14s. Currently, F/A-18Cs have AMRAAM capability. Table 1 shows the weapons carried by F-14s and F/A-18Cs. In defending the F-14 upgrade, Navy officials said F-14s have a combat range and/or endurance approaching that of the A-6E, which is considerably longer than the F/A-18. While range (distance) and endurance (loiter time in the target area) are important capabilities, they are not as critical in littoral warfare, when carriers may operate close to shore. Operating close to the shore decreases the distance to targets and increases the amount of loiter time the aircraft has at or near the target. The Secretary of the Navy, in the 1994 Posture Statement, stated that 85 percent of the Navy's potential targets are within 200 miles of the world's shorelines. Although the F-14 generally has greater range and endurance than the F/A-18C, the majority of littoral targets should be within the F/A-18C's range, even with an aircraft carrier operating 100 miles or more offshore. The Navy's Atlantic Fleet officials told us that F/A-18Cs carrying four 1,000-pound bombs and external fuel tanks have an unrefueled mission radius of about 340 miles. Future F/A-18Es are projected to carry the same weapon load up to 520 miles without refueling. While the longer range F-14s could potentially reach the 15 percent of the targets beyond 200 miles of shorelines, alternatives are available. The Navy's Tomahawk cruise missile can strike fixed targets up to a range of about 700 miles. Air Force bombers, with mid-air refueling, have even a greater range. If aerial refueling is available, as should be the case with U.S. forces operating jointly, an aircraft's range, including the F/A-18's, can be extended significantly. The Block I F-14 aircraft will not have all of the capability of the Air Force's F-15E Strike Eagle (a long range, all-weather, multimission strike fighter with precision weapons capability), the Navy's own F/A-18C Hornet, or its A-6E Intruder (see table 2). F-14A/Bs can drop most unguided bombs, including 500-, 1,000-, and 2,000-pound gravity bombs, as well as cluster munitions. They can also drop LGBs if another aircraft marks the target with a laser beam. Block I will add the capability to independently drop LGBs without external assistance. F-14A/B aircraft will not have a radar ground mapping capability to assist crews in locating, identifying, and attacking targets when visibility is poor. No F-14s, including the D model, will be able to launch precision stand-off weapons, and none will have all-weather terrain following capability. Although the Navy justified the F-14 upgrade as necessary to fill the gap between A-6E retirements and delivery of F/A-18E/Fs, no F-14s, under the original Block I plan, were scheduled to begin receiving upgrades until fiscal year 1998, a year after the last A-6s were retired. The Navy plans to procure F/A-18 E/F aircraft starting in fiscal year 1997 and expects the aircraft to enter service in the year 2000. In the interim, two carrier air wings have retired their A-6Es, and these air wings will operate for 5 years, at a minimum, before the first upgraded F-14s are delivered in 1999. The USS Constellation is scheduled to deploy late in 1994, without A-6Es. Its F-14Ds cannot drop bombs because they lack the necessary computer software. The first carrier air wing equipped with Block I F-14s will not deploy until fiscal year 1999 or 2000. The last F-14s will not complete the upgrade until fiscal year 2003. By that time, if not earlier, the Navy should start receiving squadrons of F/A-18E/Fs to replace F-14s and older F/A-18s. As the Navy eliminates A-6Es from carrier air wings, it plans to add a third squadron of F/A-18s to each wing, increasing the number of F/A-18s in each air wing from 20 to 36. The Navy also plans to eliminate one F-14 squadron from each air wing, reducing the number from 20 to 14 planes. Two air wings, including the USS Constellation's, will receive this modified air wing mix in fiscal year 1994. Two more air wings are expected to change their aircraft mix in fiscal year 1995, with three more wings changing in fiscal years 1996 and 1997, respectively, until the configuration of all 10 active air wings is changed. As noted earlier, most F-14s, even after under going the Block I upgrade, will lack some important capabilities that the F/A-18C has or will gain in the near future. The absence of these capabilities could limit the F-14's combat effectiveness and utilization under some adverse conditions. This view is supported by an April 1992 Navy COEA summary, which compared the F/A-18 to various alternatives, including an upgraded F-14D called Quick Strike. This version was to have more capability than is planned for Block I. The analysis concluded that the F-14 Quick Strike was a less capable strike aircraft than the F/A-18C. Because the Navy faces an uncertain budget environment and system affordability concerns, and, since planned F-14 upgrades offer little or no improvement over current capabilities and may not be fielded before F/A-18E/Fs are delivered, the upgrades do not appear to be cost-effective. Current Navy plans will not provide F-14s with F-15E-equivalent capabilities. If the Congress wishes to add these capabilities, Navy estimates show that it will cost much more. Therefore, the Congress may wish to defer authorizing or appropriating additional monies for the F-14 until the Navy can demonstrate that planned upgrades are essential when considering (1) the current F/A-18C capabilities; (2) the net weapon capability gain over current F-14A/B levels; (3) the absence of a ground attack radar in 157 of the 210 aircraft; (4) the lack of precision stand-off weapons capability in all 210 F-14 aircraft that limits the versatility and use of these aircraft in combat; (5) the nearly simultaneous delivery of upgraded F-14s and F/A -18E/Fs; and (6) the Navy's willingness to deploy carriers without A-6Es or upgraded F-14s, as evidenced by the upcoming deployment of the USS Constellation. Navy officials, commenting on a draft of this report, defended the F-14 upgrade as necessary, even though they were aware that the Block I ground attack upgrade capability had been eliminated from the Navy's budget by the House and Senate defense authorization conferees and from the Navy's 1996 Program Objectives Memorandum. Navy officials said the upgrade was only eliminated from the Program Objectives Memorandum for the present. They defended the need for this upgrade, which is one of several possible upgrades being considered in an ongoing COEA. The Navy could resubmit the ground attack upgrade in a future budget. However, if this upgrade is delayed, it is likely that new F/A-18E/Fs will be deployed before upgraded F-14s enter the fleet, making a need based on capability more questionable. Navy officials said the key issue discussed in our report is not whether planned F-14 upgrades duplicate strike capabilities available in the Navy as well as in the other services, as suggested by us, but rather the contribution these aircraft would make to the capability of each carrier air wing. Commenting on the Navy's willingness to immediately deploy carriers without A-6Es, relying completely on F/A-18s for its strike capability, Navy officials said this decision is a reflection of affordability constraints, not a willingness to forgo the capability. We agree that affordability is part of the issue. Affordability provided the impetus for the Navy to set priorities. In setting its priorities, the Navy eliminated the F-14 upgrade from its Program Objectives Memorandum, which was a clear admission that the Navy weighed its needs and found it had more important priorities. Our data gathering and analysis focused on the Navy's decision to upgrade 210 F-14 aircraft. We interviewed officials and reviewed documents from the Office of the Chief of Naval Operations (Director for Air Warfare); the Naval Air Systems Command; and Headquarters, U.S. Air Force, in Washington, D.C. We also interviewed personnel at the U.S. Naval Air Forces, Atlantic Fleet and Pacific Fleet; Headquarters, U.S. Air Force Air Combat Command; the Naval Strike Warfare Center, Naval Air Station, Fallon, Nevada; Carrier Air Wings Two and Fifteen at Naval Air Station, North Island, California; and Naval Air Station, Miramar, California; and Hughes Aircraft Company, Los Angeles, California. We conducted our review between June 1993 and May 1994 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretaries of Defense, the Navy, and the Air Force; the Director, Office of Management and Budget; and the Chairman, Commission on Roles and Missions of the Armed Forces. Please contact me at (202) 512-3504 if you or your staff have any questions concerning this report. The major contributors to this report are William C. Meredith, Kenneth W. Newell, and Frances W. Scott. Richard Davis Director, National Security Analysis 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. 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.	GAO reviewed the Navy's decision to spend about $2.5 billion between fiscal years 1994 and 2003 for a limited ground attack upgrade and other modifications to about 200 F-14 Tomcat fighters. GAO found that: (1) although the Navy has justified F-14 attack upgrades as necessary to replace the loss of A-6E aircraft, most upgraded F-14 aircraft will be less capable than F/A-18C aircraft; (2) although upgraded F-14 aircraft have greater range than F/A-18C aircraft, this capability may not be needed, since the Navy's shift to a littoral warfare strategy will bring the Navy's targets within range of the F/A-18C and other weapons systems; (3) delivery of upgraded F-14 aircraft is not scheduled to begin until after the A-6E fleet is retired, even though the Navy stated that the aircraft are needed to fill a gap between A-6E retirement and the introduction of the F/A-18E/F aircraft; (4) for several years, the Navy will deploy carriers without A-6E or upgraded F-14 aircraft and will rely on its F/A-18C fleet for all attack missions; and (5) the Navy has not adequately justified its $2.5-billion plan to upgrade the F-14 fleet.	3,665	260
The F/A-22 is the Air Force's next-generation air superiority fighter aircraft and incorporates a low observable (stealth) and highly maneuverable airframe, advanced integrated avionics, and a new engine capable of sustained supersonic flight without the use of afterburners. It was originally designed to counter threats posed by the Soviet Union and was intended to replace the F-15 fighter in the air-to-air combat role. Over the years, the Air Force decided to add a more robust air-to-ground capability not previously envisioned but now considered necessary to increase the utility of the aircraft. In 2002, the F-22 aircraft was redesignated the F/A-22, with the "A" representing the expanded ground attack capabilities. Officials initiated a modernization program to develop and integrate these new capabilities. The F-22 acquisition program started in 1986 with an intended development period of 9 years and an initial operational capability in March 1996. The Air Force's plan at that time was to procure 750 aircraft. In the years since, the original business case has been severely weakened as threats, missions, and requirements have changed. Further, the program milestones have slipped, the development period lengthened to more than 19 years, development costs more than doubled, and a modernization program was added. The initial operational capability date is now December 2005. Amidst concerns about escalating costs and schedule, Congress placed cost limitations on both development and production budgets in 1997, later removing the development cost cap. (The current production cost cap is $37.3 billion.) Concomitantly, the planned procurement quantity has steadily decreased due to affordability concerns and changes in missions and combat requirements. Two major reviews of defense force structure and acquisition plans, the 1993 Bottom-Up Review and the 1997 Quadrennial Defense Review, both significantly reduced F/A-22 quantities. In addition, OSD's "buy to budget" acquisition strategy, which essentially placed a ceiling on the total program costs, has resulted in further cuts to quantity as development cost increased. In December 2004, OSD issued Program Budget Decision 753, which reduced F/A-22 funding by $10.5 billion and cut 96 aircraft from the planned procurement quantity. The decision ends procurement in 2008, instead of 2011, and would reduce total procurement quantity to 178 aircraft. Figure 1 illustrates the downward trend in procurement quantity over the years juxtaposed with a rise in program acquisition unit costs, which has resulted in a significant loss in buying power. Program acquisition unit costs have increased largely due to (1) increased development and production costs; (2) decreased procurement quantities; and (3) increased costs to modernize and enhance capability. The current plan supporting the fiscal year 2006 defense budget request submitted in February 2005 is to acquire 178 aircraft for about $63.8 billion. Appendix II illustrates other changes in cost, quantity, and schedule experienced by the program since its commencement. Our March 2004 report discussed the significant changes in cost, quantity, capabilities, and mission since F-22 development began in 1986. We reported continued problems and delays in the development and testing schedules. We recommended that DOD complete a new business case that justifies the continued need for the F/A-22 and the quantities needed to carry out the air-to-air versus air-to-ground missions. The business case was to also consider alternatives within the constraints of future defense spending. Later in testimony, we stated that there are competing priorities both internal and external to DOD's budget that require a sound and sustainable business case for DOD's acquisition programs based in clear priorities, comprehensive needs assessments, and a thorough analysis of available resources. DOD partially concurred with our report recommendation but did not prepare a new business case, stating that it evaluates the F/A-22 business case elements as part of the routine acquisition and budget processes with the results reflected in the defense budget. We did not think these kinds of activities sufficiently analyzed and addressed the specific business case elements--analysis of need for original and new capabilities, assessment of alternatives, justification of needed quantities, and evidence that planned quantities were affordable. The Air Force, in the face of significant changes to the F/A-22, has not prepared a new business case to justify the resources needed to add a much more robust ground attack capability and to assume new missions. The requirements for the F/A-22 have changed significantly since its original business case and the available resources are in flux--both are key components of a business case needed to support further investments. A December 2004 budget decision reduced procurement funding and quantities but did not cut funding for modernization. This has made the current modernization plan obsolete as key ground attack and intelligence gathering enhancements had been slated for aircraft that have now been eliminated from the F/A-22 procurement program. While its total cost is not clear at this time and program content is subject to change, in 2003 OSD cost analysts estimated the modernization program would cost about $11.7 billion. The Air Force embarked on the expensive and wide-ranging modernization program without a new business case to support investments of billions of dollars to develop and deliver new capabilities and missions. The modernized F/A-22 would differ so significantly from the original aircraft in capabilities and missions that it should have been developed in an entirely separate acquisition program. Instead, the Air Force opted to incorporate modernization efforts within the existing acquisition program. A business case should match requirements with resources-- proven technologies, sufficient engineering capabilities, time, and funding--when undertaking a new product development. First, the user's needs must be accurately defined, alternative approaches to satisfying these needs properly analyzed, and quantities needed for the chosen system must be well understood. The developed product must be producible at a cost that matches the users' expectations and budgetary resources. Finally, the developer must have the resources to design and deliver the product with the features that the customer wants and to deliver it when it is needed. If the financial, material, and intellectual resources to develop the product are not available, a program incurs substantial risk in moving forward. The original business case for the F/A-22 was made in 1986 to support acquiring large quantities of air superiority fighters to engage in conventional warfare and counter Cold War-era threats. These threats never materialized as expected. Because the program was in development for over 19 years, tactical fighter requirements, projected threats, and operational war plans changed. To enhance the utility of the F/A-22 for today and the future, the Air Force now plans to develop a robust air-to- ground attack capability to allow the aircraft to engage a greater variety of ground targets, such as surface-to-air missiles systems, that pose a significant threat to U.S. aircraft. It also plans to equip most of the F/A-22 fleet with improved capabilities to satisfy expanded warfighter requirements and to take on new missions, including intelligence data gathering and the suppression of enemy air defenses and interdiction. The Air Force established a time-phased modernization program to develop and insert new capabilities required to implement the Air Force's Global Strike concept of operations. Table 1 shows how the Air Force intended to integrate new capabilities incrementally before the December 2004 budget decision reduced quantities by 96 aircraft. At the time of our review, officials were still determining the impacts of the budget decision on the modernization program content and quantities. Initial development work on modernization enhancements started in 2003 and is planned to extend over a 12-year period with the first set of new capabilities inserted into the production line in fiscal year 2007. By the end of development in 2015, the Air Force plans to have three different configurations (or blocks) of F/A-22s, each with distinct operational capabilities. Based on the current modernization road map, the Global Strike Basic configuration (block 20) will include 56 F/A-22s built primarily to perform air-to-air missions but with limited air-to-ground capability. The Global Strike Enhanced configuration (block 30) includes 91 aircraft that will perform the bulk of air-to-ground and electronic attack missions using advanced radars to track targets and small diameter bombs to destroy them. Block 40 encompasses both the Global Strike Full and Enhanced Intelligence, Surveillance, and Reconnaissance increments. This configuration of 128 aircraft is expected to perform such missions as suppression of enemy air defenses and gathering up-to-date information on potential adversaries' locations, resources, and personnel to improve target identification and increase kill capabilities. According to program officials, these latter two increments are still conceptual in nature and subject to revision. The modernization program as currently planned is much in doubt because of the recent budget cut and the likely prospects for more changes. The instability in F/A-22 resources and upcoming DOD-wide reviews of capabilities and requirements may result in further revisions and cutbacks, further impacting modernization plans. Budget and programmatic decisions also cause ripple effects on other resource plans tied to the modernization, which may open up budgeted funds for other uses. In March 2003, OSD's Cost Analysis Improvement Group (CAIG) estimated that the Air Force would need $11.7 billion for the planned modernization programs through fiscal year 2018. The CAIG estimate included costs for development, procurement, and retrofit of modernized aircraft. The Air Force's latest estimated cost for the modernization program is about $5.4 billion through 2011. Future modernization costs beyond 2011 have not been definitized and are subject to change. The modernization program manager projected annual funding of $700 million to $750 million would be needed for the currently planned modernization program after 2011. The December 2004 budget decision places much of the modernization program in doubt, particularly the latter stages. OSD substantially reduced the F/A-22 budget, which will require another strategy for the modernization program. It reduced F/A-22 funding by $10.5 billion, stopped procurement of aircraft after 2008, and reduced the quantity by 96 aircraft. This and other events will reduce the Air Force's expected buy to no more than 178 aircraft. While the OSD funding decision changed the baseline F/A-22 program, it did not change the planned funding for the modernization program to add advanced ground attack and intelligence gathering capabilities between 2007 and 2015. However, many of these new and advanced capabilities had been planned for aircraft that will not be built as the budget eliminates F/A-22 aircraft that had been planned for production after 2008. Air Force officials told us they hope to reverse these changes, but officials acknowledge that a major restructuring is likely if the proposed funding cuts are sustained. If the budget cut is sustained, the modernization program as currently planned is largely obsolete and funding for these advanced capabilities to be incorporated after 2008 would be available for other uses. This could include up to $1.2 billion now budgeted for the start-up of the latter modernization increments. The Air Force's desire to upgrade the F/A-22's computer architecture and avionics processors in order to support the block 40 expanded capabilities may also be affected by the recent budget cut. Program officials do not expect the new architecture to be fully developed and ready for installation in the F/A-22 until fiscal year 2010. However, early indications show that the effort to upgrade the computer architecture-- expected to cost between $400 million and $500 million--already is experiencing schedule problems and increased risks. As a result, the 2010 insertion date may not be achievable as planned for the F/A-22. Furthermore, DOD's proposed termination of procurement after 2008 raises questions about the need to proceed with the planned computer upgrade. The existing processors with some minor upgrades would support up to 155 aircraft and most Global Strike Enhanced capabilities. Additionally, since our March 2004 report the program office has identified new requirements needed to implement the modernization program. The F/A-22 program office has concluded that the F/A-22 infrastructure, including government laboratories, such as software avionics integration labs, flying test beds, and test ranges need to be upgraded to ensure a successful modernization program. According to program officials, the existing facilities have major resource/capacity limitations and are inadequate to support needed software integration activities and system performance and operational testing for most planned enhancements. The program office has budgeted about $1.8 billion through fiscal year 2009 for the infrastructure upgrades, including funds for engineering and maintenance personnel support. According to program officials, the current infrastructure limitations have caused some modernization efforts to be deferred to later blocks. If modernization plans are curtailed, some infrastructure improvements may not be needed. Even if funding were restored to the F/A-22 program and the above- mentioned concerns were resolved, previous funding shortfalls and schedule slippages have already resulted in planned capabilities being deferred to later years. For example, block 20 enhancements required to conduct autonomous search and improve target recognition have been deferred to block 30. Similarly, funding problems have caused the Air Force to scale back some efforts and delay development of block 30 electronic attack and small diameter bomb enhancements. In November 2004, the Defense Contract Management Agency reported that the contractor proposes to reduce the amount of planned tasks, defer development of software specifications, and incrementally develop a key communication component in order to meet an April 2005 system design review. DOD officials stated that they believe the budget cut has some diseconomies that may result in procuring even fewer than 178 aircraft. They said that stopping aircraft production early affects production economies and efficiencies that were expected from a multiyear procurement contract and from production line efficiencies. The multiyear contract was to begin in fiscal year 2008, the year procurement is now curtailed by the budget decision. Now that opportunity is gone. Officials also said that cutting production quantities from the final years of the program eliminate projected savings in annual unit procurement costs. Typical of many DOD acquisitions, Air Force program officials had projected future budgets assuming that the marginal costs for buying F/A- 22s would decrease with each passing year of production as a result of manufacturing efficiencies, productivity projects, and more economical buying quantities. This means that aircraft bought late in the production program usually cost less than those bought earlier in the program. For example, the average unit flyaway cost paid for F/A-22s was $212 million per aircraft bought in 2002 and $178 million in 2003. Before the budget decision, officials had projected average unit flyaway costs to decrease to $127 million, $111 million, and $108 million in fiscal years 2007, 2008 and 2009, respectively. Now that the program has been truncated after 2008, the less expensive aircraft in 2009 and beyond will not be bought and unit costs are now projected at $135 million in 2007 and $149 million in 2008 (increase associated with close-out of production). OSD has directed that the 2005 Quadrennial Defense Review include an assessment of joint air dominance in future warfare and the contributions provided by all tactical aircraft, including the F/A-22. An announced defense goal is to redirect investment from areas of conventional warfare, where the United States enjoys a strong combat advantage, toward more transformational capabilities needed to counter "irregular" threats, such as the insurgency in Iraq and ongoing war on terror. DOD is also conducting a set of joint capability reviews to ensure acquisition decisions are based on providing integrated capabilities rather than focused on individual weapon systems. The study results, although still months away, could further impact the future of the F/A-22 program including the modernization plan. The F/A-22 will have to compete for funding, priority, and mission assignments with operational systems, such as the F-15 and F/A-18, and future systems, such as the Joint Strike Fighter and the Joint Unmanned Combat Air Systems. Air Force leadership and the Air Combat Command continue to support the multi-mission role for the F/A-22 and do not want to reduce or eliminate the new capabilities and missions. Therefore, if restructuring is required, program officials are considering other options to accommodate the program within reduced funding and fleet size. They are considering the possibility of moving forward with blocks 20 and 30 but curtailing block 40 because its enhancements are slated for those aircraft that have been cut by the budget decision (refer to table 1). Officials said that some of the enhancements planned for block 40 could be retrofitted into the block 20 and 30 aircraft. At the time of our review, Air Force officials were considering alternative strategies and plans for rephasing funds in order to execute the changes in the program enumerated above. It is paramount that these issues be settled before moving forward in the program. Reports detailing the results from IOT&E were not available for our review, but Air Force test officials told us that testing showed the F/A-22 was "overwhelmingly effective" as an air superiority fighter and that its supporting systems were "potentially suitable." Some deficiencies were noted, particularly in reliability and maintainability, but Air Force officials believe these deficiencies can be corrected in time to meet the warfighter's needs by the scheduled initial operational capability date in December 2005. They also believe test results support making the full-rate production decision. Testing to demonstrate the limited air-to-ground attack capability was not accomplished but is scheduled to be done as part of the follow-on operational test planned to start in July 2005. The F/A-22 initial operational test and evaluation was conducted by the Air Force Operational Test and Evaluation Center from April through December 2004 to support the full-rate production decision planned for March 2005. Its operational test plan was designed to assess the F/A-22's combat effectiveness and suitability in an operationally representative environment. The warfighter had established five critical operational issues for evaluation during operational testing to demonstrate effectiveness and suitability: effectiveness--demonstrate operational performance to effectively execute selected counter-air missions; survivability--assess ability to evade and survive against air-to-air and surface-to-air threats; deployability--evaluate the timely transportability and set up of F/A-22 personnel and equipment into a theater of operations; sortie generation--assess how well air crews can generate and launch sorties, including maintenance and supply support capabilities; and ground attack--demonstrate limited air-to-ground attack with the Joint Direct Attack Munition. The first two issues assess combat effectiveness in completing selected counter air missions and in surviving against representative air and ground threats. The second two issues assess suitability of F/A-22 to support combat by transporting, deploying and sustaining forces and equipment. These four critical operational issues were addressed in IOT&E. The fifth critical operational issue--ground attack--was not addressed in IOT&E and will be assessed during follow-on operational test and evaluation, scheduled to start in July 2005. This follow-on testing is also planned to include demonstrations of corrective actions for some deficiencies identified during IOT&E and other testing needed to achieve initial operational capability in December 2005. Additional follow-on operational tests are planned in the future to test new, more robust attack capabilities and other enhancements added by the modernization program. Combat effectiveness and survivability testing included extensive flight tests to evaluate air-to-air capabilities including (1) offensive counter-air missions against aggressor aircraft and (2) defensive counter-air missions to accompany and protect friendly strike and high value support aircraft from attack by aggressor aircraft. These tests incorporated ground and air threats resident at the Air Force's Nevada test range. Computer simulations and models were also used to evaluate performance against future threats and in other scenarios that cannot be replicated in open flight tests. Test officials told us that the F/A-22 performed all the air-to-air missions very satisfactorily, demonstrating "overwhelming effectiveness" in their words. Officials also said that, in direct comparability tests with the F-15C, the F/A-22 demonstrated a clear advantage often many more times the effectiveness of the F-15C. Testing did reveal some areas needing improvement, including avionics reliability, defensive systems, and other corrective actions that will need to be addressed in follow-on testing. Test officials characterized F/A-22 suitability demonstrations for the aircraft and support systems as "potentially suitable." The ability to transport and deploy F/A-22 personnel and equipment was adequately demonstrated and met the interim goal set by the warfighter regarding the number of airlift planes needed to transport forces and support equipment in the required amount of time. Of the four critical operational issues assessed, sortie generation experienced the most problems. Officials rated the sortie generation area as unsatisfactory. Problems were noted in aircraft reliability and maintainability, including maintenance of the aircraft's critical low observable characteristics. Problems were also noted in the maturity of integrated diagnostic systems, key assets expected to greatly improve and accelerate field maintenance activities for meeting sortie rates with constrained personnel. Officials believe these and other deficiencies can be corrected in time to meet the warfighter's needs. For example, officials said the mission capability rate demonstrated during testing has continued to improve and is close to achieving the warfighter's desired rate, not required until December 2005. However, the testing and implementation of most corrective actions will not occur until after the full-rate production decision. Sortie generations and support activities also required the extensive involvement of contractor personnel for providing technical assistance, off-aircraft maintenance, and engineering, including trouble-shooting and use of special test equipment. Air Force officials said that extensive contractor involvement has long been planned for the F/A-22 system, particularly during initial fielding, and that reliance on contractor personnel and special test equipment should somewhat lessen as Air Force personnel gain experience. Before full-rate production can start, the Office of the Director of Operational Test and Evaluation must still review test results and report to Congress and defense leadership. In addition, the F/A-22 program must demonstrate it satisfies criteria established by the Defense Acquisition Board in November 2004. Among other things, that criteria includes delivering a fully-resourced plan for follow-on testing to correct deficiencies identified in IOT&E, achieving design stability of the avionics software, demonstrating mature manufacturing processes, and validating technical order data. The Air Force, in the face of significant changes to the F/A-22, has not prepared a new business case to justify the resources needed to add a much more robust ground attack capability and to assume new missions. Over the 19 years that the program has been in development, the world threat environment has changed and the capabilities the Air Force once needed and planned for in the F-22 may not satisfy the warfighter's future needs. Additionally, cost growth over time and affordability concerns have driven down planned aircraft quantities from 750 to 178 aircraft. The Air Force is now planning a modernization program that will substantially change the role of the F/A-22. Because of budget cuts in the program that have eliminated F/A-22 procurement after 2008 the modernization program as planned is obsolete. Even if aircraft are restored to the procurement plan beyond 2008, this modernization is projected to occur over a 12-year period. Based on the program's current knowledge, there is significant risk that the planned modernization would not move ahead and deliver capability to the warfighter on schedule. The original plan to develop and deliver an initial capability for the F-22 was 9 years--it has taken nearly 20 years. Our body of work in best practices tells us one thing for certain, and that is that the chances of attaining successful outcomes are substantially increased when a business case is made that matches requirements and resources for developing a product. Right now both requirements and resources for the F/A-22 program are in a state of flux and it lacks a business case to move forward with billions of dollars in planned investments. Over the immediate horizon, planned studies present OSD with opportunities to answer questions about need and affordability of the F/A- 22. The 2005 Quadrennial Defense Review is expected to make a strategic assessment of available and planned tactical air capabilities to help determine where to target resources. Likewise, an ongoing series of joint capabilities reviews, to include the F/A-22, could help determine where the F/A-22 now fits in the force structure. These top-level studies would provide information needed for a specific F/A-22 business case that would place DOD leaders in a better position to decide on remaining F/A-22 investments in concert with other tactical aircraft and DOD needs. The F/A-22 full rate production decision is currently planned for March 2005, before the results of these studies are available and production is already at near full rate quantities. Because of evolving threats against the United States; pending changes in U.S. defense plans; the lack of clarity regarding F/A-22 required capabilities, quantities, and resources; the recent budget decision; and upcoming reviews on joint air capabilities, we are reiterating and expanding upon the recommendation in our March 2004 report for a new and comprehensive business case to justify future investment in the F/A-22 program. We recommend the Secretary of Defense complete a new business case that determines the continued need for the F/A-22 and that specifically: (a) justifies the F/A-22's expanded air-to-ground capabilities based on an assessment of alternatives to include both operational assets and planned future weapon systems; (b) justifies the quantity of F/A-22 aircraft needed to satisfy requirements for air-to-air and air-to-ground missions; (c) provides evidence that the planned quantity and capabilities are affordable within current and projected budgets and the statutory funding limitation; (d) addresses impacts of the recent budget decision on the need for and cost of future developmental activities, long-term logistical support and basing decisions, and the ability to take advantage of cost reduction efforts, such as multiyear contracting and productivity improvement; and (e) justifies the need for investments for a new computer architecture and avionics processor, and F/A-22 infrastructure deficiencies. In written comments on a draft of this report, DOD concurred with our recommendation. They identified the following actions planned that would accomplish business case elements: (1) the 2005 Quadrennial Defense Review will address quantity of aircraft needed for air-to-air and air-to- ground missions; (2) Defense Acquisition Board reviews of the F/A-22 program will ensure that initial modernization efforts have validated requirements and are tested; and (3) the plan to break out the latter stages of modernization as a separate acquisition program will require the Air Force to develop requirements, perform an analysis to substantiate those requirements, and justify investments in new capabilities. DOD also stated its concern that by only reporting total program acquisition unit cost (pp. 5 and 6 herein), the report does not provide a balanced picture. They asked us to also present information concerning the steady reduction in unit flyaway costs over the course of the program. Flyaway costs do not include "sunk" costs and fixed expenses for program start-up, development, test, construction, and support but focus on the procurement costs of buying additional systems, costs that generally decrease as a production program matures and manufacturing efficiency improves. In response, we provided additional information about flyway costs and potential diseconomies from truncating the procurement program (see p. 12). We also incorporated other technical comments from DOD where appropriate. We are sending copies of this report to the Secretary of Defense; the Secretary of the Air Force; and the Director, Office of Management and Budget. Copies will also be made available to others on request. Please contact me or Michael J. Hazard at (202) 512-4841 if you or your staff has any questions concerning this report. Other contributors to this report were Robert Ackley, Michael W. Aiken, Lily J. Chin, Bruce D. Fairbairn, Steven M. Hunter, and Adam Vodraska. To determine the Air Force's F/A-22 modernization plans and funding requirements, we analyzed budget documents, cost reports, acquisition plans, and project listings to identify the purpose, scope, and cost of the modernization efforts. Officials from the Air Force and the Office of the Secretary of Defense (OSD) briefed us on program details, specific candidate projects, and program history. We compared current plans and project listings with previous time periods to determine changes in modernization projects and schedules. We also compared cost estimates prepared by the Air Force and OSD's cost analysts in order to identify key differences in assumptions used, cost factors applied, and time periods and to reconcile how these differences impacted final results. To determine the results and implications of the initial operational test and evaluation on the F/A-22 program, we first reviewed test plans, laws and regulations governing operational tests, and management direction affecting the scope and schedule of testing. We then discussed summary results and program impacts, including schedule issues, with testing and evaluating officials from the Air Force and OSD. We also reviewed briefing materials used by testing officials to inform DOD management and congressional staffs on the results of initial operational test and evaluation (IOT&E). However, at the time of our review, the final reports on IOT&E results from the Air Force's Operational Test and Evaluation Center and the OSD Director of Operational Test and Evaluation were not issued nor were drafts made available to us. Accordingly, our analysis of actual results and data was somewhat constrained and our reporting limited to providing summary level observations on test scope, results, and corrective actions identified. Notwithstanding, DOD officials gave us access to sufficient information to make informed judgments on the matters covered in this report. In performing our work, we obtained information and interviewed officials from the Office of the Secretary of Defense, Washington, D.C., including the offices of the Under Secretary of Defense for Acquisition, Technology and Logistics, the Director of Operational Test and Evaluation, the Program Analysis and Evaluation, and the Cost Analysis Improvement Group; Air Force Headquarters, Washington, D.C.; F/A-22 System Program Office, Wright-Patterson Air Force Base, Ohio; Air Combat Command, Langley Air Force Base, Virginia; Air Force Operational Test and Evaluation Center, Kirkland Air Force Base, New Mexico; and the Combined Flight Test Center, Edwards Air Force Base, California.. We performed our work from November 2004 through February 2005 in accordance with generally accepted government auditing standards. Defense Acquisitions: Assessments of Major Weapon Programs. GAO-04- 248. Washington, D.C.: March 31, 2004. Tactical Aircraft: Status of the F/A-22 and Joint Strike Fighter Programs. GAO-04-597T. Washington, D.C.: March 25, 2004. Tactical Aircraft: Changing Conditions Drive Need for New F/A-22 Business Case. GAO-04-391. Washington, D.C.: March 15, 2004. Best Practices: Better Acquisition Outcomes Are Possible If DOD Can Apply Lessons from F/A-22 Program. GAO-03-645T. Washington, D.C.: April 11, 2003. Tactical Aircraft: Status of the F/A-22 Program. GAO-03-603T. Washington, D.C.: April 2, 2003. Tactical Aircraft: DOD Should Reconsider Decision to Increase F/A-22 Production Rates While Development Risks Continue. GAO-03-431. Washington, D.C.: March 14, 2003. Tactical Aircraft: F-22 Delays Indicate Initial Production Rates Should Be Lower to Reduce Risks. GAO-02-298. Washington, D.C.: March 5, 2002. Tactical Aircraft: Continuing Difficulty Keeping F-22 Production Costs Within the Congressional Limitation. GAO-01-782. Washington, D.C.: July 16, 2001. Tactical Aircraft: F-22 Development and Testing Delays Indicate Need for Limit on Low-Rate Production. GAO-01-310. Washington, D.C.: March 15, 2001. Defense Acquisitions: Recent F-22 Production Cost Estimates Exceeded Congressional Limitation. GAO/NSIAD-00-178. Washington, D.C.: August 15, 2000. Defense Acquisitions: Use of Cost Reduction Plans in Estimating F-22 Total Production Costs. GAO/T-NSIAD-00-200. Washington, D.C.: June 15, 2000. F-22 Aircraft: Development Cost Goal Achievable If Major Problems Are Avoided. GAO/NSIAD-00-68. Washington, D.C.: March 14, 2000. Defense Acquisitions: Progress in Meeting F-22 Cost and Schedule Goals. GAO/T-NSIAD-00-58. Washington, D.C.: December 7, 1999. Fiscal Year 2000 Budget: DOD's Production and RDT&E Programs. GAO/NSIAD-99-233R. Washington, D.C.: September 23, 1999. Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal Year 2000. GAO/OCG-99-26. Washington, D.C.: April 16, 1999. Defense Acquisitions: Progress of the F-22 and F/A-18E/F Engineering and Manufacturing Development Programs. GAO/T-NSIAD-99-113. Washington, D.C.: March 17, 1999. F-22 Aircraft: Issues in Achieving Engineering and Manufacturing Development Goals. GAO/NSIAD-99-55. Washington, D.C.: March 15, 1999. F-22 Aircraft: Progress of the Engineering and Manufacturing Development Program. GAO/T-NSIAD-98-137. Washington, D.C.: March 25, 1998. F-22 Aircraft: Progress in Achieving Engineering and Manufacturing Development Goals. GAO/NSIAD-98-67. Washington, D.C.: March 10, 1998. Tactical Aircraft: Restructuring of the Air Force F-22 Fighter Program. GAO/NSIAD-97-156. Washington, D.C.: June 4, 1997. Defense Aircraft Investments: Major Program Commitments Based on Optimistic Budget Projections. GAO/T-NSIAD-97-103. Washington, D.C.: March 5, 1997. F-22 Restructuring. GAO/NSIAD-97-100R. Washington, D.C.: February 28, 1997. Tactical Aircraft: Concurrency in Development and Production of F-22 Aircraft Should Be Reduced. GAO/NSIAD-95-59. Washington, D.C.: April 19, 1995. Tactical Aircraft: F-15 Replacement Issues. GAO/T-NSIAD-94-176. Washington, D.C.: May 5, 1994. Tactical Aircraft: F-15 Replacement Is Premature as Currently Planned. GAO/NSIAD-94-118. Washington, D.C.: March 25, 1994.	The Air Force is preparing a modernization plan that expands the capabilities of the F/A-22, which was first designed to serve as an air-to-air fighter aircraft with very limited ability to strike targets on the ground. The Air Force now intends to transform it by adding robust air-to-ground capabilities to attack enemy ground threats and by adding onboard intelligence data gathering capabilities. After the recent budget cut, DOD estimates F/A-22 cost at $63.8 billion for 178 aircraft. It has been in development for more than 19 years, a decade longer than originally envisioned. In the face of significant cost and schedule overruns, Congress mandates that GAO annually assess the F/A-22 program. In this report, GAO addresses (1) the Air Force's business case for the F/A-22 modernization plan and (2) the recently completed initial operational test and evaluation. The Air Force has yet to produce a business case for the next-generation F/A-22. Much has changed in the years since the F/A-22 program began nearly 2 decades ago--adversarial threats against U.S. aircraft have evolved, and a plan to modernize the F/A-22 significantly different than the original aircraft is in progress. A DOD cost estimate in 2003 projected the Air Force's modernization plan to cost $11.7 billion through 2018. A December 2004 budget decision reduced procurement funding and quantities but did not cut funding for modernization. The decision to terminate procurement after fiscal year 2008 places the current modernization plan in doubt as key ground attack and intelligence-gathering enhancements had been slated for aircraft now eliminated from the program. Without a new business case for adding a more robust ground attack capability and for new intelligence missions, the Air Force may be at a disadvantage when the time comes to justify the modernization plan in the face of future budget constraints. DOD is set to conduct the 2005 Quadrennial Defense Review to weigh the merits of transformational priorities and investments to determine if the best choices are being made to meet military needs within available funding levels. This may further influence an F/A-22 business case. The F/A-22 program recently underwent initial operational testing, but testing did not include the air-to-ground missions that the Air Force envisions for the aircraft. The Air Force does not expect to conduct testing of these capabilities until after a decision is made to enter full-rate production. Although a final test report was not available for our review, Air Force officials told us that the F/A-22 was extremely effective in performing its air-to-air missions. Evaluation results of capabilities needed to sustain combat operations and maintain aircraft were not as favorable. Additional testing will be required to assess corrective actions for deficiencies identified and to evaluate new ground attack and intelligence-gathering capabilities added by the modernization program.	7,505	600
Nanotechnology encompasses a wide range of innovations based on the understanding and control of matter at the scale of nanometers--the equivalent of one-billionth of a meter. To illustrate, a sheet of paper is about 100,000 nanometers thick and a human hair is about 80,000 nanometers wide. At the nanoscale level, materials may exhibit electrical, biological, and other properties that differ significantly from the properties the same materials exhibit at a larger scale. Exploiting these differences in nanoscale materials has led to a range of commercial uses and holds the promise for innovations in virtually every industry from aerospace and energy to health care and agriculture. In 2006, an estimated $50 billion in products worldwide incorporated nanotechnology and this figure has been projected to grow to $2.6 trillion by 2014. One research institute estimates that over 500 consumer products already available to consumers may contain nanoscale materials. The National Nanotechnology Initiative (NNI) was established in 2001 as a federal, multiagency effort intended to accelerate the discovery, development, and deployment of nanoscale science, engineering, and technology to achieve economic benefits, enhance the quality of life, and promote national security. Management of the NNI falls under the purview of the National Science and Technology Council (NSTC) that coordinates science and technology policy across the federal government. The NSTC is managed by the Director of the Office of Science and Technology Policy (OSTP), who also serves as the Science Advisor to the President. The NSTC's Committee on Technology established the Nanoscale Science, Engineering, and Technology (NSET) subcommittee to help coordinate, plan, and implement the NNI's activities across participating agencies. In 2003, the NSET subcommittee further established a Nanotechnology Environmental and Health Implications (NEHI) working group. The purpose of the NEHI working group, composed of representatives from 16 research and regulatory agencies, is to, among other things, coordinate agency efforts related to EHS risks of nanotechnology. Similar to the NNI, the NEHI working group has no authority to mandate research priorities or to ensure that agencies adequately fund particular research. In December 2003, Congress enacted legislation to establish a National Nanotechnology Program to coordinate federal nanotechnology research and development. Among other things, the act directs the NSTC to establish goals and priorities for the program and to set up program component areas that reflect those goals and priorities. To implement these requirements, the NSTC has established a process to categorize research projects and activities undertaken by the various federal agencies into seven areas. Six of the seven focus on the discovery, development, and deployment of nanotechnology, while the seventh relates to the societal dimensions of nanotechnology that include issues such as the EHS risks of nanotechnology. As part of the annual federal budget process, agencies also report their research funding for each area to OMB. The NNI's annual Supplement to the President's Budget, prepared by the NSTC, includes EHS research figures from the agencies and a general description of the research conducted by the agencies in each of the areas. For reporting purposes, the NSET subcommittee has defined EHS research as efforts whose primary purpose is to understand and address potential risks to health and to the environment posed by nanotechnology. Eight of the 13 agencies that funded nanotechnology research in fiscal year 2006 reported having devoted some of those resources to research that had a primary focus on potential EHS risks. Under the NNI, each agency funds research and development projects that support its own mission as well as the NNI's goals. While agencies share information on their nanotechnology-related research goals with the NSET subcommittee and NEHI working group, each agency retains control over its decisions on the specific projects to fund. While the NNI was designed to facilitate intergovernmental cooperation and identify goals and priorities for nanotechnology research, it is not a research program. It has no funding or authority to dictate the nanotechnology research agenda for participating agencies. The NNI used its fiscal year 2000 strategic plan and its subsequent updates to delineate a strategy to support long-term nanoscale research and development, among other things. A key component of the 2000 plan was the identification of nine specific research and development areas-- known as "grand challenges"--that highlighted federal research on applications of nanotechnology with the potential to realize significant economic, governmental, and societal benefits. In 2004, the NNI updated its strategic plan and described its goals as well as the investment strategy by which those goals were to be achieved. Consistent with the 21st Century Nanotechnology Research and Development Act, the NNI reorganized its major subject categories of research and development investment into program component areas (PCA) that cut across the interests and needs of the participating agencies. These seven areas replaced the nine grand challenges that the agencies had used to categorize their nanotechnology research. Six of the areas focus on the discovery, development, and deployment of nanotechnology. The seventh, societal dimensions, consists of two topics--research on environmental, health, and safety; and education and research on ethical, legal, and other societal aspects of nanotechnology. PCAs are intended to provide a means by which the NSET subcommittee, OSTP, OMB, Congress, and others may be informed of the relative federal investment in these key areas. PCAs also provide a structure by which the agencies that fund research can better direct and coordinate their activities. In response to increased concerns about the potential EHS risks of nanotechnology, the NSET subcommittee and the agencies agreed in fiscal year 2005 to separately report their research funding for each of the two components of the societal dimensions PCA. The December 2007 update of the NNI's strategic plan reaffirmed the program's goals, identified steps to accomplish those goals, and formally divided the societal dimensions PCA into two PCAs--"environment, health, and safety" and "education and societal dimensions." Beginning with the development of the fiscal year 2005 federal budget, agencies have worked with OMB to identify funding for nanoscale research that would be reflected in the NNI's annual Supplement to the President's Budget. OMB analysts reviewed aggregated, rather than project-level, data on research funding for each PCA to help ensure consistent reporting across the agencies. Agencies also relied on definitions of the PCAs developed by the NSET subcommittee to determine the appropriate area in which to report research funding. Neither NSET nor OMB provided guidance on whether or how to apportion funding for a single research project to more than one PCA, if appropriate. However, representatives from both NSET and OMB stressed that the agencies were not to report each research dollar more than once. About 18 percent of the total research dollars reported by the agencies as being primarily focused on the study of nanotechnology-related EHS risks in fiscal year 2006 cannot actually be attributed to this purpose. Specifically, we found that 22 of the 119 projects funded by five federal agencies were not primarily related to studying EHS risks. These 22 projects accounted for about $7 million of the total that the NNI reported as supporting research primarily focused on EHS risks. Almost all of these projects--20 out of 22--were funded by NSF, with the two additional projects funded by NIOSH. We found that the primary purpose of many of these 22 projects was to explore ways to use nanotechnology to remediate environmental damage or to identify environmental, chemical, or biological hazards not related to nanotechnology. For example, some NSF- funded research explored the use of nanotechnology to improve water or gaseous filtration systems. Table 1 shows our analysis of the nanotechnology research projects reported as being primarily focused on EHS risks. We found that the miscategorization of these 22 projects resulted largely from a reporting structure for nanotechnology research that does not easily allow agencies to recognize projects that use nanotechnology to improve the environment or enhance the detection of environmental contaminants, and from the limited guidance available to the agencies on how to consistently report EHS research. From fiscal years 2001 to 2004, the NSET subcommittee categorized federal research and development activities into nine categories, known as "grand challenges," that included one focused on "nanoscale processes for environmental improvement." Agencies initiated work on many of these 22 projects under the grand challenges categorization scheme. Starting in fiscal year 2005, NSET adopted a new categorization scheme, based on PCAs, for agencies to report their nanotechnology research. The new scheme eliminated the research category of environmental improvement applications and asked agencies to report research designed to address or understand the risks associated with nanotechnology as part of the societal dimensions PCA. The new scheme shifted the focus from applications-oriented research to research focused on the EHS implications of nanotechnology. However, the new scheme had no way for agencies to categorize environmentally focused research that was underway. As a result, NSF and NIOSH characterized these projects as EHS focused for lack of a more closely related category to place them in, according to program managers. Furthermore, neither NSET nor OMB provided agencies guidance on how to apportion the dollars for a single project to more than one program component area, when appropriate. This is especially significant for broad, multiphase research projects, such as NSF's support to develop networks of research facilities. Of the five agencies we reviewed, only NSF apportioned funds for a single project to more than one PCA. In addition to research reported to the NNI as being primarily focused on the EHS risks of nanotechnology, some agencies conduct research that is not reflected in the EHS totals provided by the NNI either because they are not considered federal research agencies or because the primary purpose of the research was not to study EHS risks. For example, some agencies conduct research that results in information highly relevant to EHS risks but that was not primarily directed at understanding or addressing those risks and therefore is not captured in the EHS total. This type of research provides information that is needed to understand and measure nanomaterials to ensure safe handling and protection against potential health or environmental hazards; however, such research is captured under other PCAs, such as instrumentation, metrology, and standards. Because the agencies that conduct this research do not systematically track it as EHS-related, we could not establish the exact amount of federal funding that is being devoted to this additional EHS research. All eight agencies in our review have processes in place to identify and prioritize the research they need related to the potential EHS risks of nanotechnology. Most agencies have developed task forces or designated individuals to specifically consider nanotechnology issues and identify priorities, although the scope and exact purpose of these activities differ by agency. Once identified, agencies communicate their EHS research priorities to the public and to the research community in a variety of ways, including publication in agency documents that specifically address nanotechnology issues, agency strategic plans or budget documents, agency Web sites, and presentations at public conferences or workshops. We determined that each agency's nanotechnology research priorities generally reflected its mission. For example, the priorities identified by FDA and CPSC are largely focused on the detection and safety of nanoparticles in the commercial products they regulate. On the other hand, EHS research priorities identified by NSF reflect its broader mission to advance science in general, and include a more diverse range of priorities, such as the safety and transport of nanomaterials in the environment, and the safety of nanomaterials in the workplace. In addition to the efforts of individual agencies, the NSET subcommittee has engaged in an iterative prioritization process through its NEHI working group. Beginning in 2006, NEHI identified but did not prioritize five broad research categories and 75 more specific subcategories of needs where additional information was considered necessary to further evaluate the potential EHS risks of nanotechnology. NEHI obtained public input on its 2006 report and released another report in August 2007, in which it distilled the previous list of 75 unprioritized specific research needs into a set of five prioritized needs for each of the five general research categories. The NEHI working group has used these initial steps to identify the gaps between the needs and priorities it has identified and the research that agencies have underway. NEHI issued a report summarizing the results of this analysis in February 2008. Although a comprehensive research strategy for EHS research had not been finalized at the time of our review, the prioritization processes taking place within individual agencies and the NNI appeared to be reasonable. Numerous agency officials said their agency's EHS research priorities were generally reflected both in the NEHI working group's 2006 research needs and 2007 research prioritization reports. Our comparison of agency nanotechnology priorities to the NNI's priorities corroborated these statements. Specifically, we found that all but one of the research priorities identified by individual agencies could be linked to one or more of the five general research categories. According to agency officials, the alignment of agency priorities with the general research categories is particularly beneficial to the regulatory agencies, such as CPSC and OSHA, which do not conduct their own research, but rely instead on research agencies for data to inform their regulatory decisions. In addition, we found that the primary purposes of agency projects underway in fiscal year 2006 were generally consistent with both agency priorities and the NEHI working group's research categories. Of these 97 projects, 43 were focused on Nanomaterials and Human Health, including all 18 of the projects funded by NIH. EPA and NSF funded all 25 projects related to Nanomaterials and the Environment. These two general research categories accounted for 70 percent of all projects focused on EHS risks. Furthermore, we determined that, while agency-funded research addressed each of the five general research categories, it focused on the priority needs within each category to varying degrees. Specifically, we found that the two highest-priority needs in each category were addressed only slightly more frequently than the two lowest-priority needs. Moreover, although the NEHI working group considered the five specific research priorities related to human health equally important, 19 of the 43 projects focused on a single priority--"research to determine the mechanisms of interaction between nanomaterials and the body at the molecular, cellular, and tissular levels." Table 2 shows a summary of projects by agency and specific NEHI research priority. Agency and NNI processes to coordinate research and other activities related to the potential EHS risks of nanotechnology have been generally effective, and have resulted in numerous interagency collaborations. All eight agencies in our review have collaborated on multiple occasions with other NEHI-member agencies on activities related to the EHS risks of nanotechnology. These EHS-related activities are consistent with the expressed goals of the larger NNI--to promote the integration of federal efforts through communication, coordination, and collaboration. The NEHI working group is at the center of this effort. We found that regular NEHI working group meetings, augmented by informal discussions, have provided a venue for agencies to exchange information on a variety of topics associated with EHS risks, including their respective research needs and opportunities for collaborations. Interagency collaboration has taken many forms, including joint sponsorship of EHS-related research and workshops, the detailing of staff to other NEHI working group agencies, and various other general collaborations or memoranda of understanding. Furthermore, the NEHI working group has adopted a number of practices GAO has previously identified as essential to helping enhance and sustain collaboration among federal agencies. For example, in 2005 NEHI clearly defined its purpose and objectives and delineated roles and responsibilities for group members. Furthermore, collaboration through multiagency grant announcements and jointly sponsored workshops has served as a mechanism to leverage limited resources to achieve increased knowledge about potential EHS risks. Finally, all agency officials we spoke with expressed satisfaction with their agency's participation in the NEHI working group, specifically, the coordination and collaboration on EHS risk research and other activities that have occurred as a result of their participation. Many officials described NEHI as unique among interagency efforts in terms of its effectiveness. Given limited resources, the development of ongoing relationships between agencies with different missions, but compatible nanotechnology research goals, is particularly important. NIH officials commented that their agency's collaboration with NIST to develop standard reference materials for nanoparticles may not have occurred as readily had it not been for regular NEHI meetings and workshops. In addition, NEHI has effectively brought together research and regulatory agencies, which has enhanced planning and coordination. Many officials noted that participation in NEHI has frequently given regulators the opportunity to become aware of and involved with research projects at a very early point in their development, which has resulted in research that better suits the needs of regulatory agencies. Many officials also cited the dedication of individual NEHI working group representatives, who participate in the working group in addition to their regular agency duties, as critical to the group's overall effectiveness. A number of the members have served on the body for several years, providing stability and continuity that contributes to a collegial and productive working atmosphere. In addition, because nanotechnology is relatively new with many unknowns, these officials said the agencies are excited about advancing knowledge about nanomaterials and contributing to the informational needs of both regulatory and research agencies. Furthermore, according to some officials, there is a shared sense among NEHI representatives of the need to apply lessons learned from the development of past technologies, such as genetically modified organisms, to help ensure the safe development and application of nanotechnology. In closing, Mr. Chairman, while nanotechnology is likely to affect many aspects of our daily lives in the future as novel drug delivery systems, improved energy storage capability, and stronger, lightweight materials are developed and made available, it is essential to consider the potential risks of this technology in concert with its potential benefits. Federal funding for studying the potential EHS risks of nanotechnology is critical to enhancing our understanding of these new materials, and we must have consistent, accurate, and complete information on the amount of agency funding that is being dedicated to this effort. However, this information is not currently available because the totals reported by the NNI include research that is more focused on uses for nanotechnology, rather than the risks it may pose. Furthermore, agencies currently have limited guidance on how to report projects with more than one research focus across program component areas, when appropriate. As a result, the inventory of projects designed to address these risks is inaccurate and cannot ensure that the highest-priority research needs are met. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you and other Members may have. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. For further information about this testimony, please contact Ms. Anu Mittal, at (202) 512-3841 or at [email protected]. Individuals who contributed to this statement include Nancy Crothers, Elizabeth Erdmann, David Lutter, Rebecca Shea, and Cheryl Williams. 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.	In March 2008, GAO issued a report entitled Nanotechnology: Better Guidance Is Needed to Ensure Accurate Reporting of Federal Research Focused on Environmental, Health, and Safety Risks (GAO-08-402). In this report, GAO reviewed the National Nanotechnology Initiative (NNI), a multiagency effort administered by the Office of Science and Technology Policy (OSTP). The NNI coordinates the nanotechnology-related activities of 25 federal agencies that fund nanoscale research or have a stake in the results. A key research area funded by some agencies related to studying the potential environmental, health, and safety (EHS) risks that may result from exposure to nanoscale materials. For this testimony statement, GAO was asked to summarize the findings of its March 2008 report, focusing on (1) the extent to which selected agencies conducted EHS research in fiscal year 2006; (2) the reasonableness of the agencies' and the NNI's processes to identify and prioritize EHS research; and (3) the effectiveness of the agencies' and the NNI's process to coordinate EHS research. In fiscal year 2006, federal agencies devoted $37.7 million--or 3 percent of the $1.3 billion total nanotechnology research funding--to research that was primarily focused on the EHS risks of nanotechnology, according to the NNI. However, about 20 percent of this total cannot actually be attributed to this purpose. GAO found that 22 of the 119 projects identified as EHS in fiscal year 2006 were not primarily related to understanding the extent to which nanotechnology may pose an EHS risk. Instead, many of these projects were focused on how to use nanotechnology to remediate environmental damage or detect hazards not related to nanotechnology. GAO determined that this mischaracterization is rooted in the current reporting structure that does not allow these types of projects to be easily categorized and the lack of guidance for agencies on how to apportion research funding across multiple topics, when appropriate. In addition to the EHS funding reported by the NNI, federal agencies conduct other research that is not captured in the EHS totals. This research was not captured by the NNI because either the research was funded by an agency not considered to be a research agency or because the primary purpose of the research was not to study EHS risks. Federal agencies and the NNI, at the time of GAO's review, were in the process of identifying and prioritizing EHS risk research needs and the overall process they were using appeared reasonable. For example, identification and prioritization of EHS research needs was being done by the agencies and the NNI collaboratively. The NNI also was engaged in an iterative prioritization effort through its Nanotechnology Environmental and Health Implications (NEHI) working group. Through this process, NEHI identified five general research categories as a priority for federally funded research. GAO found that most of the research projects that were underway in fiscal year 2006 were generally consistent with agency and NEHI priorities. NEHI released its new EHS research strategy on February 13, 2008. Agency and NNI processes to coordinate activities related to potential EHS risks of nanotechnology have been generally effective. The NEHI working group has convened frequent meetings that have helped agencies identify opportunities to collaborate on EHS risk issues, such as joint sponsorship of research and workshops to advance knowledge and facilitate information-sharing among the agencies. NEHI also has incorporated several practices that GAO has previously identified as key to enhancing and sustaining interagency collaborative efforts, such as defining a common outcome and leveraging resources. Finally, all agency officials GAO spoke with expressed satisfaction with the coordination and collaboration on EHS risk research that has occurred through NEHI. They cited several factors they believe contribute to the group's effectiveness, including the stability of the working group membership and the expertise and dedication of its members. Furthermore, according to these officials, this stability, combined with common research needs and general excitement about the new science, has resulted in a collegial, productive working environment.	4,203	865
Although its effect on communities can be devastating, wildland fire is a natural and necessary process that provides many benefits to ecosystems, such as maintaining habitat diversity, recycling soil nutrients, limiting the spread of insects and disease, and promoting new growth by causing the seeds of fire-dependent species to germinate. Wildland fire also periodically removes brush, small trees, and other vegetation that can otherwise accumulate and increase the size, intensity, and duration of subsequent fires. Over the past century, however, various management practices--including fire suppression, grazing, and timber harvest--have reduced the normal frequency of fires in many forest and rangeland ecosystems and contributed to abnormally dense, continuous accumulations of vegetation, which can fuel uncharacteristically large or severe wildland fires. Federal researchers have estimated that unnaturally dense fuel accumulations on 90 million to 200 million acres of federal lands in the contiguous United States place these lands at an elevated risk of severe wildland fire. In response to the growing wildland fire problem, the five federal agencies responsible for managing wildland fires--the Forest Service in the Department of Agriculture and the Bureau of Indian Affairs, Bureau of Land Management, Fish and Wildlife Service, and National Park Service in the Department of the Interior--adopted the 1995 federal wildland fire management policy, which formally recognized the essential role that fire plays in maintaining natural systems. This policy was subsequently reaffirmed and updated in 2001. Two important implications of the new policy are that the agencies recognized that (1) they needed to reduce accumulated vegetation that could fuel intense wildland fires and (2) it was not appropriate to continue attempting to suppress all fires. Acknowledging the problem caused by accumulated fuels, Congress substantially increased appropriations for fuel reduction treatments-- appropriating more than $3.2 billion to the Forest Service and Interior since 2001--and, in 2003, passed the Healthy Forests Restoration Act, with the stated purpose of, among other things, reducing wildland fire risk to communities, municipal water supplies, and other at-risk federal land. After receiving its annual appropriation, the Forest Service allocates funds to its nine regional offices, which in turn allocate funds to individual national forests and grasslands. Interior, upon receiving its annual appropriation, allocates funds to its four fire management agencies--with the Bureau of Land Management receiving the largest share, about 50 percent of Interior's funding. Interior's agencies then allocate funds to their regional or state offices, which in turn allocate funds to individual field units, such as national parks or wildlife refuges. Forest Service and Interior agency field units are generally responsible for selecting individual fuel reduction projects to undertake, which are typically conducted through mechanical treatments (using chainsaws, chippers, mowers, and the like) or by using prescribed fire (which land managers deliberately set to restore or maintain desired vegetative conditions). The agencies used the tools and fuel reduction funding provided by Congress to treat more than 18 million acres from 2001 through August 2007. Over the last decade, Congress, the Office of Management and Budget, federal agency officials, and others have expressed concerns about mounting federal wildland fire expenditures. These concerns have led GAO, the Department of Agriculture's Office of Inspector General, the Forest Service, Interior, and others to conduct numerous reviews of the federal wildland fire program. These reviews identified many issues the agencies needed to address if they are to contain costs--issues generally related to reducing accumulated fuels, acquiring and using firefighting personnel and equipment, and selecting firefighting strategies. Land managers and incident management teams (specialized fire-response teams that include personnel to handle command, planning, logistics, operations, and finance functions) have a wide spectrum of strategies available to them when responding to wildland fires, some of which can be significantly more costly than others. These strategies range from having a few personnel monitor a fire while allowing it to burn to achieve ecological benefits--a practice known as wildland fire use--to mobilizing all available personnel and equipment to try to control the entire perimeter of a fire or otherwise suppress it as quickly as possible. In selecting a strategy for a particular fire, land managers are required to consider the cost of suppression, the value of structures and other resources threatened by the fire, and the potential ecological effects of the fire. The agencies use the term "appropriate management response" for a strategy that considers these factors. Recent reports by GAO and others, however, have identified barriers to the agencies increasing their use of less aggressive strategies, which often cost less. If the agencies and Congress are to make informed decisions about an effective and affordable long-term approach for addressing wildland fire, the agencies need a cohesive strategy that identifies the long-term options and associated funding for reducing excess vegetation and responding to fires. We first recommended the development of a cohesive strategy for addressing excess vegetation in 1999. By 2005, the agencies had yet to develop such a strategy, and that year we reiterated the need for such a strategy and broadened our recommendation's focus to include options not only for reducing fuels but also for responding to wildland fires when they do occur, in order to better address the interrelated nature of the two activities. We repeated our call for a cohesive strategy in 2006 and 2007. Although the agencies had consistently concurred with our recommendation to develop a cohesive strategy, in 2007 they retreated from their commitment to develop one. The Department of Agriculture's Under Secretary for Natural Resources and Environment testified before the Senate Committee on Energy and Natural Resources in January 2007, and before the House Subcommittee on National Parks, Forests and Public Lands in June 2007, that he did not think it useful to provide specific funding estimates for fuel treatments years into the future because conditions on the ground change over time and may change priorities in future years. Forest Service and Interior officials subsequently told us in January 2008 that they have no plans to develop a cohesive strategy that identifies long-term options and associated funding requirements. Despite the agencies' retreat from their commitment to develop a cohesive strategy, a strategy of this sort nevertheless remains fundamental if the agencies and Congress are to fully understand the potential choices, and associated costs, for addressing wildland fire problems. We also believe the agencies have mischaracterized our recommendation to develop long- term options, and associated funding, for reducing fuels. Our intent was not to have the agencies identify the specific areas they would treat each year into the future, but rather that they develop broad options for reducing fuels, including estimated costs, and analyze the effects of the different options on the predicted costs of preparing for and responding to wildland fires in the future. One such analysis was developed in 2002 by a team of Forest Service and Interior experts, who produced an estimate of the funds needed to implement each of eight different fuel reduction options for protecting communities and ecosystems across the nation over the next century. The team determined that effectively reducing the risks to communities and ecosystems across the nation could require an approximate tripling of fuel reduction funding, to about $1.4 billion annually, for an initial period of several years. These initially higher costs for fuel reduction would decline after fuels had been sufficiently reduced to allow less-expensive prescribed burning methods in many areas. More importantly, the team estimated that the reduction in fuels would allow the agencies to suppress more fires at lower cost and would reduce total wildland fire management costs and risk after 15 years. Alternately, the team concluded that maintaining the then-current level of investment in fuel reduction would increase costs as well as risks to communities and ecosystems in the long term. However, the Office of Management and Budget raised concerns about the accuracy of the long-term funding estimates used by the study; as a result, agency officials told us in 2006 that they needed to improve the data before they could develop a cohesive strategy. Now, however--and despite agency efforts to improve their data--this concern appears to be moot, as the agencies have abandoned their commitment to develop the strategy. We reported in 2007 that although the Forest Service and Interior agencies had taken several steps intended to help contain wildland fire costs, they had not clearly defined their cost-containment goals or developed a strategy for achieving those goals--steps that are fundamental to sound program management. As we reported, the agencies are implementing a number of steps designed to help them contain wildland fire costs--such as improving how they acquire and use firefighting assets, updating policies to require officials to consider the full spectrum of available strategies when selecting a firefighting strategy, and developing new decision support tools that help officials select the most appropriate strategy. However, we also found that the agencies had neither clearly defined the goals of their cost-containment efforts nor developed a clear plan for how the various steps they are taking to help contain costs fit together. Without such a strategy, we believe the agencies will have difficulty determining whether they are taking the most important steps first, as well as the extent to which the steps they are taking will help contain costs. As a result, we recommended that the agencies take several steps to improve the management of their cost-containment efforts, including establishing clearly defined goals and measurable objectives and a strategy to achieve them. Because of the importance of these actions and continuing concerns about the agencies' response to the increasing cost of wildland fires--and so that the agencies could use the results of these actions to prepare for the 2008 fire season--we recommended the agencies provide Congress with this information no later than November 2007, a step they have yet to take. The Forest Service and Interior, in commenting on a draft of that report, generally disagreed with the characterization of many of our findings, but they neither agreed nor disagreed with our recommendations. In particular, they identified several agency documents that they argue provide clearly defined goals and objectives and that make up their strategy to contain costs. Although the documents cited by the agencies provide overarching goals and objectives, they lack the clarity and specificity needed by land management and firefighting officials in the field to help manage and contain wildland fire costs. Agency policy, for example, established an overarching goal of suppressing wildland fires at minimum cost, considering firefighter and public safety and the importance of resources being protected, but the agencies have established neither clear criteria by which to weigh the relative importance of the often-competing elements of this broad goal nor measurable objectives by which to determine if the agencies are meeting the goal. As a result, despite improvements the agencies continue to make to policy, decision support tools, and oversight, we believe that managers in the field lack a clear understanding of the relative importance that the agencies' leadership places on containing costs, and--as we concluded in our 2007 report--are therefore likely to continue to select firefighting strategies without due consideration of the costs of suppression. We continue to believe that our recommendations, if effectively implemented, would help the agencies better manage their cost-containment efforts and improve their ability to contain wildland fire costs. In 2007, we also identified several shortcomings in the agencies' processes for allocating fuel reduction funds to field units and selecting fuel reduction projects, which the agencies should correct in order to use their fuel reduction funds more effectively. Specifically, we noted that the agencies (1) did not consistently use systematic allocation processes--that is, processes that are based on criteria and applied consistently--in all agencies or at all levels, often relying instead on historical funding levels and professional judgment to allocate funds and select projects; (2) did not consistently consider the potential risk from wildland fire or the potential effectiveness of fuel reduction treatments when allocating funds and selecting projects; and (3) had not clarified the relative importance of the numerous factors they consider when allocating funds and selecting projects, including factors (such as funding stability or the use of forest products resulting from fuel reduction treatments) unrelated to risk or effectiveness. Accordingly, we recommended that the agencies improve their allocation processes in three areas. First, we recommended that the agencies develop and routinely use a systematic allocation process that is based on criteria, applied consistently, and common to all the agencies. Second, we recommended that the agencies work to improve the information they use to make allocation decisions, particularly information on wildland fire risk and fuel treatment effectiveness. Third, we recommended that the agencies clarify the relative importance of the various factors they consider when allocating funds. Without improvements in these three areas, we noted that the agencies would likely continue relying on "allocation by tradition"--that is, allocating fuel reduction funds on the basis of past funding levels rather than on calculated need. Some agencies have begun implementing systematic processes for allocating funds. In 2007, the Forest Service began using a computer model to influence funding allocations to its nine regions, and it continues to refine and expand its use of the model, including introducing improved data about the likelihood of fire in a particular area. In addition, all nine Forest Service regions are required, beginning in 2008, to use the model as part of their process for allocating funds to national forests. Interior is developing a similar computer model for allocating funds to its agencies, in part based on the Forest Service's model. For fiscal year 2007, Interior allocated 5 percent of its fuel reduction project funds to its four agencies using the model; for fiscal year 2008, according to an Interior official, Interior will use the model to allocate all of its fuel reduction project funds to its four agencies, within constraints designed to reduce the potential impact of funding changes. Officials from both the Forest Service and Interior told us that the agencies are working closely with each other on model development. Of Interior's agencies, the Bureau of Land Management is developing a model similar to Interior's for allocating funds to its state offices; the Fish and Wildlife Service uses its own computer model when allocating funds to regional offices; the Bureau of Indian Affairs allocates funds to its regions using a formula that considers past performance and proposed work; and the National Park Service allocates funds to its regions primarily on the basis of historical funding levels. However, Interior is working to standardize the allocation process within these agencies as well; a department official told us that Interior plans to use its model to allocate funds down to the agencies' state and regional levels in fiscal year 2009. Although the models some of the agencies are developing represent substantial steps forward in systematically allocating funds, these steps are incomplete and not fully coordinated. Specifically, not all the agencies have models; none consistently uses models at the national, regional, and local levels; and the models that are in use are not common to all agencies. Further, the models, even where used, often exert only a small influence on allocation decisions, partly because the agencies do not yet have full confidence in the models' data. Until the models serve as the foundation for allocation decisions, such decisions will continue to rely mainly on historical funding patterns and professional judgment. Accordingly, we urge the agencies to continue developing an allocation process that is systematic and that is common to all agencies. The agencies are also continuing to investigate ways to develop and use measures of risk and treatment effectiveness. Forest Service and Interior officials told us, for example, that researchers are looking at areas burned in past wildland fires to assess the extent to which fuel treatments altered fire behavior. Although efforts such as these are likely to be long-term undertakings and involve considerable research investment and activity, developing such measures would improve the agencies' ability to assess and compare the cost-effectiveness of potential treatments in deciding how to optimally allocate scarce funds. Finally, such information could also help the agencies address our third recommendation--that is, to clarify the relative importance of the various factors they consider when allocating funds. Such an effort is already under way at Interior, according to an Interior official, and the agency hopes to complete its work before the 2008 fire season. A Forest Service official stated that the Forest Service is also working to prioritize the various factors, but did not provide a timetable for completing this effort. Agency officials plan to complete the FPA model by June 30, 2008, but preliminary results from our ongoing review raise questions about the extent to which the current model will be able to meet all of the key goals established for FPA. FPA--a common interagency performance-based system for program planning and budgeting for the full scope of fire management activities, including preparedness, large fire suppression, and fuel reduction treatments--was proposed and funded to address shortcomings that Congress, GAO, and the Office of Management and Budget identified in the agencies' existing budget allocation frameworks. FPA also is critical to developing and implementing a cohesive strategy, and to the agencies' efforts to contain wildland fire costs. Development of FPA commenced in 2002. According to a 2001 report commissioned by the agencies that serves as the foundation of FPA, FPA was intended to establish a common framework for the agencies to determine national budget needs by analyzing budget alternatives at the local level--using a common, interagency process for fire management planning and budgeting--and aggregating the results; determine the relative costs and benefits for the full scope of fire management activities, including potential trade-offs among investments in fuel reduction, fire preparedness, and fire suppression activities; and identify, for any given budget level, the most cost-effective mix of personnel and equipment to carry out these activities. In addition, because responding to wildland fires often requires coordination and collaboration among federal, state, tribal, and local firefighting entities to effectively protect lives, homes, and resources, the agencies were directed to develop FPA in conjunction with their nonfederal partners and to recognize the availability of adjacent nonfederal firefighting resources when determining the appropriate amount and location of federal resources. FPA program and senior agency officials told us that, when completed, FPA will allow the agencies to meet the key goals established for it, but preliminary results from our ongoing review have raised questions about FPA's ability to do so. In particular, FPA likely will analyze only 5 years of fuel reduction treatments when modeling the effect such treatments will have on future large fire events, according to FPA program officials, although they have not yet made a final determination on the number of years to be analyzed. The officials said that it is not possible to identify fuel treatment projects more than 5 years into the future with sufficient accuracy to include in the analysis. Such a limited time frame, however, substantially impairs the ability of the model to analyze long-term trade- offs between annual fuel reduction treatment costs and future expected suppression costs for large fires, a key goal of FPA. Officials say that the FPA model expected to be completed in 2008 is the first step in an iterative development process and can be improved to increase its capability to analyze the trade-offs, but they could not provide a time frame for doing so. In addition, in 2006, after 4 years of model development, the agencies initiated substantial changes to the process FPA will use to analyze needed firefighting resources and determine where best to locate these resources; they are also still deciding how senior officials will use the model's output to allocate funds between agencies and geographic regions of the country. It is not clear at this time the extent to which FPA will meet the key goal of identifying the most cost-effective allocation of resources for a given budget level, because the agencies are still developing the FPA model and determining how it will be used. A full assessment of FPA cannot be conducted, however, until the agencies complete the model; at that time, we plan on assessing the extent to which FPA will meet the key goals established. Faced with an incendiary mix of accumulated fuels, climate change, and burgeoning development in fire-prone areas, and constrained by our nation's long-term fiscal outlook, the federal wildland fire agencies need to commit to a more considered, long-term approach to managing their resources in order to address the wildland fire problem more effectively and efficiently. They have taken an important first step by establishing and updating federal wildland fire policy. Development of strategies and management tools for agency officials to use in achieving the policy's vision, however, has been uneven. The agencies are making progress in certain areas, including improving funding allocation processes for reducing fuels and requiring appropriate management response to fires that occur. In addition, the agencies are continuing to develop FPA, which, if implemented appropriately, could significantly improve the agencies' ability to allocate their resources effectively. But broader efforts have stalled--as in the development of cost containment goals and objectives-- or even lost ground, as evidenced by the agencies' retreat from their earlier commitment to develop the cohesive wildland fire strategy we have called for. If the agencies are to achieve lasting results in their efforts to address the wildland fire problem, they will need a sustained commitment by agency leadership to developing both a long-term strategy that identifies potential options (and their costs) for managing wildland fires and the tools for carrying out such a strategy. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions that you or other Members of the Subcommittee may have at this time. For further information about this testimony, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Steve Gaty, Assistant Director; David P. Bixler; Ellen W. Chu; Jonathan Dent; and Richard Johnson 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.	The nation's wildland fire problems have worsened over the past decade. Recent years have seen dramatic increases in the number of acres burned and the dollars spent on preparing for and responding to wildland fires. As GAO has previously reported, a number of factors have contributed to worsening fire seasons and increased firefighting expenditures, including an accumulation of fuels due to past land management practices; drought and other stresses, in part related to climate change; and an increase in human development in or near wildlands. Recent GAO reports have identified shortcomings in the approach to wildland fire management taken by the responsible federal agencies--the Department of Agriculture's Forest Service and four agencies within the Department of the Interior. GAO was asked to testify on agency efforts to (1) develop a cohesive strategy for preparing for and responding to wildland fire, (2) contain federal expenditures related to wildland fire, and (3) improve the processes used to allocate funds for reducing accumulated fuels and to select fuel reduction projects. GAO also is providing preliminary findings from its ongoing review of an interagency budget allocation and planning model known as fire program analysis (FPA). This testimony is based on issued GAO reports, reviews of agency documents related to the development of FPA, and discussions with agency officials. In recent years, GAO has recommended a number of actions federal wildland fire agencies should take to better diagnose the extent of the nation's wildland fire problems and develop a strategic approach for addressing them. The agencies have taken some steps to respond to GAO's recommendations, but have not completed other needed steps. Specifically, the agencies should: (1) recommit to developing a cohesive strategy that identifies options and associated funding to reduce fuels and address wildland fire problems. In several reports dating to 1999, GAO recommended that a cohesive strategy be developed that identifies the available long-term options and associated funding for reducing hazardous fuels and for responding to wildland fires. Such a strategy would assist Congress and the agencies in making informed decisions about effective and affordable long-term approaches to addressing the nation's wildland fire problems. As of January 2008, the agencies had not developed such a strategy and, in fact, had retreated from earlier commitments to do so. (2) Establish clear goals and a strategy to help contain wildland fire costs. In 2007, GAO reported that the agencies had taken several steps to contain wildland fire costs, including developing new decision support tools to help officials select the most appropriate strategy for fighting wildland fires, but lacked clearly defined cost-containment goals and a strategy for achieving them. As a result, we believe managers in the field lacked a clear understanding of the relative importance agency leadership placed on containing costs and were therefore likely to select firefighting strategies without duly considering the costs of suppression. Although the agencies have continued to implement individual cost-containment steps, they still have not developed clear goals or a strategy for achieving them. (3) Continue to improve their processes for allocating fuel reduction funds and selecting fuel reduction projects. Also in 2007, GAO recommended several improvements to the agencies' processes for allocating fuel reduction funds to field units and selecting projects. Specifically, GAO recommended that the agencies use a more systematic allocation process, improve the information they use to make allocation decisions, and clarify the relative importance of the various factors they consider when allocating funds. The agencies are currently taking steps to implement these improvements, although none have yet been completed. In addition, GAO's ongoing review of FPA suggests that the current model, which the agencies expect to complete in June 2008, may not allow the agencies to meet all of the key goals established for FPA. Specifically, preliminary results from GAO's review suggest that the model will not allow the agencies to analyze long-term trade-offs between annual fuel reduction treatments and future expected suppression costs for large fires. GAO intends to conduct a full assessment of FPA once it is completed.	4,740	874
Many federal agencies have yet to adopt succession planning and management initiatives. In 1997, the National Academy of Public Administration reported that of the 27 agencies responding to its survey, 2 agencies had a succession planning program or process in place; 2 agencies were planning to have one in the coming year; and 4 agencies were planning one in the next 2 years. In 1999, a joint OPM and Senior Executive Association survey reported that more than 50 percent of all career members of the Senior Executive Service (SES) said that their agencies did not have a formal succession planning program for the SES, and almost 75 percent said that their agencies did not have such a program for managers. Of those who reported that their agencies did have succession planning programs for either executives or managers, 54 percent of the career senior executives said that they had not participated in the executive-level programs and 65 percent said they had not participated at the manager level. On the basis of this survey and anecdotal evidence, OPM officials told us in 2000 that they found that most agencies would not likely have a formal, comprehensive succession plan. Further, we have reported that a lack of succession planning has contributed to two specific human capital challenges currently facing the federal government. The first challenge is the large percentage of career senior executives who will reach regular retirement eligibility over the next several years. In 2000, we reported that 71 percent of the SES members employed as of October 1998 would reach regular retirement eligibility by the end of fiscal year 2005. More recently, we estimated that more than half of the SES members in federal service as of October 2000 will have left the government by October 2007. We concluded that without careful planning, these separations pose the threat of an eventual loss in institutional knowledge, expertise, and leadership continuity. The second challenge facing federal agencies impacted by a lack of succession planning is the amount of diversity in their executive and managerial ranks. As the demographics of the public served by the federal government change, a diverse executive corps can provide agencies with an increasingly important organizational advantage that can help them to achieve results. We have reported that, as of 2000, minority men and women made up about 14 percent of the career SES. If current promotion and hiring trends continue, the proportions of minority men and women among senior executives will likely remain virtually unchanged over the next 4 years. The literature shows that public and private sector organizations use a range of approaches when planning for, and managing, succession-related challenges. These approaches span a continuum from the "replacement" approach, which focuses on identifying particular individuals as possible successors for specific top ranking positions, to the "integrated" succession planning and management approach. Under the integrated approach, succession planning and management is a strategic, systematic effort that works to ensure a suitable supply of potential successors for a variety of leadership and other key positions. These two approaches essentially reflect a shift in emphasis of succession planning from a risk management tool, focused on the near-term, operational need to ensure backup people are identified in case a top position becomes vacant, to a strategic planning tool, which identifies and develops high-potential individuals with the aim of filling leadership and other key roles in the future. GAO, similar to other federal agencies, faces an array of succession planning challenges. The succession planning and management approach we are using to respond to our internal challenges is consistent with the practices we identified in other countries. To manage the succession of their executives and other key employees, agencies in Australia, Canada, New Zealand, and the United Kingdom are implementing succession planning and management practices that work to protect and enhance organizational capacity. Collectively, these agencies' succession planning and management initiatives receive active support of top leadership; link to strategic planning; identify talent from multiple organizational levels, early in careers, or with critical skills; emphasize developmental assignments in addition to formal training; address specific human capital challenges, such as diversity, leadership capacity, and retention; and facilitate broader transformation efforts. Effective succession planning and management programs have the support and commitment of their organizations' top leadership. Our past work has shown that the demonstrated commitment of top leaders is perhaps the single most important element of successful management. In other governments and agencies, to demonstrate its support of succession planning and management, top leadership (1) actively participates in the initiatives, (2) regularly uses these programs to develop, place, and promote individuals, and (3) ensures that these programs receive sufficient financial and staff resources, and are maintained over time. For example, each year, the Secretary of the Cabinet, Ontario Public Service's (OPS) top civil servant, convenes and actively participates in an annual 2-day succession planning and management retreat with the heads of every government ministry. At this retreat, they discuss the anticipated leadership needs across the government as well as the individual status of about 200 high-potential executives who may be able to meet those needs over the next year or two. Similarly, in New Zealand, the State Services Commissioner--an official whose wide-ranging human capital responsibilities include the appointment and review of public service chief executives--developed, with the assistance of a group of six agency chief executives who met regularly over a period of 2 years, a new governmentwide senior leadership and management development initiative. This effort culminated in the July 2003 roll out of the Executive Leadership Programme and the creation of a new central Leadership Development Centre. The Royal Canadian Mounted Police's (RCMP) senior executive committee regularly uses the agency's succession planning and management programs when making decisions to develop, place, and promote its top 500-600 employees, both officers and civilians. RCMP's executive committee, consisting of the agency's chief executive, the chief human capital officer, and six other top officials, meets quarterly to discuss the organization's succession needs and to make the specific decisions concerning individual staff necessary to address those needs. In 2001-2002, this process resulted in 72 promotions and 220 lateral transfers. Top leaders also demonstrate support by ensuring that their agency's or government's succession planning and management initiatives receive sufficient funding and staff resources necessary to operate effectively and are maintained over time. Such commitment is critical since these initiatives can be expensive because of the emphasis they place on participant development. For example, a senior human capital manager told us that the Chief Executive of the Family Court of Australia (FCA) pledged to earmark funds when he established a multiyear succession planning and management program in 2002 despite predictions of possible budget cuts facing FCA. Although human capital training and development programs are sometimes among the first programs to be cut back during periods of retrenchment, FCA's Chief Executive has repeatedly stated to both internal and external stakeholders that this will not happen. Similarly, at Statistics Canada--the Canadian federal government's central statistics agency--the Chief Statistician of Canada has set aside a percentage, in this case over 3 percent, of the total agency budget to training and development, thus making resources available for the operation of the agency's four leadership and management development programs. According to a human capital official, this strong support has enabled the level of funding to remain fairly consistent over the past 10 years. Finally, the government of New Zealand has committed NZ$19.6 million (about U.S.$11.2 million in July 2003) over four years, representing both central government and agency contributions, for the implementation of its new governmentwide senior leadership and management development strategy. Leading organizations use succession planning and management as a strategic planning tool that focuses on current and future needs and develops pools of high-potential staff in order to meet the organization's mission over the long term. That is, succession planning and management is used to help the organization become what it needs to be, rather than simply to recreate the existing organization. We have previously reported on the importance of linking succession planning and management with the forward-looking process of strategic and program planning.In Canada, succession planning and management initiatives focus on long-term goals, are closely integrated with their strategic plans, and provide a broader perspective. For example, at Statistics Canada, committees composed of line and senior managers and human capital specialists consider the human capital required to achieve its strategic goals and objectives. During the 2001 strategic planning process, the agency's planning committees received projections showing that a majority of the senior executives then in place would retire by 2010, and the number of qualified assistant directors in the executive development pool was insufficient to replace them. In response, the agency increased the size of the pool and introduced a development program of training, rotation, and mentoring to expedite the development of those already in the pool. According to a Statistics Canada human capital official, these actions, linked with the agency's strategic planning process, have helped to ensure that an adequate number of assistant directors will be sufficiently prepared to succeed departing senior executives. In Ontario, succession planning and management has been a required component of the government's human capital planning framework since 1997. OPS requires that the head of each ministry develop a succession plan that (1) anticipates the ministry's needs over the next couple of years, (2) establishes a process to identify a pool of high-potential senior managers, and (3) links the selection of possible successors to both ministry and governmentwide opportunities and business plans. These plans, which are updated annually at the deputy ministers retreat, form the basis for Ontario's governmentwide succession planning and management process. While OPS has not conducted a formal evaluation of the impact of this process, a senior human capital official told us that succession planning and management has received a much greater level of attention from top leadership and now plays a critical role in OPS' broader planning and staffing efforts. For RCMP, succession planning and management is an integral part of the agency's multiyear human capital plan and directly supports its strategic needs, and it also uses this process to provide top leadership with an agencywide perspective. RCMP is responsible for a wide range of police functions on the federal, provincial, and local levels, such as illegal drug and border enforcement, international peacekeeping services, and road and highway safety. In addition, RCMP provides services in 10 provinces and three territories covering an area larger than the United States. Its succession planning and management system provides the RCMP Commissioner and his executive committee with an organizationwide picture of current and developing leadership capacity across the organization's many functional and geographic lines. To achieve this, RCMP constructed a "succession room"--a dedicated room with a graphic representation of current and potential job positions for the organization's top 500-600 employees covering its walls--where the Commissioner and his top executives meet at least four times a year to discuss succession planning and management for the entire organization. For each of RCMP's executive and senior manager-level positions in headquarters and the regions, the incumbent and one or more potential successors are depicted on individual movable cards that display relevant background information (see fig. 1). An electronic database provides access to more detailed information for each incumbent and potential successors, including skills, training, and past job experience that the executive committee considers when deciding on assignments and transfers. In addition, high-potential individuals as well as employees currently on developmental assignments outside RCMP are displayed. According to a senior human capital official, because the succession room actually surrounds the RCMP's top leadership with an accessible depiction of their complex and wide-ranging organization, it provides a powerful tool to help them take a broader, organizationwide approach to staffing and management decisions. Effective succession planning and management initiatives identify high- performing employees from multiple levels in the organization and still early in their careers. In addition, leading organizations use succession planning and management to identify and develop knowledge and skills that are critical in the workplace. RCMP has three separate development programs that identify and develop high-potential employees at several organizational levels. For example, beginning at entry level, the Full Potential Program reaches as far down as the front-line constable and identifies and develops individuals, both civilians and officers, who demonstrate the potential to take on a future management role. For more experienced staff, RCMP's Officer Candidate Development Program identifies and prepares individuals for increased leadership and managerial responsibilities and to successfully compete for admission to the officer candidate pool. Finally, RCMP's Senior Executive Development Process helps to identify successors for the organization's senior executive corps by selecting and developing promising officers for potential promotion to the senior executive levels. The United Kingdom's Fast Stream program targets high-potential individuals early in their civil service careers as well as recent college graduates. The program places participants in a series of jobs designed to provide experiences such as developing policy, supporting ministers, and managing people and projects--each of which is linked to strengthening specific competencies required for admission to the Senior Civil Service. According to a senior program official, program participants are typically promoted quickly, attaining mid-level management in an average of 3.5 years, and the Senior Civil Service in about 7 years after that. Other agencies use their succession planning and management initiatives to identify and develop successors for employees with critical knowledge and skills. For example, Transport Canada estimated that 69 percent of its safety and security regulatory employees, including inspectors, are eligible for retirement by 2008. Faced with the urgent need to capture and pass on the inspectors' expertise, judgment, and insights before they retire, the agency embarked on a major knowledge management initiative in 1999 as part of its succession planning and management activities. To identify the inspectors whose leaving would most severely affect the agency's ability to carry out its mandate, Transport Canada used criteria that assessed whether the inspectors (1) possessed highly specialized knowledge, skills, or expertise, (2) held one-of-a-kind positions, (3) were regarded as the "go- to" people in critical situations, and/or (4) held vital corporate memory. Next, inspectors were asked to pass on their knowledge through mentoring, coaching, and on-the-job training. To assist this knowledge transfer effort, Transport Canada encouraged these inspectors to use human capital flexibilities including preretirement transitional leave, which allows employees to substantially reduce their workweek without reducing pension and benefits payments. The Treasury Board of Canada Secretariat, a federal central management agency, found that besides providing easy access to highly specialized knowledge, this initiative ensures a smooth transition of knowledge from incumbents to successors. Leading succession planning and management initiatives emphasize developmental or "stretch" assignments for high-potential employees in addition to formal training. These developmental assignments place staff in new roles or unfamiliar job environments in order to strengthen skills and competencies and broaden their experience. In the United States, training and development opportunities--including developmental assignments--must be offered fairly, consistent with merit system principles. However, according to a 1999 survey of career SES in the United States, 67 percent reported that they had never changed jobs by going to a different component within their agency or department. Moreover, 91 percent said that they never served in more than one department or agency during their entire executive careers. Agencies in other countries use developmental assignments, accompanied by more formal training components and other support mechanisms, to help ensure that individuals are capable of performing when promoted. Participants in RCMP's Full Potential Program must complete at least two 6- to 12-month developmental assignments intended to enhance specific competencies identified in their personalized development plans. These assignments provide participants with the opportunity to learn new skills and apply existing skills in different situations and experience an increased level of authority, responsibility, and accountability. For example, a civilian from technical operations and a police officer were given a 1-year assignment to create balanced scorecards that are linked to RCMP's goals. Another program assignment involved placing a line officer, previously in charge of a single RCMP unit, in the position of acting district commander responsible for the command of multiple units during a period of resource and financial constraint. To reinforce the learning that comes from the developmental assignments, participants attend a 6-week educational program provided by Canada's Centre for Management and Development that covers the personal, interpersonal, managerial, and organizational dimensions of leadership. Each participant also benefits from the support and professional expertise of a senior-level mentor. Staff who complete this program will be required to continue their formal development as RCMP officer candidates. In Canada's Accelerated Executive Development Program (AEXDP), developmental assignments form the cornerstone of efforts to prepare senior executives for top leadership roles in the public service. Canada created AEXDP in 1997 to strategically manage the development of senior executives who have the potential to become assistant deputy ministers within 2 to 6 years. AEXDP prepares individuals for these senior leadership positions through the support of coaches and mentors, formal learning events, and placements in a series of challenging developmental assignments. These stretch assignments help enhance executive competencies by having participants perform work in areas that are unfamiliar or challenging to them in any of a large number of agencies throughout the Canadian Public Service. For example, a participant with a background in policy could develop his or her managerial competencies through an assignment to manage a direct service delivery program in a different agency. Central to the benefit of such assignments is that they provide staff with the opportunity to practice new skills in a real-time setting. Further, each assignment lasts approximately 2 years, which allows time for participants to maximize their learning experience while providing agencies with sufficient opportunity to gain a real benefit from the participants' contributions. AEXDP reinforces the learning provided by the developmental assignments with activities such as "action learning groups" where small groups of five or six program participants meet periodically to collectively reflect on and address actual work situations or challenges facing individual participants. A senior official involved in the program told us that the developmental placements help participants obtain in-depth experience in how other organizations make decisions and solve problems, while simultaneously developing a governmentwide network of contacts that they can call on for expertise and advice in the future. One challenge sometimes encountered with developmental assignments in general is that executives and managers resist letting their high-potential staff leave their current positions to move to another organization. Agencies in other countries have developed several approaches to respond to this challenge. For example, once individuals are accepted into Canada's AEXDP, they are employees of, and paid by, the Public Service Commission, a central agency. Officials affiliated with AEXDP told us that not having to pay participants' salaries makes executives more willing to allow talented staff to leave for developmental assignments and it fosters a governmentwide, rather than an agency-specific, culture among the AEXDP participants. In New Zealand, a senior official at the State Services Commission, the central agency responsible for ensuring that agencies develop public service leadership capability, told us that the Commission has recommended legislation that would require that agency chief executives work in partnership with the State Services Commissioner to find ways to release talented people for external developmental assignments. In addition, the government has appropriated NZ$600,000 (about U.S.$344,000 in July 2003) over the next 4 years to help the Commissioner assist agency chief executives who might like to release an individual for a developmental assignment but are inhibited from doing so because of financial constraints, including those associated with finding a replacement. Leading organizations stay alert to human capital challenges and respond accordingly. Government agencies around the world, including in the United States, are facing challenges in the demographic makeup and diversity of their senior executives. Agencies in other countries use succession planning and management to achieve a more diverse workforce, maintain their leadership capacity as their senior executives retire, and increase the retention of high-potential staff. Achieve a More Diverse Workforce. Leading organizations recognize that diversity can be an organizational strength that contributes to achieving results. Our work has shown that U.S. federal agencies will need to enhance their efforts to improve diversity as the SES turns over. In addition, OPM has identified an increase in workforce diversity, including in mission critical occupations and leadership roles, as one of its human capital management goals for implementing the President's Management Agenda. Both the United Kingdom and Canada use succession planning and management systems to address the challenge of increasing the diversity of their senior executive corps. For example, the United Kingdom's Cabinet Office created Pathways, a 2-year program that identifies and develops senior managers from ethnic minorities who have the potential to reach the Senior Civil Service within 3 to 5 years. This program is intended to achieve a governmentwide goal to double the representation of ethnic minorities in the Senior Civil Service from 1.6 percent in 1998 to 3.2 percent by 2005. Pathways provides executive coaching, skills training, and the chance for participants to demonstrate their potential and talent through a variety of developmental activities such as projects and short-term work placements. A Cabinet Office official told us that the program is actively marketed through a series of nationwide informational meetings held in locations with large ethnic minority populations. In addition, program information is sent to government agency chief executives and human capital directors, and the top 600 senior executives across the civil service, and executives are encouraged to supplement the self-nominating process by nominating potential candidates. This official noted that although the first Pathways class will not graduate until November 2003, 2 out of the 20 participants have already been promoted to the Senior Civil Service. Rather than a specific program, Canada uses AEXDP, an essential component of their succession planning and management process for senior executives, as a tool to help achieve a governmentwide diversity target. For example, the government has set a goal that by 2003, certain minorities will represent 20 percent of participants in all management development programs. After conducting a survey of minorities, who showed a considerable level of interest in the program, officials from AEXDP devoted 1 year's recruitment efforts to identify and select qualified minorities. The program reported that, in the three prior AEXDP classes, such minorities represented 4.5 percent of the total number of participants; however, by March 2002, AEXDP achieved the goal of 20 percent minority participation. In addition, an independent evaluation by an outside consulting firm found that the percentage of these minorities participating in AEXDP is more than three times the percentage in the general senior executive population. Maintain Leadership Capacity. Both at home and abroad, a large percentage of senior executives will be eligible to retire over the next several years. In the United States, for example, the federal government faces an estimated loss of more than half of the career SES by October 2007.Other countries that face the same demographic trend use succession planning and management to maintain leadership capacity in anticipation of the turnover of their senior executive corps due to expected retirements. Canada is using AEXDP to address impending retirements of assistant deputy ministers--one of the most senior executive-level positions in its civil service. As of February 2003, for example, 76 percent of this group are over 50, and approximately 75 percent are eligible to retire between now and 2008. A recent independent evaluation of AEXDP by an outside consulting firm found the program to be successful and concluded that AEXDP participants are promoted in greater numbers than, and at a significantly accelerated rate over, their nonprogram counterparts. Specifically, of the participants who joined the program at the entry level, 39 percent had been promoted one level and another 7 percent had been promoted two levels within 1 year compared to only 9 percent and 1 percent for nonparticipants during the same period. This evaluation further concluded that AEXDP is a "valuable source" of available senior executives and a "very important source of well-trained, future assistant deputy ministers." Increase Retention of High-Potential Staff. Canada's Office of the Auditor General (OAG) uses succession planning and management to provide an incentive for high-potential employees to stay with the organization and thus preserve future leadership capacity. Specifically, OAG identified increased retention rates of talented employees as one of the goals of the succession planning and management program it established in 2000. According to a senior human capital official, OAG provided high-potential employees with comprehensive developmental opportunities in order to raise the "exit price" that a competing employer would need to offer to lure a high-potential employee away. The official told us that an individual, who might otherwise have been willing to leave OAG for a salary increase of CN$5,000, might now require CN$10,000 or more, in consideration of the developmental opportunities offered by the agency. Over the program's first 18 months, annualized turnover in OAG's high-potential pool was 6.3 percent compared to 10.5 percent officewide. This official told us that the retention of members of this high-potential pool was key to OAG's efforts to develop future leaders. Effective succession planning and management initiatives provide a potentially powerful tool for fostering broader governmentwide or agencywide transformation by selecting and developing leaders and managers who support and champion change. Our work has shown the critical importance of having top leaders and managers committed to, and personally involved in, implementing management reforms if those reforms are to succeed. Agencies in the United Kingdom and Australia promoted the implementation of broader transformation efforts by using their succession planning and management systems to support new ways of doing business. In 1999, the United Kingdom launched a wide-ranging reform program known as Modernising Government, which focused on improving the quality, coordination, and accessibility of the services government offered to its citizens. Beginning in 2000, the United Kingdom's Cabinet Office started on a process that continues today of restructuring the content of its leadership and management development programs to reflect this new emphasis on service delivery. For example, the Top Management Programme supports senior executives in developing behaviors and skills for effective and responsive service delivery, and provides the opportunity to discuss and receive expert guidance in topics, tools, and issues associated with the delivery and reform agenda. These programs typically focus on specific areas that have traditionally not been emphasized for executives such as partnerships with the private sector and risk assessment and management. A senior Cabinet Office official responsible for executive development told us that mastering such skills is key to an executive's ability to deliver the results intended in the government's agenda. The United Kingdom's Department of Health has embarked on a major reform effort involving a 10-year plan to modernize the National Health Service by, among other things, devolving power from the government to the local health services that perform well for their patients, and breaking down occupational boundaries to give staff greater flexibility to provide care. A National Health Service official told us that the service recognizes the key contribution that succession planning and management programs can have and, therefore, selects and places executives who will champion its reform and healthcare service delivery improvement efforts. For example, the Service's National Primary Care Development Team created a leadership development program specifically tailored for clinicians with the expectation that they will, in turn, champion new clinical approaches and help manage the professional and organizational change taking place within the health service. At the FCA, preparing future leaders who could help the organization successfully adapt to recent changes in how it delivers services is one of the objectives of the agency's Leadership, Excellence, Achievement, Progression program, established in 2002. Specifically, over the last few years FCA has placed an increased emphasis on the needs of external stakeholders. This new emphasis is reflected in the leadership capabilities FCA uses when selecting and developing program participants. For example, one of these capabilities, "nurturing internal and external relationships," emphasizes the importance of taking all stakeholders into account when making decisions, in contrast to the FCA's traditional internally focused culture. In addition, according to a senior human capital manager, individuals selected to participate in the FCA's leadership development program are expected to function as "national drivers of change within the Court." To this end, the program provides participants with a combination of developmental assignments and formal training opportunities that place an emphasis on areas such as project and people management, leadership, and effective change management. As governmental agencies around the world anticipate the need for leaders and other key employees with the necessary competencies to successfully meet the complex challenges of the 21st century, they are choosing succession planning and management initiatives that go beyond simply replacing individuals in order to recreate the existing organization, to initiatives that strategically position the organization for the future. Collectively, the experiences of agencies in Australia, Canada, New Zealand, and the United Kingdom demonstrate how governments are using succession planning and management initiatives that receive the active support of top leadership, link to strategic planning, identify talent throughout the organization, emphasize developmental assignments in addition to formal training, address specific human capital challenges, and facilitate broader transformation efforts. Taken together, these practices give agencies a potentially powerful set of tools with which to strategically manage their most important asset--their human capital. While there is no one right way for organizations to manage the succession of their leaders and other key employees, the experiences of agencies in these four countries provide insights into how other governments are adopting succession practices that protect and enhance organizational capacity. While governments' and agencies' initiatives reflect their individual organizational structures, cultures, and priorities, these practices can guide executive branch agencies in the United States as they develop their own succession planning and management initiatives in order to ensure that federal agencies have the human capital capacity necessary to achieve their organizational goals and effectively deliver results now and in the future. We provided drafts of the relevant sections of this report to cognizant officials from the central agency responsible for human capital issues, individual agencies, and the national audit office for each of the countries we reviewed as well as subject matter experts in the United States. They generally agreed with the contents of this report. We made technical clarifications where appropriate. Because we did not evaluate the policies or operations of any U.S. federal agency in this report, we did not seek comments from any U.S. agency. However, because of OPM's role in providing guidance and assistance to federal agencies on succession planning and leadership development, we provided a draft of this report to the Director of OPM for her information. As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report for 30 days from the date of this letter. At that time, we will provide copies of this report to other interested congressional committees, the directors of OPM and the Office of Management and Budget, and the foreign government officials contacted for this report. In addition, we will make copies available to others upon request and the report will be available at no charge on the GAO Web site at www.gao.gov. If you have any questions concerning this report, please contact me or Lisa Shames on (202) 512-6806 or at [email protected] and [email protected]. The major contributors to this report were Peter J. Del Toro and Rebecka L. Derr. To meet our objective to identify how agencies in other countries are adopting a more strategic approach to managing the succession of senior executives and others with critical skills, we selected Australia, Canada, New Zealand, the United Kingdom, and the Canadian Province of Ontario based on our earlier work where we examined their implementation of results-oriented management and human capital reforms. We reviewed the public management and human capital literature and spoke with subject matter experts to obtain additional context and analysis regarding succession planning and management. A key resource was the National Academy of Public Administration's work on the topic, including their maturity model and subsequent revisions, which describe the major succession planning process elements of initiatives that take a strategic approach to building organizational capacity. We identified the examples illustrating the practices through the results of over 30 responses to a questionnaire sent to senior human capital officials at selected agencies. We analyzed written documentation including reports, procedures, guidance, and other materials concerning succession planning and management programs for agencies in these countries along with government-sponsored evaluations of these programs when available. We interviewed more than 50 government officials from Australia, Canada, New Zealand, and the United Kingdom by telephone, or in person during a visit to Ottawa, Canada. To obtain a variety of perspectives, we spoke to officials from the countries' national audit offices, central management, and human capital agencies. The scope of our work did not include independent evaluation or verification of the effectiveness of the succession planning and management initiatives used in the four countries, including any performance results that agencies attributed to specific practices or aspects of their programs. We also did not attempt to assess the prevalence of the practices or challenges we cite either within or across countries. Therefore, countries other than those cited for a particular practice may, or may not, be engaged in the same practice. Because of the multiple jurisdictions covered in this report, we use the term "agency" generically to refer to entities of the central government including departments, ministries, and agencies, except when describing specific examples where we use the term appropriate to that case. We conducted our work from January through June 2003 in Washington, D.C., and Ottawa, Canada, in accordance with generally accepted government auditing standards. We provided drafts of the relevant sections of this report to officials from the central agencies responsible for human capital issues, individual agencies, and the national audit office for each of the countries we reviewed as well as subject matter experts in the United States. We also provided a draft of this report to the Director of OPM for her information. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. 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 e-mail alerts" under the "Order GAO Products" heading.	Leading public organizations here and abroad recognize that a more strategic approach to human capital management is essential for change initiatives that are intended to transform their cultures. To that end, organizations are looking for ways to identify and develop the leaders, managers, and workforce necessary to face the array of challenges that will confront government in the 21st century. GAO conducted this study to identify how agencies in four countries--Australia, Canada, New Zealand, and the United Kingdom--are adopting a more strategic approach to managing the succession of senior executives and other public sector employees with critical skills. These agencies' experiences may provide insights to executive branch agencies as they undertake their own succession planning and management initiatives. GAO identified the examples described in this report through discussions with officials from central human capital agencies, national audit offices, and agencies in Australia, Canada, New Zealand, and the United Kingdom, and a screening survey sent to senior human capital officials at selected agencies. Leading organizations engage in broad, integrated succession planning and management efforts that focus on strengthening both current and future organizational capacity. As part of this approach, these organizations identify, develop, and select their human capital to ensure that successors are the right people, with the right skills, at the right time for leadership and other key positions. To this end, agencies in Australia, Canada, New Zealand, and the United Kingdom are implementing succession planning and management initiatives that are designed to protect and enhance organizational capacity.	7,390	296
Military missions differ from nonmilitary missions on a variety of factors, as shown in table 1. Military missions involve coordinated military actions, such as campaigns, engagements, or strikes, by one or more of the services' combat forces. Operations Desert Storm in 1991 and Iraqi Freedom in 2003 are examples of overseas military missions, and Operation Noble Eagle is a domestic military mission started on September 11, 2001, and continuing today. In the latter mission, the President directed the Commander, North American Aerospace Defense Command, to order combat air patrols to identify and intercept suspect aircraft operating in the United States. Since these are military missions, DOD is the lead federal agency and is prepared to apply its combat power if needed. Requests for nonmilitary missions are evaluated against criteria contained in DOD's Directive, Military Assistance to Civil Authorities. These requests generally seek DOD support to help alleviate suffering, recover from disasters or assist indirectly with law enforcement. DOD's directive specifies that requests for nonmilitary support be evaluated against the following criteria: legality (compliance with laws), lethality (potential use of lethal force by or against DOD forces), risk (safety of DOD forces), cost (who pays, impact on the DOD budget), appropriateness (whether the requested mission is in the interest of DOD to conduct), and readiness (impact on DOD's ability to perform its primary mission). According to DOD, in fiscal years 2001 and 2002, it supported over 230 nonmilitary missions in a variety of settings, such as assisting in fighting wildfires, recovering from tropical storms, providing post-September 11, 2001, assistance to New York City and Virginia, providing support for the presidential inauguration, and for other purposes. According to DOD, during this same period, the Department rejected a handful of missions based on the above criteria. The 1878 Posse Comitatus Act prohibits the use of the Army and Air Force "to execute the laws" of the United States except where authorized by the Constitution or Acts of Congress. Federal courts have interpreted "to execute the laws" to mean the Posse Comitatus Act prohibits the use of federal military troops in an active role of direct civilian law enforcement. Direct involvement in law enforcement includes search, seizure, and arrest. The act does not apply to military operations at home or abroad. Further, it does not apply to National Guard personnel when under the direct command of states' governors. Congress has expressly authorized the use of the military in certain situations. For example, DOD can use its personnel and equipment to: assist with drug interdiction and other law enforcement functions (10 U.S.C. SSSS371-378 (excluding SS375)); protect civil rights or property, or suppress insurrection (the Civil Disturbance Statutes; 10 U.S.C. SSSS331-334); assist the U.S. Secret Service (18 U.S.C. SS3056 Notes); protect nuclear materials and assist with solving crimes involving nuclear materials (18 U.S.C. SS831); assist with terrorist incidents involving weapons of mass destruction (10 U.S.C. SS382); and assist with the execution of quarantine and certain health laws (42 U.S.C. SSSS97-98). The President identified as a major homeland security initiative a review of the legal authority for military assistance in domestic security, which would include the Posse Comitatus Act. The President maintained that the "threat of catastrophic terrorism requires a thorough review of the laws permitting the military to act within the United States in order to determine whether domestic preparedness and response efforts would benefit from greater involvement of military personnel and, if so, how." In addition to this review, the Congress directed DOD to review and report on the legal implications of members of the Armed Forces operating on United States territory and the potential legal impediments affecting DOD's role in supporting homeland security. In March, 2003, the Commander of U.S. Northern Command has stated, "We believe the [Posse Comitatus] Act, as amended, provides the authority we need to do our job, and no modification is needed at this time." At the time of our review, neither the President's nor the congressionally directed legal reviews had been completed. It is too early to assess the adequacy of DOD's new management organizations or its plans, although forces may not be fully tailored to the current domestic missions. DOD has established new organizations for domestic missions at the policy and operational levels, and written a new campaign plan for the defense of the United States. At the same time, DOD has used existing forces for these missions since September 11, 2001. However, at the time of our review, the organizations were not yet fully operational; plans had been developed before issuance of a counterterrorism threat assessment and before DOD officials had reached agreement on the nature of the threat; and force capabilities were not well matched to their domestic missions, potentially leading to an erosion of military readiness. Two new organizations--the Office of the Assistant Secretary of Defense for Homeland Defense and U.S. Northern Command--together provide long-term policy direction, planning, and execution capability but are not yet fully operational, because they have only recently been established and are not fully staffed. Because these organizations had only recently been activated and were still being staffed and structured, we did not evaluate the adequacy of these organizations for their missions. The Senate confirmed the President's nominee to be Assistant Secretary of Defense for Homeland Defense in February 2003, but this office was not fully operational at the time of our review, with approximately one-third of the staff positions filled. The new Assistant Secretary is to provide overall supervision for domestic missions. U.S. Northern Command was established by the President in an April 2002 revision to the Unified Command Plan and was activated in October 2002. However, the command is not planned to be fully operational until October 2003. As of last week, only about 46 percent of the command's positions had been filled. During our trip to U.S. Northern Command, we found that a key challenge that the command is grappling with is the need to conduct its ongoing missions while staffing the command's positions. The activation of the command marks the first time that there has been a unity of command for military activities within the continental United States. Prior to U.S. Northern Command's activation, U.S. Joint Forces Command provided for military actions to defend U.S. territory from land- and sea-based threats. The North American Aerospace Defense Command defended the United States from airborne threats (and still does). The Commander of U.S. Northern Command is also the Commander of the North American Aerospace Defense Command providing the new unity of command for the three missions. DOD's planning process requires the Department and the services to staff, train, and equip forces for their military missions as outlined in campaign plans and deliberate plans developed by the combatant commanders, including the Commander of U.S. Northern Command. U.S. Northern Command's campaign plan was completed in October 2002 and is classified. However, I can note, that although it may reflect current intelligence from DOD and other intelligence community sources, it was completed before the January 2003 issuance of the Federal Bureau of Investigation's counterterrorism threat assessment, so it may not take all threats into account. Moreover, an official in the Office of the Secretary of Defense acknowledged that DOD officials continue to debate the nature of the threat to U.S. territory, thus DOD itself has not yet reached internal agreement on the nature of the threat facing the United States. Based on our review, DOD's forces are not tailored for some of the missions that they have been performing since September 11, 2001, and the result could be eventual erosion of military readiness. To respond to the terrorist attacks of that day, the President identified the need to protect U.S. cities from air attack, and in response, DOD deployed 338 Air force and about 20 Navy aircraft within 24 hours of the attacks. Air Force fighter aircraft flew continuously from September 11, 2001, through March 2002, and intermittently thereafter. These combat patrols continue today. While these forces may obtain some training benefit from actually conducting the mission, the benefit is limited by the narrow scope of maneuvers performed during these missions. Specifically, Air Force and Air National Guard fighter units performing domestic combat air patrols are inhibited from executing the full range of difficult, tactical maneuvers with the frequency that the Air Force requires to prepare for their combat missions. In one Air National Guard wing that we reviewed, the average pilot could not meet their training requirements in 9 out of 13 months between September 2001 and September 2002. Consequently, such units may need to resume training after domestic combat air patrols end or they are reassigned, to ensure their readiness for combat operations, their primary missions. Similarly, DOD identified the need to enhance installation security, and it subsequently deployed active, reserve, and National Guard military police units for the mission. However, these units were designed for a different mission, and received limited training benefit from the domestic mission. For example, officials at a military police internment and resettlement battalion told us that while the battalion can provide installation security, its primary mission is to operate enemy prisoner of war camps. Instead, for nearly a year, the battalion carried out a domestic installation security mission, which while important, prevented the battalion from completing required training for its primary overseas combat mission. As a result, the battalion's military readiness may become eroded, which could mean accepting an increased risk to the battalion if it deploys or resuming training before it deploys again. Current overseas and domestic missions are stressing U.S. forces as measured in personnel tempo data. DOD believes that if servicemembers spend too much time away from home, a risk exists that they will leave the service and military readiness may ultimately suffer. The National Defense Authorization Act for Fiscal Year 2000 requires that DOD formally track and manage for the number of days that each member of the armed forces is deployed and established two thresholds-- servicemembers deployed more than 182 or 220 days away from home out of the preceding 365 days. The National Defense Authorization Act for Fiscal Year 2001 established a third threshold, which requires that servicemembers who are deployed for 401 or more days out of the preceding 730-day (2-year) period receive a $100 high deployment per diem allowance. Between September 2001 and December 2002, personnel tempo increased dramatically for Army and Air Force personnel due to ongoing missions or commitments around the world and their increasing support of Operations Noble Eagle and Enduring Freedom. DOD data that we obtained indicated tempo is high and increasing. For example, as shown in figure 1, in September 2001, over 6,600 Army personnel (including active, reserve, and National Guard personnel) had exceeded a desired threshold, spending 182 to 219 days away from home during the previous 365 days. By December 2002, that number had risen to over 13,000. During the same period, the number spending 220 to 365 days away, had risen from about 800 to over 18,000. The Air Force reported similar trends. As shown in figure 2, in September 2001, about 2,100 Air Force servicemembers were away from home for 182 to 219 days, but that had risen to about 8,300 by December 2002. Also, as with the Army, Air Force servicemembers away 220 to 365 days had risen from about 1,600 to over 22,100. The number of Air Force active, Air Force reserve, and Air National Guard Air Force personnel exceeding the third personnel tempo threshold of 401 or more days away from home in the preceding 730-day period also increased during the latter period of 2002, starting at about 3,700 personnel in September 2002 and rising to more than 8,100 servicemembers in December 2002. Of those, about one-half of these personnel were Air National Guard personnel, some of whom were tasked with conducting air sovereignty alert missions in the continental United States. In September 2002, 1,900 had spent more than 401 days away from home over a 2-year period. By December 2002, the number of Air National Guard personnel spending more than 401 days away from home had increased to about 3,900. Exceeding the threshold on a sustained basis can indicate an inadequacy in the force structure or the mix of forces. DOD has recognized the potential for retention problems stemming from the current high personnel tempo but has balanced that against immediate critical skill needs to support ongoing operations. Therefore, to prevent servicemembers with key skills from leaving the services, DOD issued orders to prevent degradation in combat capabilities, an action known as stop loss authority. DOD took these actions because it recognized that individuals with certain key skills--such as personnel in Army military police and Air Force fighter units--were needed, in some cases, to perform the increasing number of military domestic missions. These orders affected personnel with designated individual job skills or in some cases all of the individuals in specific types of units that were critical for overseas combat and military domestic missions. Officials from the four services who manage the implementation of these orders cautioned that they are short-term tools designed to maintain unit- level military readiness for overseas combat and military domestic missions. Moreover, the officials added that the orders are not to be used as a long-term solution to address mismatches or shortfalls in capabilities and requirements, or as a substitute for the routine recruiting, induction, and training of new servicemembers. Mr. Chairman, this concludes my prepared statement. I would be happy to answer any questions that you or members of the subcommittee may have. Contacts and Staff Acknowledgments For future questions about this statement, please contact Raymond J. Decker at (202) 512-6020. Individuals making key contributions to this statement include Brian J. Lepore, Deborah Colantonio, Richard K. Geiger, Kevin L. O'Neill, William J. Rigazio, Susan K. Woodward, and Michael C. Zola. Combating Terrorism: Observations on National Strategies Related to Terrorism. GAO-03-519T. Washington, D.C.: March 3, 2003. Major Management Challenges and Program Risks: Department of Homeland Security.GAO-03-102. Washington, D.C.: January 2003. Homeland Security: Management Challenges Facing Federal Leadership. GAO-03-260. Washington, D.C.: December 20, 2002. Homeland Security: Effective Intergovernmental Coordination Is Key to Success.GAO-02-1013T. Washington, D.C.: August 23, 2002. Reserve Forces: DOD Actions Needed to Better Manage Relations between Reservists and Their Employers. GAO-02-608. Washington, D.C.: June 13, 2002. Homeland Security: Key Elements to Unify Efforts Are Underway but Uncertainty Remains. GAO-02-610. Washington, D.C.: June 7, 2002. Homeland Security: A Risk Management Approach Can Guide Preparedness Efforts. GAO-02-208T. Washington, D.C.: October 31, 2001. Combating Terrorism: Selected Challenges and Related Recommendations. GAO-01-822. Washington, D.C.: September 20, 2001. Combating Terrorism: Observations on Options to Improve the Federal Response. GAO-01-660T. Washington, D.C.: April 24, 2001. Combating Terrorism: Comments on Counterterrorism Leadership and National Strategy. GAO-01-556T. Washington, D.C.: March 27, 2001. Military Personnel: Full Extent of Support to Civil Authorities Unknown but Unlikely to Adversely Impact Retention. GAO-01-9. Washington, D.C.: January 26, 2001. Combating Terrorism: Federal Response Teams Provide Varied Capabilities: Opportunities Remain to Improve Coordination. GAO-01-14. Washington, D.C.: November 30, 2000. Combating Terrorism: Linking Threats to Strategies and Resources. GAO/T-NSIAD-00-218. Washington, D.C.: July 26, 2000. Combating Terrorism: Observations on the Threat of Chemical and Biological Terrorism. GAO/T-NSIAD-00-50. Washington, D.C.: October 20, 1999. Combating Terrorism: Need for Comprehensive Threat and Risk Assessments of Chemical and Biological Attacks. GAO/NSIAD-99-163. Washington, D.C.: September 7, 1999. Combating Terrorism: Issues to Be Resolved to Improve Counterterrorism Operations. GAO/NSIAD-99-135. Washington, D.C.: May 13, 1999. Combating Terrorism: Observations on Federal Spending to Combat Terrorism. GAO/T-NSIAD/GGD-99-107. Washington, D.C.: March 11, 1999. Combating Terrorism: Observations on Crosscutting Issues. GAO/T-NSIAD-98-164. Washington, D.C.: April 23, 1998. Combating Terrorism: Threat and Risk Assessments Can Help Prioritize and Target Program Investments. GAO/NSIAD-98-74. Washington, D.C.: April 9, 1998. Combating Terrorism: Spending on Governmentwide Programs Requires Better Management and Coordination. GAO/NSIAD-98-39. Washington, D.C.: December 1, 1997. Combating Terrorism: Federal Agencies' Efforts to Implement National Policy and Strategy. GAO/NSIAD-97-254. Washington, D.C.: September 26, 1997.	The way in which the federal government views the defense of the United States has dramatically changed since September 11, 2001. Consequently, the Department of Defense (DOD) is adjusting its Cold War strategic focus (of defending against massed combat forces) to better encompass defense against the asymmetric threats that small terrorist cells represent to U.S. territory. GAO was asked to review DOD's participation in domestic missions. This testimony represents our preliminary work in response to the request. It addresses (1) the primary differences in military and nonmilitary missions; (2) how DOD evaluates requests for nonmilitary missions; (3) how the 1878 Posse Comitatus Act impacts DOD's nonmilitary missions; (4) whether current management organizations, plans, and forces are adequate to support DOD's domestic missions; and (5) the impact of overseas and domestic missions on military personnel tempo. GAO is making no recommendations in this testimony. DOD's military and nonmilitary missions differ in terms of roles, duration, discretion to accept or reject, and capabilities normally employed. DOD evaluates nonmilitary mission requests on the basis of legality, lethality, risk to DOD forces, the cost, the appropriateness of the mission, and the impact on military readiness. The 1878 Posse Comitatus Act prohibits the direct use of federal military troops in domestic civilian law enforcement, except where authorized by the Constitution or Acts of Congress. Congress has expressly authorized the use of the military in certain situations such as to assist with drug interdiction or assist with terrorist incidents involving weapons of mass destruction. It is too early to assess the adequacy of DOD's new management organizations or plans but some forces may not be tailored for their domestic missions. DOD established an Office of the Assistant Secretary of Defense for Homeland Defense and U.S. Northern Command plan and execute domestic missions. U.S. Northern Command's plan for domestic military missions was developed before DOD officials had agreed on the nature of the threat. Forces are not adequately tailored for some domestic missions, and readiness could erode because of it. For example, Air Force fighter units deployed since September 11, 2001 to perform combat air patrols are unable to also perform required combat training. Overseas and domestic missions are stressing U.S. forces as measured in personnel tempo data. In September 2001, about 1,600 Air Force personnel had spent 220 to 365 days away from their homes over the previous year, but by December 2002 almost 22,100 Air Force personnel had been away that long. The Army reported similar increases. To prevent erosion in combat capabilities, DOD issued orders, known as stop loss, to involuntarily retain critical personnel.	3,913	580
OPS administers the national regulatory program to ensure the safe operation of nearly 2.2 million miles of natural gas and hazardous liquid pipelines in the United States. The agency develops, issues, and enforces pipeline safety regulations. These regulations contain minimum safety standards that the pipeline companies that transport natural gas or hazardous liquids must meet for the design, construction, inspection, testing, operation, and maintenance of their pipelines. In general, OPS retains full responsibility for inspecting pipelines and enforcing regulations on interstate pipelines, and certifies states to perform these functions for intrastate pipelines. In fiscal year 2000, OPS employed 97 people, 55 of whom were pipeline inspectors. Several federal statutes enacted since 1988 contain requirements designed to improve pipeline safety and enhance OPS' ability to oversee the pipeline industry. In addition, the Safety Board makes recommendations designed to improve transportation safety to OPS and other federal agencies. These recommendations are based on the Safety Board's investigations of transportation accidents, including significant pipeline accidents (such as those involving fatalities). Many of these recommendations address the same issues as the statutory requirements. OPS has made progress in implementing some of the 22 statutory requirements that it reported as open in our May 2000 report but has not fully implemented some significant, long-standing requirements. As of September 1, 2001, 6 of the 22 requirements have been closed as a result of OPS' actions, 11 requirements are still open, and the remaining 5 have been closed because OPS now considers them to be superseded by or amendments to other requirements or because the agency does not believe it is required to take further action. The agency has fully implemented 6 of the 22 statutory requirements that it classified as open in May 2000. (See table 1.) Three of these six requirements were implemented in the last 16 months; OPS issued a final rule to define underwater abandoned pipeline facilities that present a hazard to navigation and specify how operators shall report these facilities, issued a report on its Risk Management Demonstration Program, and conducted activities to address population encroachment near pipelines. OPS had completed action on the other three requirements prior to May 2000, but did not report these actions to us at that time. (Appendix I provides the status of OPS' actions to implement all 22 requirements as of September 1, 2001.) As of September 1, 2001, 11 requirements--including several from 1992 or earlier that could significantly improve pipeline safety--remain uncompleted. While OPS has made some progress on these requirements over the last year, the agency estimates that it will take from several months to more than a year to complete actions on them. For example, OPS is issuing a series of rules requiring pipeline operators to develop an integrity management program to assess and improve, where necessary, the safety of pipeline segments in areas where the consequences of a pipeline failure could be significant (called "high consequence areas.") This series represents a broad-based, comprehensive effort designed to improve pipeline safety, as well as fulfill several specific statutory requirements such as requirements to inspect pipelines periodically and install valves to shut off the flow of product in the pipeline if a failure occurs. In December 2000, OPS issued a final integrity management rule for hazardous liquid pipelines that are at least 500 miles long. OPS still needs to issue similar integrity management rules for hazardous liquid pipelines that are less than 500 miles long, expected in late fall 2001, and for natural gas transmission pipelines. The agency expects to issue a proposed rule for transmission pipelines by the end of 2001 and a final rule in fall 2002. To facilitate the natural gas transmission rule, OPS officials have been meeting with representatives of the pipeline industry, research institutions, state pipeline safety agencies, and public interest groups to understand how integrity management principles can best be applied to improve the safety of gas pipelines. OPS also requested information and clarification in June 2001 and plans to hold a public meeting with its Natural Gas Technical Advisory Committee on this subject. According to OPS officials, they are close to reaching consensus with the pipeline industry and state agencies on safety standards for natural gas transmission pipelines. In addition, in response to a 1988 requirement to establish standards to complete and maintain a pipeline inventory, OPS is establishing multiple methods of collecting this information, such as annual reports, the integrity management process, and a national pipeline mapping system.According to OPS officials, they are collecting the necessary information for hazardous liquid and gas transmission pipelines, but still need to establish methods to collect additional information for gas distribution pipelines. OPS does not plan to complete forms that will allow it to collect such information until spring 2002--more than 13 years after the original requirement. Finally, in response to a 1992 requirement to define "gathering line" and "regulated gathering line," OPS is still conducting studies to identify which lines should be regulated. OPS does not plan to issue a final rule before mid-2002. OPS officials estimate that it will take a year or more to implement 10 of the 11 open requirements. OPS does not plan to take action on the remaining open requirement to submit a report on underwater abandoned pipeline facilities, including a survey of where such facilities are located and an analysis of any safety hazards associated with them. According to OPS officials, the agency did not complete the report because there were insufficient data available, and it would be expensive to develop the needed data. OPS officials said they have analyzed to the extent possible all available data, and they do not plan to proceed further. We did not determine whether sufficient data exist or the cost to develop data to complete the report. OPS has closed the remaining five requirements that it reported as open in May 2000 because it now considers them to be superseded by or amendments to other requirements or because OPS believes it is no longer required to take action. Although OPS did not fulfill these requirements, we agree with OPS' rationale for considering them closed. OPS closed one requirement because it was replaced by a later requirement. A 1988 statute required OPS to establish standards requiring that new and replacement pipelines accommodate the passage of "smart pigs"--mechanical devices that can travel through the pipeline to record flaws in the pipeline, such as dents or corrosion. Although OPS did not meet this requirement, the agency considers it closed because it was superseded by a similar requirement in a 1996 statute, which has not been completed. OPS closed three requirements from a 1996 statute that amended requirements from a 1992 statute that have not been completed: (1) defining "gathering lines" and "regulated gathering lines," (2) requiring the periodic inspection of pipelines in high-density and environmentally sensitive areas, and (3) establishing criteria to identify all pipeline facilities located in areas that are densely populated and/or environmentally sensitive. In general, the amending provisions gave OPS more flexibility in fulfilling the requirements by adding language such as "where appropriate" or "if needed." Although OPS considered these actions as open in our May 2000 report, OPS now believes that since these three provisions do not impose additional requirements they should not continue to be counted separately. OPS closed one requirement because it is no longer required to take action. A 1996 statute required OPS to issue biennial reports to the Congress on how the agency carried out its pipeline safety responsibilities for the preceding two calendar years. OPS issued the first report in August 1997 but did not issue a report in 1999. This reporting requirement was eliminated as of May 15, 2000, under the Federal Reports Elimination and Sunset Act of 1995, as amended. The Safety Board is encouraged by OPS' recent efforts to improve its responsiveness, but it remains concerned about the amount of time OPS has been taking to implement recommendations. The Director of the Safety Board's Office of Pipeline Investigations views OPS' responsiveness as generally improving because OPS has recently initiated several activities to respond to recommendations and made efforts to communicate better with the Safety Board. To improve communications with the Safety Board, OPS has changed how it informs the Safety Board of progress made on recommendations by corresponding with the Safety Board as progress occurs on individual recommendations, rather than providing periodic updates that may cover a number of recommendations. While the Safety Board is encouraged by OPS' recent efforts, it is reserving final judgment on OPS' progress until the agency demonstrates that it can follow through with actions to fully implement the recommendations. OPS continues to have the lowest rate of any transportation agency for implementing recommendations from the Safety Board; and, in May 2000 we reported that the Safety Board was concerned that OPS had not followed through on promises to implement recommendations. According to the Director of the Safety Board's Office of Pipeline Investigations, the Safety Board continues to be concerned about the amount of time OPS is taking to follow through with the recommendations. For example, the Safety Board initially recommended in 1987 that OPS require pipeline operators to periodically inspect pipelines. OPS is responding to this recommendation through its series of rules on integrity management that is expected to be completed in 2002--15 years after the Safety Board made the initial recommendation. According to the Safety Board's records, OPS has completed action on only 1 of the 39 Safety Board recommendations that were open as of May 2000. Since then, the Safety Board has made 6 additional recommendations, resulting in 44 open recommendations on pipeline safety as of September 1, 2001. However, OPS officials believe that the agency's progress is much greater than the Safety Board's records indicate. The majority of the recommendations are related to damage prevention (damage from outside forces is the leading cause of pipeline accidents) and integrity management; OPS is in the process of implementing several broad-based, complementary efforts in these areas. According to OPS officials, the agency will have fulfilled 19 of the open recommendations by the end of 2001 and expects to complete action on 16 additional recommendations by the end of 2002. OPS has made some progress in implementing statutory requirements over the past 16 months and expects to implement most of the remaining requirements in the next year or so. OPS also believes that it will have completed action on most of the 44 open Safety Board recommendations over this same time period. Ultimately, however, it is the Safety Board's decision on whether OPS' actions fulfill the recommendations. While this progress represents an improvement over OPS' previous performance, the agency has not fully implemented some important requirements and recommendations to improve pipeline safety that were imposed more than 10 years ago. The next 15 months are important to OPS because, among other actions, the agency intends to complete its series of integrity management rules within this time frame. These rules are expected to improve the safety of pipelines and allow OPS to fulfill a large portion of the outstanding statutory requirements and Safety Board recommendations. We are concerned that OPS does not plan to take action in response to the 1992 statutory requirement to report to the Congress on underwater abandoned pipeline facilities. While we did not assess OPS' claims that it is not feasible to complete the report due to insufficient data and funding, OPS has made no response to this requirement, including advising the Congress that it is not possible to complete the study. If the department believes that it cannot complete a report to the Congress on underwater abandoned pipeline facilities, we recommend that the Secretary of Transportation direct OPS to advise the Congress of the reasons why it is unable to complete this study and, if appropriate, ask the Congress to relieve it of this responsibility. We provided a draft of this report to the Department of Transportation for its review and comment. We met with officials from the department, including OPS' Associate Administrator, to obtain their comments. The officials generally agreed with the draft report and its recommendation. The officials stated that OPS is taking a long-term, strategic approach to address safety goals by improving pipeline integrity and preventing damage to pipelines. According to the officials, this approach is more beneficial than responding directly to individual requirements and recommendations as discrete actions. For example, OPS' integrity management rules will require pipeline operators to comprehensively evaluate and respond to the entire range of risks to pipelines; the rules will include, but are not limited to, safety practices that have been required by the Congress or recommended by the Safety Board, such as internal inspections and safety valves. The officials stated that OPS has undertaken several broad-based, complementary efforts, particularly focused on pipeline integrity and damage prevention that, when completed, are expected to improve pipeline safety and fulfill many specific statutory requirements and Safety Board recommendations. They said that such a process requires OPS--working cooperatively with state and local officials and the pipeline industry--to thoroughly explore the safety risks faced by different types of pipelines, devise solutions that work for each unique pipeline, and carefully assess the costs and expected benefits of various methods of mitigating risks. The officials expect that, within a year, the results of these efforts will become apparent to the Congress and the public. In response to OPS' comments, we provided more detailed information on specific actions OPS has taken to improve pipeline safety, where appropriate. To determine OPS' progress in responding to statutory requirements, we asked OPS officials to identify actions the agency has taken to respond to requirements. We then collected and reviewed documentation on these actions, such as published rules and reports. To determine OPS' progress in responding to recommendations from the Safety Board, we collected and analyzed information from the Safety Board on the status of pipeline safety recommendations. We also interviewed the Safety Board's Director of the Office of Railroad, Pipeline, and Hazardous Materials Investigations to discuss OPS' progress in responding to the Safety Board's recommendations. Consistent with the approach used for our May 2000 report, we relied on OPS and the Safety Board to identify which actions were open and did not attempt to determine whether these open actions were, in actuality, completed. In addition, we did not assess the adequacy of OPS' responses to statutory requirements or the Safety Board's recommendations. We performed our work from July through September 2001 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 7 days after the date of this letter. At that time, we will send copies of this report to congressional committees and subcommittees with responsibilities for transportation safety issues, the Secretary of Transportation, the Administrator of the Research and Special Programs Administration, the Director of the Office of Management and Budget, and the Acting Chairman of the National Transportation Safety Board. We will make copies available to others upon request and on our home page at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Key contributors to this report were Helen Desaulniers, Judy Guilliams-Tapia, James Ratzenberger, and Sara Vermillion. Appendix I: OPS' Actions on Pipeline Safety Statutory Requirements Reported as Open in May 2000 (As of September 1, 2001) Citations included in table 5 are to the United States Code and to the Accountable Pipeline Safety and Partnership Act of 1996.	In a May 2000 report on the performance of the Department of Transportation's Office of Pipeline Safety (OPS), GAO found that the number of pipeline accidents rose four percent annually from 1989 to 1998--from 190 in 1989 to 280 in 1998. GAO also found that OPS did not implement 22 statutory requirements and 39 recommendations made by the National Transportation Safety Board. Since GAO's May report, OPS has fully implemented six of the 22 statutory requirements. However, 11 other requirements--including some that are significant and long-standing--have not been fully implemented. The agency does not plan to report on abandoned underwater pipeline facilities--a remaining open requirement--because it believes that insufficient data exists to conduct the study. The Safety Board is encouraged by OPS' recent efforts to improve its responsiveness, but the Board remains concerned about the amount of time OPS has taken to implement recommendations. OPS has the lowest rate of any transportation agency in implementing the Board's recommendations.	3,258	213
NRC's Office of Nuclear Reactor Regulation provides overall direction for the oversight process and the Office of Enforcement is responsible for ensuring that appropriate enforcement actions are taken when performance issues are identified. NRC's regional offices are responsible for implementing the ROP, along with the inspectors who work directly at each of the nuclear power facilities. NRC relies on on-site resident inspectors to assess conditions and the licensees' quality assurance programs, such as those required for maintenance and problem identification and resolution. With its current resources, NRC can inspect only a relatively small sample of the numerous activities going on during complex operations. NRC noted that nuclear power facilities' improved operating experience over more than 25 years allows it to focus its inspections more on safety significant activities. One key ROP goal is to make safety performance assessments more objective, predictable, and understandable. The unexpected discovery, in March 2002, of extensive corrosion and a pineapple-size hole in the reactor vessel head--a vital barrier preventing a radioactive release--at the Davis- Besse nuclear power facility in Ohio led NRC to re-examine its safety oversight and other regulatory processes to determine how such corrosion could be missed. Based on the lessons learned from that event, NRC made several changes to the ROP. NRC continues to annually assess the ROP by obtaining feedback from the industry and other stakeholders such as public interest groups, and incorporates this feedback and other information into specific performance metrics to assess its effectiveness. In anticipation of licensing new reactors, NRC has accelerated its efforts to build up its new reactor workforce. NRC's workforce has grown from about 3,100 employees in 2004 to about 3,500 employees as of August 2007, and NRC projects that its total workforce size needs will grow to about 4,000 employees by 2010. NRC estimates that the first few COL applications will require about 100,000 hours of staff review and identified around 2,500 associated review activities related to each application's detailed safety, environmental, operational, security, and financial information, which may total several thousand pages. NRC anticipates that for each application, the review process will take 42 months--including 30 months for its staff review, followed by approximately 12 months for a public hearing. In addition to the COL, NRC has established (1) the design certification, which standardizes the design of a given reactor for all power companies using it, with modifications limited to site-specific needs, and (2) an early site permit, which allows a potential applicant to resolve many preliminary siting issues before filing a COL application. Electric power companies plan to use five different reactor designs in their COL applications. In implementing its ROP, NRC oversees the safe operation of nuclear power facilities through physical inspections of the various complex plant equipment and operations, reviews of reactor operator records, and quantitative measures or indicators of each reactor's performance. (See table 1 for a more expansive treatment of these tools.) These tools are risk-informed in that they focus on the aspects of operations considered most important to safety. NRC bases its oversight process on the principle and requirement that licensees have programs in place to routinely identify and address performance issues without NRC's direct involvement. Thus, an important aspect of NRC's inspection process is ensuring the effectiveness of licensee programs designed to identify and correct problems. On the basis of the number and risk significance of inspection findings and performance indicators, NRC places each reactor unit into one of five performance categories on its action matrix, which corresponds to graded, or increasing, levels of oversight. NRC assesses overall facility performance and communicates the results to licensees and the public on a semiannual basis. From 2001 through 2005, the ROP identified performance deficiencies through more than 4,000 inspection findings at nuclear power facilities. Ninety-seven percent of these findings were designated green--very low risk to safe facility operations, but important to correct. Two percent (86) were white findings that were considered to be of low to moderate risk significance. Twelve findings were of the highest levels of risk significance--7 yellow and 5 red. More recently, from January 2006 through June 2007, NRC identified an additional 1,174 green findings, 27 white findings, 1 yellow finding, and no red findings. NRC also reviews performance indicators data--used to monitor different aspects of operational safety--that facility operators report to categorize the level of reactor unit performance for each indicator. From 2001 through June 2007, NRC reported that less than 1 percent of over 39,000 indicator reports exceeded acceptable performance thresholds and nearly half of all reactor units have never had a performance indicator fall outside of the acceptable level. Through June 2007, 3 of the 16 performance indicators have always been reported to be within acceptable performance levels--measuring the amount of time that the residual heat removal safety system is unavailable, monitoring the integrity of a radiation barrier, and monitoring radiological releases. Since 2001, three reactor units have reported a yellow indicator for one performance indicator. No red indicators have ever been reported. For varying periods from 2001 through 2005, on the combined basis of inspection findings and performance indicators, NRC has subjected more than 75 percent of the reactor units to oversight beyond the baseline inspections. While most reactors received the lowest level of increased oversight through a supplemental inspection, five reactors were subjected to NRC's highest level of oversight. Reactor units in this category were generally subjected to this higher oversight for long periods due to the more systemic nature of their performance problems. Currently, 1 unit is receiving the highest level of oversight by NRC, and 10 units at 6 facilities are receiving the second level of oversight. NRC inspectors at the facilities we reviewed indicated that when a reactor unit's performance declines it is often the result of deficiencies or ineffectiveness in one or more of the three cross-cutting areas--problem identification and resolution, human performance, and a safety-conscious work environment. NRC inspectors cited examples of possible cross- cutting issues: (1) a facility does not have an effective corrective action program that appropriately identified and resolved problems early; (2) a facility employee has not followed correct maintenance procedures, and NRC made a finding associated with the human performance area; and (3) facility management is complacent by not paying attention to detail or adhering to procedures. Our examination of ROP data found that all reactor units that NRC subjected to its highest level of oversight had findings related to one or more of these substantive cross-cutting issues. In addition, recent NRC inspections have found more problems associated with these cross-cutting issues, in part because of new guidance for identifying and documenting them. Our 2006 report found that NRC has generally taken a proactive approach to continuously improving its oversight process, in response to recommendations that grew out of the Davis-Besse incident; independent reviews; and feedback that is usually obtained during NRC's annual self- assessment of its oversight process from stakeholders, including its regional and on-site inspectors. Continued efforts will be needed to address other shortcomings or opportunities for improvement, however, particularly in improving its ability to identify and address early indications of declining safety performance at nuclear power facilities. For the most part, NRC considers these efforts to be refinements to its oversight process, rather than significant changes. Specific areas that NRC is addressing include the following: To better focus efforts on the areas most important to safety, NRC has formalized its process for periodically revising its inspection procedures. In particular, NRC completed substantive changes to its inspection and assessment program documents--including those currently guiding the highest level of NRC inspections--to more fully incorporate safety culture. To address concerns about the amount of time, level of effort, and knowledge and resources required to determine the risk significance of some inspection findings, NRC has modified its significance determination process, which, according to NRC's 2006 self-assessment, has significantly improved timeliness. To address concerns that performance indicators did not facilitate the early identification of poor performance, NRC has modified several indicators to make them more risk-informed for identifying the risks associated with changes in the availability and reliability of important safety systems. In addition, NRC revised an indicator to more accurately reflect the frequency of events that upset reactor unit stability and challenge critical safety functions. NRC is considering options for revising indicators for emergency preparedness and reactor cooling systems. Both NRC's 2006 self-assessment and internal staff survey cited the need to further improve the performance indicators and their associated guidance. Although NRC and others have long recognized the effects of a facility's safety culture on performance, NRC did not undertake efforts to better incorporate safety culture into the ROP until 2005, when it formed a working group to lead the agency's efforts. To date, the group has completed guidance for identifying, addressing, and evaluating cross- cutting issues specific to safety culture. Our 2006 report concluded that NRC's efforts to incorporate safety culture into the ROP may be its most critical future change to the ROP and recommended that NRC aggressively monitor; evaluate; and, if needed, implement additional measures to increase the effectiveness of its initial safety culture changes. We also recommended that NRC consider developing specific indicators to measure important aspects of safety culture through its performance indicator program. While NRC has largely implemented initial safety culture enhancements to the ROP that primarily address cross-cutting issues, it does not plan to take any additional actions to further implement either recommendation before it completes its assessment of an 18-month implementation phase at the end of this year. This assessment will include lessons learned that NRC managers have compiled since July 2006, including insights from internal and external stakeholders about the effectiveness of ROP enhancements. In addition, we recommended that NRC, in line with its desire to make the ROP an open process, make available additional information on the safety culture at nuclear power facilities to the public and its other stakeholders to provide a more comprehensive picture of performance. NRC has implemented this recommendation by modifying its ROP Web site to fully explain the review process regarding cross-cutting issues and safety culture, and now provides data and correspondence on the reactor units or facilities that have substantive open cross-cutting issues. NRC has prepared its workforce for new reactor licensing reviews by increasing funding for new reactor activities, reorganizing several offices, creating and partly staffing the Office of New Reactors (NRO), and hiring a significant number of entry-level and midlevel professionals. As of August 2007, NRC had assigned about 350 staff to NRO, about 10 percent of the total NRC workforce; however, some critical positions are vacant, and the office plans to grow to about 500 employees in 2008. To assist its staff in reviewing the safety and environmental portions of the applications, NRC plans to contract out about $60 million in fiscal year 2008 through support agreements with several Department of Energy national laboratories and contracts with commercial companies. NRC also has rolled out several new training courses, but it is still developing content for in-depth training on reactor designs. NRC is using a project management approach to better schedule, manage, and coordinate COL application and design certification reviews. While NRC has made progress, several elements of NRC's activities to prepare its workforce are still under way, as the following illustrates: NRC has developed plans for allocating resources for a design certification application and an early site permit it is currently reviewing, 20 COL applications, 2 additional design certification applications, and a design certification amendment application. However, NRC has not yet developed specific criteria to set priorities for reviewing these applications if it needs to decide which applications take precedence. Without criteria, NRC managers are likely to find it more difficult to decide how to allocate resources across several high-priority areas. Accordingly, we recommended that NRC fully develop and implement criteria for setting priorities to allocate resources across applications by January 2008, which NRC has agreed to do. NRC is developing computer-based project management and reviewer tools to assist staff in scheduling and reviewing multiple applications at the same time. For example, Safety Evaluation Report templates are designed to assist COL reviewers by providing standardized content that will enable them to leverage work completed during the design certification review process. However, the implementation of this and other tools has been delayed. We recommended that NRC provide the resources for implementing reviewer and management tools needed to ensure that the most important tools will be available as soon as is practicable, but no later than March 2008, which NRC has agreed to do. NRO established a cross-divisional resource management board early in 2007 for resolving resource allocation issues if major review milestones are at risk of not being met. However, it has not clearly defined the board's role, if any, in setting priorities or directing resource allocation. Because NRO expects to review at least 20 COL applications and 6 design certification, early site permit, and limited work authorization applications associated with its new reactor program over the next 18 months, it may not be able to efficiently manage thousands of activities simultaneously that are associated with these reviews. NRC managers we spoke with recognize this problem and plan to address it. We recommended that NRC clarify the responsibilities of NRO's Resource Management Board in facilitating the coordination and communication of resource allocation decisions, which NRC has agreed to do. NRC has significantly revised most of its primary regulatory framework and review process to prepare for licensing new reactors. Specifically, NRC has revised and augmented its rules, guidance, and oversight criteria for licensing and constructing new reactors primarily to provide for early resolution of issues, standardization, and predictability in the licensing process. In making these changes, NRC has regularly interacted with nuclear industry stakeholders to determine which parts of an application's technical and operational content could be standardized and to clarify guidance on certain technical matters. In addition, NRC just completed modifications to its acceptance review process to include an evaluation of the application's technical sufficiency as well as its completeness and made internal acceptance review guidance available last week. While NRC has made progress in these areas, it has not yet completed some ancillary rules and regulatory guidance, or actions to implement certain review process components. For example, because NRC only recently solicited public comments to further update its environmental guidance, applicants may have more difficulty developing specific COL content for unresolved issues. In addition, while NRC proposed a rule to update physical protection requirements in September 2006, officials told us that it will not be made final until 2008. Furthermore, NRC's limited work authorization rule, while substantially complete, will not be available in final form before October 2007. Lastly, NRC is revising its policy for conducting hearings on both the contested and uncontested portions of applications. In addition, NRC is refining its processes to track its requests for additional information to each applicant. In some instances, applicants using the same reference reactor design may be asked the same question, and one applicant may have already provided a satisfactory answer. With a completed tracking process, the second reviewer could access the previously submitted information to avoid duplication. We recommended that NRC enhance the process for requesting additional information by (1) providing more specific guidance to staff on the development and resolution of requests for additional information within and across design centers and (2) explaining forthcoming workflow and electronic process revisions to COL applicants in a timely manner. NRC has agreed to do so. In conclusion, the safe operation of the nation's nuclear power facilities has always been of fundamental importance and has received even more emphasis recently as the nation faces an expected resurgence in the licensing and construction of new nuclear reactors to help meet our growing electricity needs. Our assessment of the ROP has found that NRC has made considerable effort to continuously improve its oversight activities and to prompt industry to make constant management improvements. However, while the current oversight process appears logical and well-structured, NRC recognizes the need to make further improvements in such areas as the timeliness of its significant determination process and the redefinition of some performance indicators. Regulating the often complex and intangible aspects of safety culture is clearly challenging. While NRC had taken some concrete actions to incorporate safety culture into the ROP and now has a structured process in place through its inspection program, we recommended that NRC continue to act to improve its safety culture efforts. NRC plans to evaluate the effectiveness of its current actions at the end of this year before considering any further implementation of our recommendations. We continue to believe that NRC needs to give this issue attention in further revising the ROP so that it can better identify and address early indications of declining safety performance at nuclear power facilities. NRC has made important strides in revising its regulatory framework and review process for licensing new nuclear reactors to improve timeliness and provide more predictability and consistency during reviews. Nevertheless, NRC's workforce will face a daunting task in completing certain regulatory actions currently under way and implementing this new process as it faces a surge in applications over the next 18 months--the first of which has just been submitted. We identified four actions that NRC could take to better ensure its workforce is prepared to review new reactor applications and that its review processes more efficiently and effectively facilitate reviews, and NRC agreed to implement them. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or the other Members of the Subcommittee may have at this time. For further information about this testimony, please contact Mark Gaffigan, at (202) 512-3841 or by e-mail at [email protected]. Richard Cheston, Assistant Director; Sarah J. Lynch; Alyssa M. Hundrup; and David Stikkers made key contributions to this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. 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.	The Nuclear Regulatory Commission (NRC) is responsible for overseeing the nation's 104 commercial nuclear power reactors to ensure they are operated safely. Since 2000, NRC has used a formal Reactor Oversight Process (ROP) to oversee safety. NRC is also responsible for licensing the construction and operation of new reactors. Electric power companies have announced plans to submit 20 applications in the next 18 months. This testimony is based on GAO reports that reviewed (1) how NRC implements the ROP, (2) the results of the ROP over several years, (3) the status of NRC's efforts to improve the ROP, (4) NRC's efforts to prepare its workforce and manage its workload for new reactor licensing, and (5) NRC's efforts to develop its regulatory framework and review processes for new reactor activities. In conducting this work, GAO analyzed programwide information and interviewed cognizant NRC managers and industry representatives. In implementing its ROP, NRC uses various tools and takes a risk-informed and graded approach to ensure the safety of nuclear power facilities. The ROP primarily relies on physical inspections of equipment and operations and quantitative measures or indicators of performance at each facility to assess the status of safety and determine appropriate levels of oversight. Since 2001, NRC has made more than 4,000 inspection findings that reactor unit operators had not fully complied with safety procedures. Almost all of these findings were for actions NRC considered important to correct but of low significance to safe operations. As a result of NRC inspections, more than 75 percent of the nation's reactor units received some level of increased oversight while five units were subjected to NRC's highest level of oversight for long periods because their performance problems were more systemic. In 2006, GAO reported that NRC has generally taken a proactive approach to improving its ROP. However, concerted efforts will be needed to address shortcomings, particularly in identifying and addressing early indications of declining reactor safety performance. For example, NRC is implementing several enhancements to the ROP to better assess a facility's safety culture--organizational characteristics that ensure safety issues receive the attention their significance warrants. GAO made recommendations to further improve this effort, and NRC has taken initial steps to implement them. NRC has taken important steps to prepare its workforce for new licensing reviews, but several key activities are still underway and uncertainties remain about its management of the expected surge of applications. For example, NRC has increased funding, hired hundreds of new employees, and created and partly staffed a new office. However, NRC has not completed its development of some computer-based tools for enhancing the consistency and coordination of application reviews and has not fully developed criteria for setting priorities if the workload exceeds available resources. Also, while NRC's Office of New Reactors established a resource management board for coordinating certain office review activities, it has not clearly defined the extent of the board's responsibilities. NRC agreed with recommendations GAO made to further improve its workload management. NRC has revised most of its primary regulatory framework and review processes, including its rules, guidance, and oversight criteria to provide for early resolution of issues, standardization, and enhanced predictability. However, NRC has not yet completed some associated rules, guidance, and review process components, including revisions to its environmental guidance, its hearing process, and its process for requesting additional information from applicants. Without these components, expected efficiencies and predictability may be limited regarding the total time an applicant needs to obtain a license. NRC agreed with a recommendation GAO made to further improve its application review process.	3,874	779
The Internal Revenue Code (IRC) requires IRS to notify taxpayers of taxes they might owe and about actions it plans to take to collect the taxes. Since the Revenue Act of 1928, IRS has been required to send such notifications to a taxpayer's last known address. A taxpayer's last known address was not defined by the Revenue Act nor has it been defined by Department of the Treasury regulations. However, over the years, courts have generally defined a taxpayer's last known address as the address shown on the taxpayer's most recently filed tax return, unless the taxpayer notified IRS of an address change. Generally, IRS requires that such notifications be in writing. If IRS' notices cannot be delivered to the taxpayer as addressed, the Postal Service is supposed to return them to IRS. The Postal Service is also supposed to forward mail to taxpayers' new addresses if a change of address form has been submitted to it. Also, the Postal Service is to return mail that is refused or unclaimed by taxpayers. However, IRS generally does not consider mail that is refused or unclaimed to be undeliverable mail. IRS' processing of undeliverable mail involves labor-intensive and manual procedures at the 10 IRS service centers. Mail at each service center is separated into two groups--high and low priority. Mail in the high-priority group includes notices such as the final notices that are sent taxpayers regarding delinquent tax returns and collection of taxes and notices returned with change of address information provided by the Postal Service. For mail in the high-priority group, IRS' procedures require that efforts be made to find the taxpayers' current addresses. To do this, high-priority undeliverable mail is to be returned to the IRS service center function that originated it. For example, those notices involving proposed assessments for underpayment of taxes are returned to the Examination or Underreporter functions for processing. Similarly, notices involving taxpayers' failures to file tax returns and pay delinquent taxes are returned to the Collection function for processing. All low-priority mail is destroyed without further processing. All service center functions generally use internal IRS sources, such as W-2 Forms and other types of information returns, as leads to help them contact taxpayers whose high-priority mail was returned as undeliverable. Service center staff may also use forwarding address information provided on mail returned to IRS by the Postal Service. If a different address is located, IRS is to make an attempt to contact the taxpayer at that address to request verification of an address change. If a taxpayer responds to IRS by confirming a new address, IRS is to change its master file address record--a taxpayer's last known address at IRS. In situations where verification of a different address is not received from the taxpayer and the law requires that a notice be sent to the taxpayer's last known address, IRS' procedures require that the notification be sent to both the master file address and the unverified address. This may be done in situations where IRS is sending notices of intent to levy taxpayers' liquid assets (e.g., bank accounts or wages) that are in the possession of third parties (e.g., financial institutions and employers) or statutory notices of tax deficiencies to taxpayers. Unresolved cases from service center functions, other than Collection, may ultimately become collection cases when proposed taxes are assessed. After assessments are made against taxpayers, IRS is to begin sending them collection notices. If unresolved by collection notices, cases over a predetermined dollar threshold are to be sent to the next stage of IRS' collection process--the Automated Collection System (ACS) call sites, where more detailed address searches are to be done. In addition to address sources used by service centers, ACS uses sources such as state employment commissions and motor vehicle records to find better addresses for taxpayers. ACS may also try to contact taxpayers by telephone to get taxpayers to file delinquent tax returns or pay taxes owed. If the case is not resolved while in ACS and it falls within a certain dollar range, it may be referred to a revenue officer in a district office, where the revenue officer is to attempt to contact taxpayers by conducting field investigations and using local information sources. If a taxpayer does not provide IRS written notification of an address change, IRS continues to send notices to the master file address, which is the same as the last known address, even though previous mail sent to that address has been returned as undeliverable. When mail is undeliverable, taxpayers are generally still accountable for the taxes, interest, and penalties IRS says are owed as long as the mail was sent to the taxpayer's last known address. Our objectives were to obtain information on (1) the number of undeliverable notices that are returned to IRS, (2) the impact these notices have on taxpayers and IRS, and (3) the causes for nondelivery of the mail. Another objective was to assess IRS' procedures for processing undeliverable mail. To obtain information on the extent of IRS' undeliverable notices, we reviewed relevant IRS studies and data that estimated the volume of undeliverable mail. We did not test or independently verify the data provided by IRS. To gather information on the impact undeliverable notices can have on taxpayers and IRS, we interviewed staff from IRS' National Office and all 10 service centers with responsibilities for processing this mail. We also reviewed studies and projects on undeliverable mail by IRS' Internal Audit, service centers, and other groups within IRS. Because certain notices are legally required to be sent to taxpayers, we discussed the impact that undeliverable mail can have on taxpayers and IRS with representatives of IRS' Chief Counsel's Office. To acquire information on the causes of IRS' undeliverable mail, we reviewed service center policies and procedures for processing undeliverable mail and for accepting changes of address from taxpayers. To help in understanding the possible effects of these policies and procedures, we interviewed IRS officials in both the National Office and service centers with responsibilities for processing undeliverable mail. Also, to obtain information on reasons why mail may be undelivered in general, we contacted Postal Service officials at the National Address Information Center in Memphis, Tennessee. To assess IRS' procedures for processing undeliverable mail, we reviewed prior IRS studies focusing on ways to better process this mail. We contacted staff at the Cincinnati and Fresno Service Centers to determine (1) how specialized locator services units at these locations were used to locate taxpayers whose mail was undelivered and (2) how their procedures may have varied from the other service centers. Because IRS recently implemented the Undeliverable Mail System (UMS) in 9 of its 10 service centers, we discussed how it affects undeliverable mail with National Office Collection officials. We also interviewed Collection staff in the Southeast Region, where UMS was piloted. We limited our work to undeliverable mail at IRS' service centers because the majority of IRS' mail originates at the centers, and undelivered mail is returned to its originating location. Because other companies have problems with undeliverable mail, we contacted two large credit card companies to determine whether their procedures offered methods that IRS could possibly use in handling its undeliverable mail. The two companies were judgmentally selected and are similar to IRS in that they send notices and bills to their customers regarding account adjustments and delinquent payments. We did our work between August 1992 and March 1994 in accordance with generally accepted government auditing standards. On October 26, 1994, we met with Collection's Acting Executive Director, (Operations); the Chief of Document Handling, Taxpayer Services; and other IRS National Office officials responsible for overseeing undeliverable mail to obtain their comments on a draft of this report. Their comments are summarized and evaluated on pages 16 and 17 and incorporated in the report where appropriate. American society is very mobile. According to the U.S. Census Bureau, between 15 and 20 percent of Americans move annually. At that rate, as many as 49 million people may move yearly. Keeping up with address changes for such a mobile society presents IRS with a formidable task. Current addresses are critical to IRS because it mails hundreds of millions of pieces of correspondence to taxpayers yearly. IRS does not have precise information on the volume of mail it sends taxpayers annually that is returned undeliverable. However, from time to time various IRS study groups have made estimates of the undeliverable mail volume. Estimates made by these groups indicated that undeliverable mail rose from 6.5 million pieces in 1986 to as much as 15 million pieces in 1992. Because IRS often sends more than one notice to a taxpayer, the number of taxpayers affected by undeliverable mail was probably less than these estimates, but the exact number is unknown. The volume of IRS' undeliverable mail may continue to rise if its accounts receivable inventory continues to grow as it has done for years. This is because the volume of mail IRS sends to taxpayers pertaining to their tax cases is directly related to the number of delinquent accounts in the receivables inventory. Virtually all delinquent accounts are sent notices, and some of this mail may be returned to IRS as undeliverable. According to IRS, most undeliverable mail has three principal causes. Taxpayers move and leave no forwarding addresses with either the Postal Service or IRS. When this occurs, the taxpayers may ultimately bear responsibility for the fact that their mail was delayed or undelivered, but IRS still has to process the undeliverable mail. The Postal Service may not deliver or forward mail, and mail is returned to IRS. This happens even though Postal Service policy states that all First-Class Mail, which most IRS notices are, is to be forwarded for up to 1 year when a valid forwarding address is on file. IRS incorrectly records taxpayers' addresses in its databases. Of the three principal causes, IRS can completely control only the one dealing with how its staff records taxpayers' addresses in its databases. As discussed later in this report, IRS could do more to encourage taxpayers to provide it with address changes even though there is no statute that requires taxpayers to do so. To some extent, IRS is depending on TSM to eliminate some of the errors associated with transcribing taxpayers' addresses in the future. The Taxpayer Ombudsman has also recommended adopting procedures to help ensure that taxpayers' addresses are accurately updated in IRS' databases. Such procedures could help address the problems IRS has disclosed in this area. According to a 1991 IRS Internal Audit report, IRS incorrectly input 450,000 new addresses to the master file when tax returns were filed in 1988. This resulted in approximately 300,000 undeliverable notices, which included balance due notices totaling $49 million. It is very important that IRS' mail reach the intended parties promptly. When not paid, taxes grow even higher as interest and penalties may be added to the tax liability. In some instances, IRS may be unsuccessful in contacting taxpayers at their home addresses but may have information on where they work or bank. With this information, IRS may eventually levy their bank accounts or garnish their wages to satisfy the debt. Thus, the consequences for taxpayers can be quite severe when IRS has an incorrect address and mail is returned to IRS as undeliverable. The impact that undeliverable mail has on taxpayers varies depending on the reason IRS is attempting to contact them. If IRS is questioning the amount of taxes owed because information it has shows that taxpayers might have underreported their tax liabilities, IRS sends notices containing information about this proposed deficiency and instructions on how to resolve it. If the notices are returned to IRS because they were undeliverable, the taxpayers would be unaware that IRS is attempting to contact them. Ultimately, this lack of information could adversely affect their opportunity to appeal the proposed assessments. Even though IRS is unable to contact taxpayers and obtain current addresses, a proposed tax deficiency would ultimately be legally assessed against them. Once IRS assesses the tax, the taxpayer may be required to pay the tax in order to appeal the case. If IRS is attempting to collect delinquent taxes already assessed against taxpayers, it sends collection notices to them. This occurs when (1) taxpayers file balance due tax returns and do not pay, and (2) IRS determines that taxpayers owe additional taxes on the basis of audits and other means. If the notices are returned to IRS as undeliverable and IRS is unable to contact the taxpayer and obtain a written verification of a different address, IRS' computers will automatically send future notices to the same address, even though prior notices were returned as undeliverable. Taxpayers may face unanticipated enforcement actions by IRS, such as seizures of assets and garnishment of wages, without first having had an opportunity to negotiate payment arrangements or show proof that IRS' records may be incorrect. Such actions may occur when IRS' notices are returned as undeliverable even if the taxpayers and IRS had no contact. This is because IRS may have information on where the taxpayer banks or works. If it has this information, IRS' procedures state that it may seize funds in the bank accounts and garnish wages to cover the amount of the taxes. For some taxpayers who did not receive IRS notices, enforcement actions such as these may be their first indication that IRS has been trying to contact them regarding their tax situations. In circumstances such as this, taxpayers' situations would probably worsen since IRS may be required by law to assess penalties and interest. In certain instances, IRS may even seize assets, such as real and personal property, to recover the total amount owed if the case is considered to be in jeopardy. A jeopardy case is one in which IRS feels it must take immediate distraint action to protect the government's interest versus risking further losses. However, IRS officials said that such cases are infrequent, and IRS' procedures require that field collection staff make additional attempts to contact the taxpayers prior to seizing assets. When mail is undeliverable, taxpayers may incur added expenses and time to resolve their tax situations and this could increase their burden and frustration when dealing with IRS as well as lower their general perceptions of IRS. When IRS sends mail to a taxpayer's last known address, it fulfills its legal obligation of notifying the taxpayer even if the taxpayer does not receive it. IRS does not have the burden of proving that the taxpayer actually received the mail. In addition to the inconvenience and burden that undeliverable mail can cause taxpayers, IRS is also adversely affected when its mail does not reach taxpayers. The millions of pieces of mail returned to IRS as undeliverable must be processed, adding to IRS' service center costs. In addition to sorting and routing the mail back to the originating service center functions, attempts are to be made to contact taxpayers to obtain written notification of their address changes. When changes to the taxpayers' addresses cannot be verified, IRS must send legally required notices to taxpayers at the addresses on their most recently filed tax returns. By mailing statutory notices to taxpayers' last known addresses, IRS fulfills its legal requirements for notifying taxpayers about their tax situations. However, many taxpayers may not receive IRS' notices because the addresses on their last tax returns are not their current addresses. IRS' efforts to collect delinquent taxes may be hampered if the taxpayers do not receive the notices because the addresses on the notices were no longer current. IRS recognizes this problem and generally attempts to notify taxpayers of their tax obligations by sending additional notices to addresses it believes may be more current than the addresses in its records. IRS' accounts receivable inventory is also affected to the extent that collection bills are not delivered to taxpayers for timely collection. Not only will the accounts receivable inventory show a higher balance, the government is denied access to funds it is owed. According to IRS staff, as delinquent accounts get older, they are generally more difficult to collect; thus, any delay in collecting accounts may pose some risk regarding the ultimate collectibility of older accounts. If the collection notices reflect taxpayer or IRS errors, delays in resolving invalid cases will only result in IRS wasting time and resources pursuing unproductive cases. Although IRS could not provide us precise estimates of the total costs of undeliverable mail to IRS--either in added costs of operations or in lost revenues--a few studies have attempted to measure component parts of the overall cost. For example: A 1991 report by IRS Internal Audit showed that 70 percent of the estimated 9 million pieces of undeliverable mail in 1988 were notices to taxpayers who potentially owed $3.4 billion in delinquent taxes or had not filed tax returns. According to that report, IRS spent about $13.9 million to print, mail, and process this mail. In addition, it said these undeliverable notices cost IRS millions of dollars in lost revenue and increased collection costs. In a December 1992 briefing on undeliverable mail for IRS' Chief Operations Officer, IRS estimated that for fiscal year 1992, it issued 340,000 undeliverable statutory notices valued at $1.7 billion. IRS' Chief Counsel estimated that undeliverable statutory notices with last known address problems cause losses of $5.5 million annually. A 1992 National Office quality improvement project reported that IRS had at least 1.2 million invalid business addresses in IRS computer files, resulting in about 2.25 million pieces of undeliverable mail annually. According to the report, IRS incurs increased operating costs of at least $3.6 million annually, a minimum revenue loss of $100 million, and decreased taxpayer compliance. This report also noted that the problem of undeliverable mail diminishes taxpayers' image of IRS because of the undue burdens imposed on them. IRS has recognized the need to reduce the amount of its undeliverable mail and has several studies and projects focusing on ways to deal with it. One project involved the implementation of UMS in 9 of the 10 service centers by early 1994. UMS is an automated system designed to make the Collection function's search for taxpayers' addresses easier. In searching for address leads, UMS uses information from IRS' own databases, such as information returns like W-2 Forms, and external data from credit bureaus. If a different address is located, UMS sends a computer-generated letter to the taxpayer requesting verification of the address. If the taxpayer confirms a different address, IRS changes the taxpayer's master file address. However, when a different address is not found or confirmed by the taxpayer through UMS, the results of UMS' research are to be electronically transmitted to ACS. According to Collection officials, UMS should reduce processing time and lower operations costs for handling undeliverable mail. As currently used, UMS researches undeliverable notices regarding only delinquent tax returns and payments for the Collection function. At one time, IRS' future plans called for adding additional address sources to the UMS database and allowing all functions that process undeliverable mail to use it. However, as we were completing our work, we learned that UMS will become a part of the new Inventory Delivery System. The purpose of the Inventory Delivery System is to further automate the service center Collection processes. The Inventory Delivery System's enhancements include direct interface with IRS' computer files to update taxpayers' addresses in IRS' records and an increase in the number of sources used for locating addresses. In January 1995, IRS will implement a program designed to speed the resolution of tax cases. The program is referred to as an early intervention program because IRS staff are to contact taxpayers by telephone at the same time it sends out collection notices. To implement this program, IRS' Collection function in the 10 service centers is to start processing undeliverable mail after the first occurrence of this mail as the other service center functions do. Under Collection's new procedures, taxpayers will be sent only two service center notices instead of the four notices currently being sent. By sending fewer notices, this program should have a potential to reduce the amount of Collection's undeliverable mail and lower the costs associated with sending notices to undeliverable addresses. One of IRS' studies on undeliverable mail was a multifunctional study on last known addresses issues sponsored by the IRS Taxpayer Ombudsman. As a starting point, this study looked at the recommendations made in other studies and projects. The study was critical of IRS for not seriously considering prior recommendations and stated that few changes aimed at better handling undeliverable mail had occurred because of a feeling within IRS that the future operational improvements under TSM will resolve the undeliverable mail problems. Recommendations from prior IRS studies and projects, as well as new recommendations, have been summarized in the report by the Taxpayer Ombudsman. In total, 25 recommendations aimed at helping IRS better deal with undeliverable mail have been made. The recommendations included (1) developing standardized procedures for processing undeliverable mail throughout IRS and making the Collection function's automated systems available to other service center functions; (2) testing alternative methods for taxpayers to provide address changes to IRS, such as the use of a tear-off return stub on notices; and (3) adopting procedures to help ensure that taxpayers' addresses would be accurately updated in its databases. When we were completing this report, we learned that IRS had approved the report on the Taxpayer Ombudsman's project in August 1994, and responsible offices were developing action plans to implement its recommendations. TSM, a long-term project to modernize computer operations and enhance customer service, is to shift IRS from a paper-based environment to an electronic one. IRS anticipates that this shift will potentially reduce the volume of undeliverable mail because more taxpayers are expected to file tax returns electronically, which should result in more accurate processing. This should eliminate errors caused by manually keying information, and therefore reduce IRS' need to contact taxpayers to correct mistakes. Also, under TSM, IRS plans to make many of its contacts with taxpayers by telephone, and this should eliminate some of the need to correspond by mail. In addition, TSM's new Document Processing System would allow IRS to enter information into its databases by optically scanning paper documents sent to IRS by taxpayers and eliminate the need for IRS' staff to manually transcribe the data as is currently being done. This will also result in faster and more accurate processing of tax information. Currently, through tax packages and publications, IRS informs taxpayers that they should notify it in writing of address changes. IRS' instructions tell the taxpayers to use the preaddressed labels supplied on their tax packages. If the addresses on these labels are incorrect, taxpayers are instructed to simply cross out the old addresses and write in their new addresses. If a taxpayer's address changes after the current year's tax return was filed, the instructions advise taxpayers to notify their service centers or district offices in writing. Taxpayers are told that they can use an IRS change of address form to do this, and they should also notify the Postal Service of the change if they anticipate receiving a tax refund. If a taxpayer voluntarily calls IRS to report an address change, IRS' procedures require that the staff accept the new address for the sole purpose of mailing the taxpayer a change of address form. According to IRS officials, it will not change the address in its records until the taxpayer returns the change of address form. However, IRS' procedures allow address changes based on oral statements taken over the telephone when an IRS employee contacts a taxpayer in connection with an unresolved tax case and when a taxpayer calls IRS to inquire about an undelivered income tax refund check. Even though IRS' procedures require written notification from taxpayers to change their addresses, except for the two circumstances previously mentioned, such notification is not fail-safe because IRS generally accepts it without verification. Thus, the acceptance of address changes over the telephone should pose no greater risk to IRS than accepting written notifications, since both written notifications and orally supplied changes of address can be fraudulently supplied to IRS. IRS' TSM plans call for systems that would allow taxpayers to change their addresses simply by using the keypad on their telephones. Since IRS currently accepts changes of address by telephone when its staff contacts taxpayers regarding unresolved tax cases and when taxpayers contact IRS about undeliverable income tax refund checks, it might consider accepting address information over the telephone now, especially when taxpayers call IRS to provide it. The general acceptance of changes of address by telephone should help IRS promote its one-stop concept of resolving taxpayers' concerns with minimum contact and effort. We contacted two large private sector companies in the collection business for information on how they handle address changes. Like IRS, these companies need accurate addresses to contact customers. Officials from these companies told us that they ordinarily do not require written verifications from customers before they make address changes because their experiences have shown that information obtained by telephone was usually reliable. We believe that increasing taxpayers' awareness of the importance of providing address changes to IRS is fundamental to developing a strategy to minimize the volume of undeliverable mail. If taxpayers are unaware of the importance, planned TSM enhancements will not be much help in resolving the problem of undeliverable mail. We found that IRS publications such as tax packages supplied annually to taxpayers did not discuss the importance of keeping addresses current with IRS. Even though the tax packages requested taxpayers to use the change of address form--Form 8822--to notify IRS of address changes, the form is not included in the packages. Taxpayers must take additional steps to obtain the change of address form, such as (1) visiting an IRS office, (2) calling a toll-free number, or (3) using a special order form. In contrast, many businesses make it much more convenient for customers to change their addresses. They often provide customers a conspicuous means for changing their addresses, such as on return envelopes, order forms, or change of address forms accompanying each mailing. To raise taxpayers' awareness of IRS' need for current addresses, IRS could explore ways to make (1) taxpayers more aware of the importance of keeping their addresses current and (2) the change of address form more conveniently available. We believe that such actions could help IRS reduce the volume of undeliverable mail and improve customer service. The different IRS service center functions that process undeliverable mail perform similar address searches. They work independently, however, and generally do not coordinate or share results despite the fact that taxpayers' cases may ultimately be referred to and worked on by the other functions. As a result, each function may perform the same research on the same taxpayer. This duplication of effort increases IRS' costs and the time associated with obtaining different addresses for taxpayers whose mail was undeliverable. In the Examination function, for example, staff manually maintain a file for each taxpayer's case that includes information on the results of efforts to locate and contact the taxpayer. While these files are available to all Examination function staff, they are not shared with other service center functions that may be assigned the case at some time in the future. The Inventory Delivery System, which Collection plans to implement, should give it the means to automatically maintain results of prior address searches. However, the results of address searches would still not be shared among service center functions. We identified attempts by two service centers to consolidate efforts to locate taxpayers' addresses in order to reduce costs and improve effectiveness. In one, the Cincinnati Service Center established a unit to serve service center functions handling undeliverable mail. The purpose of the unit is to (1) search for different addresses for selected notices and (2) identify the best available address and provide it to the function responsible for the mail. However, this unit did not process all of the service center's undeliverable mail. The other consolidation effort at the Fresno Service Center has been disbanded because of IRS' Chief Counsel's objection to it changing addresses without taxpayers' confirmation. Although IRS did not collect productivity data on these consolidation efforts, staff who were involved in them told us that the consolidation eliminated some of the duplicate research at the service centers. Collection's experience with UMS and the centralization projects at the Fresno and Cincinnati Service Centers suggested that a centralized means of processing undeliverable mail would be more efficient. Further, as a result of IRS' Taxpayer Ombudsman's study, IRS plans to establish centralized units in an effort to standardize their procedures servicewide. By using centralized units to process undeliverable mail, IRS could expect earlier resolution of address problems, reduced rework and duplicative address searches, and lower operations costs. On that basis, IRS could proceed to centralize the process and, in the future, gather the data necessary to continuously improve the centralized process. Although it is unlikely that the problem of undeliverable mail can be totally eliminated, IRS needs to give undeliverable mail more attention because it adversely affects operations and can cause undue burden on taxpayers. IRS is aware of the need to better manage its undeliverable mail and is considering ways to better deal with this mail. Although previous efforts to deal with this mail were primarily limited to IRS' service center Collection functions, new efforts are expected to have Service-wide consequences because IRS agreed in August 1994 to implement the recommendations of the Taxpayer Ombudsman's study. The implementation of these recommendations should have a significant impact on reducing IRS' undeliverable mail. One recommendation from this study calls for IRS to standardize its procedures for processing undeliverable mail throughout the service centers and expand Collection's initiatives, such as UMS, for Service-wide use. The implementation of this recommendation could help IRS implement its planned centralized unit in each service center to process all undeliverable mail starting with the initial occurrence of returned mail. This would further ensure that the duplication of effort that currently exists across service centers would be eliminated and that IRS would resolve the problem of its undeliverable mail sooner. Over time, IRS expects TSM to bring further operational improvements and eliminate some of the paper correspondence between IRS and taxpayers. Ideally, TSM will foster IRS' goal of accepting taxpayer address changes by telephone and reduce the errors associated with having staff manually update taxpayers' addresses. However, to minimize the amount of undeliverable mail, IRS should also explore ways to make taxpayers more aware of the importance of keeping it informed of address changes. It should allow taxpayers to make address changes with minimum effort by such means as telephoning IRS or using the change of address form, which should be conveniently available. To help IRS better manage its undeliverable mail we recommend that the Commissioner of Internal Revenue take the following actions: Better encourage taxpayers to make address changes by (1) accepting changes of address over the telephone; (2) making Form 8822, Change of Address, more conveniently available; and (3) emphasizing to taxpayers the importance of keeping their addresses current with IRS. Proceed with plans to establish a centralized unit within each service center to process all service center undeliverable mail starting with the initial occurrence of returned mail. Responsible IRS officials, including the Acting Executive Director, Collection (Operations), and the Chief of Document Handling Services, Taxpayer Services, reviewed a draft of this report and provided oral comments in a meeting on October 26, 1994. The officials agreed that additional steps should be taken to process undeliverable mail more efficiently and reduce the volume of such mail. In this regard, they said that IRS senior management has approved the recommendations in the Taxpayer Ombudsman's study and action plans are being prepared to implement them. According to the IRS officials, one action plan is to deal with standardizing procedures for address searches and would involve centralizing the processing of undeliverable mail in the service centers as we are recommending. The IRS officials explained that several measures that affect how undeliverable mail is processed are currently being tested or planned. They believed that these measures generally address the issues discussed in our recommendations. For example, to encourage taxpayers to make address changes, they said Taxpayer Services is including a change of address form in notices sent to taxpayers on a test basis. The Chief of Document Handling Services, Taxpayer Services, told us that IRS has several planned studies that could potentially affect IRS' undeliverable mail. These include (1) IRS' participation in a project with the Postal Service and other federal agencies in which the Postal Service will collect change of address information and provide it to the participating agencies, and (2) IRS' use of the Postal Service's National Change of Address database to contact taxpayers in order to verify addresses. To encourage taxpayers to provide IRS address changes, we are recommending that IRS accept address changes by telephone. Although Collection officials agreed with us, they said that IRS' Chief Counsel must first approve this change. In a draft of this report that IRS reviewed, we proposed that IRS stop sending service center collection notices to known undeliverable addresses while research for a current address is ongoing, except for notices that are legally required to be sent to taxpayers. IRS' Collection officials disagreed with this proposal. They said that the costs of sending notices are negligible and that because some taxpayers may be located by subsequent mailings to the same addresses, IRS should not begin searches until these mailings are returned undeliverable. Collection officials also said that they would incur increased staff costs if they were to eliminate some notices and accelerate processing of undeliverable mail to the next stage in its collection process. The IRS officials said that costs would be higher in the subsequent collection stages because higher graded staff are used to work unresolved collection cases. We have since dropped our proposal because Collection officials later told us that beginning in January 1995, they will reduce the number of service center notices sent to taxpayers, which will result in earlier processing of undeliverable mail. When this change takes effect, Collection will be sending taxpayers only two service center notices. The effect of IRS' elimination of two of the four service center notices basically carries out what we had previously proposed. However, we question whether IRS would incur increased staff costs by accelerating a case to the next stage in the collection process. We raise this question because all unresolved cases would eventually move to the next stage of the collection process, and delaying collections and resolution of such cases may actually cost more. As arranged with the Subcommittee, we are sending copies of this report to the Commissioner of Internal Revenue and other interested parties. We will make copies available to others upon request. Major contributors to this report are listed in appendix I. Please contact me on (202) 512-9044 if you or your staff have any questions. Terry Tillotson, Evaluator-in-Charge Marvin McGill, Evaluator Kathy Squires, Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (301) 258-4097 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.	In response to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) processes for handling undeliverable mail, focusing on the: (1) amount of and reasons for undeliverable mail; and (2) impact of undeliverable mail on taxpayers and IRS. GAO found that: (1) IRS estimates that it had about 6.5 million pieces of undeliverable mail in 1986 and about 15 million pieces in 1992; (2) undeliverable mail is principally caused by taxpayers failing to leave forwarding addresses, the U.S. Postal Service not delivering or forwarding mail, and IRS incorrectly recording taxpayers' addresses in its files; (3) taxpayer interest and penalties can substantially increase because of undeliverable mail, which eventually can lead to IRS attachment of taxpayers' liquid assets; (4) IRS loses millions of dollars in revenue annually and incurs increased operating costs because of undeliverable mail; (5) the IRS Collection Division plans to start processing undeliverable mail after the first occurrence and send only two instead of four service center notices to decrease collection costs; (6) IRS has implemented only a few recommendations to decrease its undeliverable mail because it expects its Tax Systems Modernization initiative to resolve its undeliverable mail problem; (7) senior IRS management recently requested responsible IRS offices to develop action plans to decrease the amount of undeliverable mail in a recent internal IRS report; (8) IRS needs to increase taxpayers' awareness of the need to provide address changes to minimize the volume of undeliverable mail; and (9) more efficient processing of undeliverable mail could result if IRS consolidates mail processing functions into one centralized unit.	7,819	361
In the late 1980s, the judiciary recognized that it was facing space shortages, security shortfalls, and operational inefficiencies at courthouse facilities around the country. To address this problem, the Judicial Conference of the United States directed each of the 94 judicial districts, with assistance from AOC, to develop long-range space plans to determine where new and additional space was needed. To date, AOC has provided each judicial district with planning guidance in developing 5-, 10-, and 30-year space shortage projections. As a result of this process, the judiciary identified approximately 200 locations that would be out of space within the next 10 years and has estimated that funding for new courthouses at these locations would cost approximately $10 billion. In addition to identifying space shortages, these planning efforts also identified security concerns and operational inefficiencies at many of these facilities nationwide. The judiciary makes requests for new courthouse projects to GSA, the federal government's central agency for real property operations. GSA requests funding for courthouses as part of the president's annual budget request to Congress. Under the Public Buildings Act of 1959, as amended, GSA is required to submit to the Senate Committee on Environment and Public Works and the House Committee on Transportation and Infrastructure detailed project descriptions, called prospectuses, that contain project cost estimates and justifications for projects that exceed a prospectus threshold. Under the act, GSA can adjust the prospectus threshold upward or downward based on changes in construction costs during the preceding calendar year--the threshold is $1.74 million for fiscal year 1997. Once projects are funded by Congress, GSA is to contract with private sector firms for design and construction work. In the early 1990s, Congress, we, and the private sector began calling on the judiciary and GSA to prioritize projects for this major initiative. In 1990, we began reporting that Congress needed better information for decisionmaking, including a prioritization of capital investment needs. In 1994, the Conference Committee on GSA's 1995 appropriations act directed that the courthouse construction requirements established by GSA and the Office of Management and Budget (OMB) include a prioritization of projects by AOC. A year earlier, the Independent Courts Building Program Panel--which was formed in 1993 by GSA and AOC and comprised leading architects, engineers, and construction professionals--recommended that courthouse projects be prioritized into yearly 5-year plans. More recently, in November 1995, we testified that the process for funding new courthouse projects lacked--and could benefit from--a comprehensive capital investment plan that articulates a rationale or justification for projects and presents projects in a long-term strategic context.Furthermore, during the last 6 years, we have reported that Congress lacks quality information to assess the merits of individual projects, understand the rationale for project priorities, and justify funding decisions. In March 1996, the judiciary--through the Judicial Conference of the United States--issued a 5-year plan for courthouse construction for fiscal years 1997 through 2001. The plan, which is intended to communicate the judiciary's urgent housing needs to Congress and GSA, identifies 45 projects for funding based on information from Congress and GSA that $500 million could be used as a planning target in estimating funds that will be available for courthouse construction each year. Appendix I shows the projects in the plan by fiscal year. To determine project urgency, the judiciary developed a methodology for assigning urgency scores to projects. The criteria and related weights applied in assessing urgency include the length of time space shortages have existed as defined by the year a location was or will be out-of-space (30 percent); security concern ratings of 1 through 4 (30 percent), where a 1 indicates the lowest level of security concern; operational inefficiency ratings of 1 through 5 (25 percent), where a 1 indicates minimal operational inefficiencies; and the number of judges affected as defined by the number of judges without courtrooms (15 percent). Under the methodology, each project receives an urgency score on a scale of 100, with a score of 100 indicating the highest level or degree of urgency. Appendix II contains a more detailed description of the judiciary's urgency score methodology. In addition to the plan, AOC provided us with related material, including a description of the methodology for assessing urgency, an overview of the process used to develop the plan, and urgency scores for the projects in the plan. AOC indicated that it provided the same material to key congressional committees. Our objectives were to determine whether the judiciary's 5-year plan (1) reflects the judiciary's most urgent courthouse construction needs and (2) provides information needed by decisionmakers to evaluate the relative merits of project proposals. To meet the first objective, we focused on determining whether the plan contains all the most urgently needed projects and if priorities in the plan correlate with the judiciary's own project urgency scores. In making this assessment, we relied primarily on the urgency scores the judiciary developed for projects in the plan, its methodology for assessing project urgency, and AOC data related to urgency for projects that were not included in the plan. The judiciary's methodology for assessing urgency appears to include factors that would be important in gauging the relative urgency of competing projects, and the process used to assign scores for each of the four criteria, though subjective, seems straightforward. However, we did not assess the validity of the methodology or the reliability of the urgency scores developed for each location. To determine whether the plan contains the most urgently needed projects, we developed minimum urgency scores for 80 locations that were not in the plan but, according to AOC, also need new courthouse projects. AOC provided us with security concern and out-of-space year data for these projects. As previously mentioned, security concern and out-of-space year data each have weights of 30 percent that are applied in developing the urgency score. Operational inefficiencies and the number of judges affected--the two other components of the urgency score--have weights of 25 percent and 15 percent of the score, respectively. Therefore, security concern and out-of-space year data equate to 60 percent of the total urgency scores these projects would receive. To calculate minimum scores for these locations, we used the security concern and out-of-space year data and applied the judiciary's urgency score methodology to these 80 other locations. Because data for operational inefficiencies were not available for these locations, we assigned minimum ratings of "1" to each of the 80 locations. AOC officials told us that, according to the scoring methodology, 1 was the lowest score locations could receive for this criterion. For the fourth factor, number of judges affected, AOC did not have data, and thus we used "0" for this factor in our calculation. Therefore, our minimum scores do not include an assessment of operational conditions at these locations or a calculation for the number of judges affected. If actual scores for these two factors were included, urgency scores for these projects could either increase or remain the same--the scores could not decrease. We then compared these minimum scores to the complete scores assigned to the 45 projects in the 5-year plan and discussed the results with AOC officials. Appendix II contains a more detailed description of the urgency score methodology and our calculation of minimum scores for projects not included in the plan. To determine whether priorities in the plan correlate with the project urgency scores the judiciary developed, we compared the urgency scores for the 45 projects in the plan with the yearly sequence of funding priorities specified in the plan for fiscal years 1997 through 2001. We specifically focused on comparing projects that were at similar stages, such as site and design, that are scheduled for funding in different years according to the plan. We also discussed project priorities with AOC and GSA officials to identify other factors that may have been considered in prioritizing projects. To meet the second objective, we compared the information in the plan and related material to the types of information decisionmakers need to effectively assess project proposals and funding requests. Our past work specifically identified the types of information decisionmakers need when making decisions on courthouse construction funding. It includes a capital investment plan that prioritizes individual projects and puts them in some long-term strategic context and provides a rationale or justification for priorities set among competing projects. In making our comparison, we also considered the results of our work on the first objective because knowing whether the plan reflects the judiciary's most urgently needed projects has ramifications for the amount of information decisionmakers would need to understand the basis for the plan's priorities. Also, as mentioned before, the judiciary's intent in developing the plan was to communicate its urgent courthouse construction needs. In addition, we reviewed congressional reports and testimonies pertaining to capital investment planning. We also considered a 1993 report by a GSA/judiciary-sponsored panel of private sector experts that outlined ways to improve the courthouse construction initiative. We did our work between March and November 1996 in accordance with generally accepted government auditing standards. We received written comments on a draft of this report from AOC, which we have included in appendix III. GSA provided oral comments on a draft of this report. We summarize and evaluate AOC's and GSA's comments on pages 14 and 15. Our analysis showed that the 5-year plan does contain projects with high urgency scores, including 13 projects with scores above 65. However, it also contains others that have scores lower than projects that were not included in the plan. Using the judiciary's methodology and available data on security and space concerns and assuming the lowest possible scores for operational conditions and number of judges affected, we calculated minimum urgency scores for 80 projects that were not in the plan. Of these, we identified 30 projects that had minimum urgency scores higher than the complete scores for some of the projects in the plan. In fact, according to AOC, 1 of the 30 projects not in the plan would have a complete urgency score that is higher than those for 40 of the 45 projects in the plan. In developing the plan, the judiciary did not develop urgency scores for all competing projects. Instead, the judiciary focused on those projects that were in the GSA pipeline or were previously identified during earlier internal efforts to develop project priorities. Using this approach and the assumption that $500 million would be available for projects in each of the 5 years, the judiciary developed scores for 45 projects. AOC officials told us that they were unable to develop scores for other projects not included in the plan in time for the plan's March 1996 issuance. They added that, based on their general knowledge of conditions at the other locations, they believed these other projects would not have urgency scores as high as the projects in the plan, except for a few cases. However, AOC did not provide any analysis to support these assertions. It said that it intends to develop scores for all the projects for possible inclusion in future versions of the plan. Urgency scores and related data were not available for projects not included in the plan when we began our review. However, AOC subsequently provided us with out-of-space year and security concern data it had developed for 80 projects identified for funding consideration in the fiscal years 2002 through 2006 timeframe. These two factors have a total weight of 60 percent that is applied in developing the urgency score. We used these data to apply the judiciary's methodology for assigning project urgency scores to identify minimum scores for these 80 projects. Data for operational inefficiencies at these locations were not available; therefore, we assigned a minimum rating of 1 to each of the 80 locations. According to the scoring methodology, 1 is the score locations receive when operational inefficiencies are minimal. For the fourth factor, number of judges affected, AOC did not have data, and we used 0 in our calculation, which is the minimum score a location can receive for this factor. As shown in table 1, using these data and the judiciary's methodology, we calculated that 30 locations have a minimum urgency score of 41.3 or higher, which is higher than the complete scores for 3 projects in the plan--San Diego, CA; San Jose, CA; and Cheyenne, WY. In addition to having a minimum score higher than the San Diego, San Jose, and Cheyenne projects, Los Angeles has a minimum score higher than another 16 locations that were included in the plan. Jackson has a minimum score higher than a total of eight projects in the plan. We also noted that the projects in San Diego and San Jose are scheduled to begin receiving the $197 million they are estimated to require in fiscal year 1998, which is 4 years before funding is to be considered for any of the projects in table 1. Appendix II shows our calculations of minimum urgency scores for each of the 80 projects that were not included in the plan. It is important to recognize that the minimum score calculations for these 30 locations include a minimum assessment of operational conditions and number of judges affected for these locations, 2 factors that have weights totaling 40 percent that are applied in developing the urgency scores. Although we were unable to determine the extent to which additional data on these other two criteria would increase the urgency scores, our minimum score calculations clearly showed that the 45 projects in the plan do not reflect the 45 most urgent projects according to the judiciary's methodology. The AOC official responsible for developing the plan told us that the actual urgency score for Los Angeles when taking into account all 4 criteria would be somewhere in the 80s. Only 5 of the plan's 45 projects have scores of 80 or above. The official said that the judiciary is aware of the conditions in Los Angeles and that the project was left out of the 5-year plan until some key planning decisions are made by GSA and the judiciary. The official added that one major obstacle to moving this project up in the plan is its cost, which is estimated at over $200 million. Another obstacle is the unwillingness of certain judicial districts to have their projects pushed back to make room for this project given that the plan assumes only $500 million will be available each year. We recognize that these factors will need to be considered in the funding process. However, not explaining the situation in Los Angeles in the plan seems questionable given the urgency score it would receive and that the objective of the plan was to communicate the judiciary's urgent needs. Further, the obstacles to including it in the plan provided by AOC seem to be ones in which Congress has a stakeholder interest since it funds the projects and may not be fully aware of the situation in Los Angeles. We did note that the plan recognizes in a footnote that further study is needed to determine how to resolve the need for a project in Los Angeles. However, the plan provides no indication of the forthcoming challenge of funding this large project with limited resources or the severe conditions that exist in Los Angeles. For example, Los Angeles has a "severe" security concern rating of 4,which is quite different from the two California locations that are scheduled for funding beginning in 1998. These two locations, San Jose and San Diego, had security concern scores of only 1--the lowest score possible. No other locations, including those in the plan, had security concerns lower than 2. In fact, six other locations not included in the plan--including Jackson, MS--had "major" security concerns warranting scores of 3. In addition to not reflecting the most urgent projects, project funding priorities in the plan itself were not always exclusively based on the urgency scores. Our analysis of project priorities and urgency scores showed that several of the projects in the plan identified for funding in fiscal year 1998 had lower urgency scores than several projects scheduled for fiscal years 1999 and 2000. The first year of the plan, 1997, does contain several projects with high urgency scores, including projects in Brooklyn, NY; Corpus Christi, TX; Cleveland, OH; and Seattle, WA that have scores ranging from 77.5 to 100. However, eight projects identified for site and/or design funding in 1999 had higher urgency scores than seven projects identified for site and/or design funding in 1998. Table 2 shows these projects and their urgency scores. In fact, one 1999 project--Richmond, VA--has the fifth highest urgency score among projects in the plan, yet 23 other projects in the plan with lower urgency scores have higher funding priority. Furthermore, five projects scheduled for site and/or design funding in 2000 all have urgency scores higher than three of the projects scheduled for site and/or design funding in 1998. These five 2000 projects have scores ranging from 47.9 to 50.8 and are located in Harrisburg, PA; Sioux Falls, SD; Muskogee, OK; Birmingham, AL; and Toledo, OH. Appendix I shows the scores for all these projects as well as for the other projects in the plan. AOC officials said that projects in the plan were not prioritized exclusively on the basis of their urgency scores. As previously mentioned, the plan places heavy emphasis on projects that were already in the GSA pipeline. These pipeline projects include projects in the latter stages of the GSA planning process that GSA had already planned to request funding for in 1997 and 1998. The GSA planning process includes assessing needs, estimating costs, and developing prospectuses for congressional review. GSA officials confirmed that projects in the plan for 1997 and 1998 were in the GSA pipeline. They added that for projects identified for 1999 and beyond, GSA was not prepared to request funding any sooner than is specified in the 5-year plan. For example, they had only recently become aware of the urgent need in Richmond and were not prepared to request funds for a project there any earlier than 1999. According to AOC officials, the plan is transitional in that it addresses projects already identified for funding by GSA in 1997 and 1998, and then begins addressing urgent projects identified through the judiciary's new process in 1999 and beyond. According to these officials, these pipeline projects should be funded first because their planning efforts are already under way. We recognize that the process for identifying and funding projects is complex and dynamic and that various factors, including planning decisions already made, total funding available, and the political nature of the process, will influence final decisions. Nonetheless, the judiciary's plan and its related urgency score methodology have the potential to provide important baseline information to help decisionmakers weigh priorities and make more informed decisions. While we believe that pipeline projects should compete for funding, we also believe that the plan should make a convincing argument as to why these projects should be funded first. As discussed in more detail in the next section, the plan and related material do not (1) provide a rationale or justification for why Congress should fund these pipeline projects first or (2) discuss the consequences of or trade-offs involved in funding projects with low urgency scores that GSA had already planned to request instead of others that have higher scores. The judiciary's 5-year plan and related materials do not provide all the information needed by decisionmakers to fully assess the relative merits of project proposals. Over the last several years, we have stressed the importance of placing construction proposals in a priority-based plan. And, our November 8, 1995, testimony on courthouse construction noted that Congress lacked information that (1) puts individual projects in some long-term strategic context and (2) provides a rationale or justification for project priorities. During our current review, we examined the judiciary's plan and its related material to see whether they contained the type of information we said Congress lacked when making critical capital investment decisions. Our analysis showed that the plan and its related material do not articulate priorities in a long-term strategic context, primarily because they do not reflect an assessment of the urgency of all competing projects. As mentioned earlier, the judiciary focused on projects in the GSA pipeline and others identified during earlier internal efforts to plan for future projects. However, it did not assess other projects that, our work showed, have higher urgency scores than several of the projects in the plan. Although this approach produced a list of the judiciary's priorities, it did not provide decisionmakers a long-term perspective on the urgency of projects in the plan compared to others that were not included. In addition, the plan did not explain that all needed projects had yet to be assessed. Without this explanation, decisionmakers could get the impression that projects not included in the plan all have lower urgency scores. Furthermore, the plan does not contain a rationale or justification for its project priorities. As discussed earlier, the judiciary fashioned the plan to give higher priority to projects in the GSA pipeline. However, the plan and related material do not explain that pipeline projects did not always have the highest urgency scores or articulate why Congress should fund these projects first. As a result, the plan does not convey to Congress the consequences of or trade-offs involved in not funding higher urgency projects sooner in favor of projects with lower urgency scores that are in the GSA pipeline. Related to not justifying its priorities, the plan and its related material lack specificity about conditions that exist at each location--information that would help decisionmakers better understand priorities. The plan and its related material do not discuss conditions such as security concerns or severe space shortages at different locations. Although the urgency scores and related data were provided, summarizing the specific conditions that are driving the need for individual projects could strengthen the plan and give decisionmakers a better perspective or understanding about why one project is more urgent than another. The judiciary has made an effort to improve capital investment planning for courthouse construction as evidenced by its methodology for assessing project urgency and its efforts to prepare a construction plan. However, the current 5-year plan does not reflect all the judiciary's most urgently needed projects, and project funding priorities are not always based exclusively on urgency. Furthermore, the plan does not provide key project-specific information needed by decisionmakers to compare and evaluate the merits of individual projects and understand the rationale that supports priorities. We recognize that the plan is transitional and that it will evolve. We also recognize that the process for funding courthouse projects is dynamic and that various factors influence funding decisions. Within this context, the judiciary's plan and the related urgency score methodology have the potential to provide important baseline information to help decisionmakers weigh priorities and make more informed decisions. This plan and its related material do not alert Congress, an important stakeholder, that the projects do not reflect all the judiciary's most urgent needs nor do they explain that pipeline projects with high funding priority do not always have the highest urgency scores. Absent this information, decisionmakers may not be aware of the severity of needs in other locations not included in the plan--such as Los Angeles--or that projects in the plan with high scores--such as Richmond--have a lower funding priority than other projects with lower scores. We recommend that the Director of AOC work with the Judicial Conference Committee on Security, Space, and Facilities to make improvements to the 5-year plan. These improvements should be aimed at making the plan more informative and a more useful tool for helping Congress to better understand project priorities and individual project needs. At a minimum, the plan should (1) fully disclose the relative urgency of all competing projects and (2) articulate the rationale or justification for project priorities, including information on the conditions that are driving urgency--such as specific security concerns or operational inefficiencies. AOC, on December 13, 1996, provided written comments on a draft of this report that generally concurred with the draft and our recommendations. AOC said that many of the improvements we recommended were already under consideration (see app. III). AOC recognized that the judiciary is responsible for providing its requirements to GSA as one of GSA's many tenants and has done its part to project space requirements in a methodical way. However, AOC pointed out that, since the executive branch has not released strategic real property plans for the federal government as a whole, our comment about the lack of a strategic real estate plan would be more appropriately addressed to the executive branch. We agree that a governmentwide strategic plan for real property is needed and have recommended that GSA take the lead in developing such a plan in several of our prior products (see Related GAO Products at the end of this report). However, the development of a governmentwide plan was not the subject of this review. Instead, we reviewed the judiciary's 5-year plan, which serves as input to GSA's overall planning efforts. To date, through the 5-year plan and related urgency score methodology, the judiciary has begun playing an important role in improving strategic planning for the courthouse construction initiative. Their approach has the potential to provide important baseline data that are key ingredients to strategic planning. However, the judiciary's efforts to date have been incomplete and could benefit from the improvements outlined in our recommendations. We believe that any GSA customer with major capital investment needs like the judiciary should think and plan strategically and have significant input into the development of a governmentwide plan. The proportion of courthouse projects in GSA's new construction budget submissions has been significant, far surpassing that of all GSA's other tenants combined--about $633 million of the $715 million GSA requested for new construction in fiscal year 1997 were for courthouse projects. According to the judiciary's plan, courthouses could continue to take up a large proportion of GSA's construction resources given that the plan identifies about $500 million in needs per year between fiscal years 1997 and 2001 and that, as our work showed, 80 additional locations have needs to be addressed beyond 2001. We received oral comments on a draft of this report from key GSA Public Buildings Service officials involved in the courthouse construction initiative--the Assistant Commissioner for Portfolio Management, the Courthouse Management Group (CMG) Program Executive, and the CMG Program Director. These officials agreed with the thrust of the report and said that it was a fair representation of issues related to the 5-year plan. In addition, the Assistant Commissioner pointed out that judiciary needs do not always have to be met through new construction. GSA will consider other options, including leasing and lease-construction, in developing proposals for consideration by Congress. She said that, because the judiciary conveyed its needs in what was called a construction plan, its audience may assume that new construction is the only option for meeting these space needs. The CMG Program Director, speaking for himself and the CMG Program Executive, wanted to reemphasize that the pipeline projects identified for 1997 and 1998, including those with low urgency scores, were the only projects GSA was prepared to request in these years. He said that GSA would need time to plan and develop proposals for locations with high urgency scores identified for 1999 and beyond. Finally, these officials also suggested a few minor clarifying changes to the draft, which we made where appropriate. We are sending copies of this report to the Director of AOC; Chairman of the Judicial Conference Committee on Security, Space, and Facilities; Administrator of GSA; Director, Office of Management and Budget; and other interested congressional committees and subcommittees. The major contributors to this report are listed in appendix IV. If you have any questions or would like additional information, please contact me on (202) 512-8387. Brooklyn, NY (Cellar Annex) The criteria and related weights applied in assessing urgency under the judiciary's methodology include the length of time space shortages have existed as defined by the year a location was or will be out of space (30 percent); security concern ratings of 1 through 4 (30 percent), where a 1 indicates the lowest level of security concern; operational inefficiency ratings of 1 through 5 (25 percent), where a 1 indicates the lowest level of operational inefficiency; and the number of judges affected as defined by the number of judges without courtrooms (15 percent). Under the methodology, the range of possible conditions for each of the four criteria has a corresponding multiplication factor between 0 and 1. These factors are multiplied by the weight for each of the criteria to determine the urgency score. As a result, each project receives an urgency score on a scale of 100, with a score of 100 indicating the highest level or degree of urgency. To calculate minimum scores for the 80 locations not included in the 5-year plan, we used security concern and out-of-space year data AOC provided and applied the judiciary's urgency score methodology. The data AOC provided are shown in table II.1 under the columns entitled "security concern" and "out-of-space year." According to the methodology, each level of security concern and out-of-space year have corresponding multiples used in calculating the score. These multiples are shown in table II.1 under the columns entitled "security score multiple" and "out-of-space year multiple." The security concern and out-of-space year portions of the urgency score result from applying the multiple to 30, the weight given to each of these factors. These scores are shown in table II.1 under the columns "security score" and "out-of-space year score." Although data for operational inefficiencies at these locations were not available, we assigned a minimum rating of 1 to each of the 80 locations. AOC officials told us that, according to the scoring methodology, 1 was the lowest score locations could receive for this criterion. According to the judiciary's methodology, a score of 1 equates to 5 points in the calculation of the urgency score. For the fourth factor, number of judges affected, AOC did not have data, and thus we used 0 for this factor in our calculation, which is the lowest score a location can receive for this factor. The minimum urgency score total shown in the last column of table II.1, therefore, represents an addition of the security score, out-of-space year score, and minimum scores applied for operational conditions and number of judges affected. Out-of-space year score (multiple x 30) Number of judges affected score (continued) Security score (multiple x 30) Out-of-space year score (multiple x 30) Number of judges affected score (continued) Out-of-space year score (multiple x 30) Federal Courthouse Construction: More Disciplined Approach Would Reduce Costs and Provide for Better Decisionmaking (GAO/T-GGD-96-19, Nov. 8, 1995). General Services Administration: Opportunitites For Cost Savings in the Public Buildings Area (GAO/T-GGD-95-149, July 13, 1995). Federal Real Property: Key Acquisition and Management Obstacles (GAO/T-GGD-93-42, July 27, 1993). Federal Office Space: Obstacles to Purchasing Commercial Properties From RTC, FDIC, and Others (GAO/GGD-92-60, Mar. 31, 1992). General Services Issues (GAO/OCG-93-28TR, Dec. 1992). Real Property Management Issues Facing GSA and Congress (GAO/T-GGD-92-4, Oct. 30, 1991). Long-Term Neglect of Federal Building Needs (GAO/T-GGD-91-64, Aug. 1, 1991). Federal Buildings: Actions Needed to Prevent Further Deterioration and Obsolescence (GAO/GGD-91-57, May 13, 1991). The Disinvestment in Federal Office Space (GAO/T-GGD-90-24, Mar. 20, 1990). 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.	Pursuant to a congressional request, GAO reviewed the General Services Administration (GSA) and the Administrative Office of the U.S. Courts' (AOC) 5-year courthouse construction plan, focusing on whether the 5-year plan: (1) reflects the judiciary's most urgent courthouse construction needs; and (2) provides information needed by decisionmakers to evaluate the relative merit of project proposals. GAO found that: (1) while the judiciary has developed a methodology for assessing project urgency and a 5-year construction plan to communicate its urgent courthouse construction needs, GAO's analysis suggests that the 5-year plan does not reflect all of the judiciary's most urgent courthouse construction needs; (2) in preparing the 5-year plan, the judiciary developed urgency scores for 45 projects; (3) it did not develop urgency scores for other locations that according to AOC also need new courthouses; (4) GAO's analysis of available data on conditions at the 80 other locations showed that 30 of them likely would receive an urgency score higher than some projects in the plan; (5) for projects that are in the plan, high urgency scores did not always lead to high funding priority; (6) AOC officials said that this was a transitional plan in that it placed heavy emphasis in assigning funding priorities on the projects already in the GSA pipeline rather than solely on project urgency; (7) GAO's work also showed that the judiciary's plan and related material do not present competing projects in a long-term strategic context or articulate a rationale or justification for proposed projects and their relative priority; (8) they do not contain project-specific information on the conditions that exist at each location that would help decisionmakers compare the merits of individual projects, better understand the rationale for funding priorities, and justify funding decisions; and (9) GAO recognizes that the plan is transitional and that it is reasonable for pipeline projects to receive priority consideration for funding, but the plan and related material should make a convincing argument as to why they should be funded before others that have higher urgency scores.	6,946	441
Federal regulation is a basic tool of government. Agencies issue thousands of rules and regulations each year to implement statutes enacted by Congress. The public policy goals and benefits of regulations include, among other things, ensuring that workplaces, air travel, foods, and drugs are safe; that the nation's air, water and land are not polluted; and that the appropriate amount of taxes is collected. The costs of these regulations are estimated to be in the hundreds of billions of dollars, and the benefits estimates are even higher. Given the size and impact of federal regulation, it is no surprise that Congresses and Presidents have taken a number of actions to refine and reform the regulatory process within the past 25 years. One goal of such initiatives has been to reduce regulatory burdens on affected parties, but other purposes have also played a part. Among these are efforts to require more rigorous analyses of proposed rules and thus provide better information to decision makers, to enhance oversight of rule making by Congress and the President, and to promote greater transparency and participation in the process. Over the last decade, at the request of Congress, GAO has released over 60 reports and testimonies reviewing the implementation of various regulatory reform initiatives. Some initiatives, such as the Paperwork Reduction Act (PRA), Regulatory Flexibility Act (RFA), Unfunded Mandates Reform Act (UMRA), and Executive Order 12866 on Regulatory Planning and Review, have undergone repeated scrutiny. While our reviews identified specific strengths and weaknesses of individual initiatives, it may be more worthwhile to focus on crosscutting strengths and weaknesses. The common strengths we identified largely mirror the general purposes of various reform initiatives. The common weaknesses reflect issues associated with both the design and implementation of the initiatives. Our reviews suggest at least four overall strengths or benefits that have been associated with existing regulatory reform initiatives: (1) increasing the attention directed to rules and rule making, (2) increasing expectations regarding the analytical support for proposed rules, (3) encouraging and facilitating greater public participation in rule making, and (4) improving the transparency of the rule-making process. First, the simple fact that such initiatives bring added attention to rules and the rule-making process is an important benefit. As we have pointed out in prior reports, oversight of agencies' rule making can result in useful changes to rules. Furthermore, awareness of this added scrutiny may provide an important indirect effect. For example, in a previous GAO review, Department of Transportation officials told us that they will not even propose certain regulatory provisions because they know that the Office of Management and Budget (OMB), which reviews significant agency draft rules under Executive Order 12866, will not find them acceptable. Similarly, there is evidence that the focus placed on potential mandates under UMRA may have helped to discourage or limit the costs of federal mandates. Second, several of the reform initiatives have increased the analytical requirements and expectations in the regulatory process. These initiatives have raised the bar for agencies regarding the information and analysis needed to support policy decisions underlying regulations. Simply put, the initiatives call for more analysis of the effects--both benefits and costs--of proposed regulations before they are implemented. Whether imposed by statute or executive order, these initiatives seek to answer a basic question, "What are the consequences of this rule?" Closely related are other requirements that encourage agencies to identify and consider alternatives when developing regulations. Executive Order 12866, for example, asks agencies to first identify and assess available alternatives to direct regulation. Initiatives such as RFA and UMRA ask agencies to identify regulatory alternatives that will be less burdensome to regulated parties. Third, some of the reform initiatives have encouraged and facilitated greater public participation and consultation in rule making. Initiatives such as the E-Government Act and the Government Paperwork Elimination Act encourage agencies to allow the public to communicate with them by electronic means. Other initiatives require additional consultation by agencies with the parties that might be affected by rules under development. These initiatives ask that agencies seek input earlier in the process, rather than waiting for the public to comment on proposals published in the Federal Register. A final shared strength of many of these initiatives, and one closely connected to the three previous items, is that they help to improve the transparency of the regulatory process. In prior work, we have cited transparency as a regulatory best practice. By providing more information about potential effects and alternatives, requiring more documentation and justification of agencies' decisions, and facilitating public access to and queries about such information, regulatory reform initiatives can help make the process more open. We recommended that more could be done to increase transparency, and we have also highlighted the value of transparency when agencies had particularly clear and complete documentation supporting their rule making. As the Administrator of OMB's Office of Information and Regulatory Affairs (OIRA) pointed out, openness can help to "transform the public debate about regulation to one of substance ... rather than process." Despite these strengths, the overall results and effectiveness of regulatory reform initiatives have often been mixed. This may be particularly true when results of the initiatives are compared to the goals and purposes originally established for them. For example, despite the goals set for the reduction of paperwork burdens under PRA, we have repeatedly testified about the growth in burden hours imposed by federal information collections. We similarly reported that initiatives such as UMRA, the executive order on federalism, and requirements imposed under Section 610 of RFA for reviews of existing rules, have had little impact on agencies' rule making. Our reviews have identified at least four general reasons that might explain why reform initiatives have not been more effective: (1) the limited scope and coverage of various requirements, (2) lack of clarity regarding key terms and definitions, (3) uneven implementation of the initiatives' requirements, and (4) a predominant focus on just one part of the regulatory process, agencies' development of rules. First, we have pointed out significant limits in the scope and coverage of certain reform initiatives. UMRA provides one example of the effect of definitional limitations, exceptions, and thresholds on restricting an initiative's coverage. As we noted in a report last year, part of the reason for the relatively small number of rules identified as containing mandates under UMRA could be traced to 14 different restrictions on the identification of federal mandates under the Act. Furthermore, our analysis of all 122 major or economically significant rules (generally, rules with an impact of $100 million or more) published in 2001 and 2002 also showed that more than one of these restrictions applied to 72 percent of the 65 rules that were not identified as containing federal mandates under UMRA but nonetheless appeared to result in significant financial effects on nonfederal parties. UMRA, along with RFA, also illustrates the potential domino effect of building reform requirements on other procedural requirements. Both acts only apply to rules for which an agency publishes a notice of proposed rule making. However, agencies can publish final regulatory actions without notices of proposed rule making using either good cause, categorical, or statute-specific exceptions to the Administrative Procedure Act's notice and comment requirements. In one of our prior reports, we estimated that about half of all final regulatory actions published by agencies were issued without going through the proposed rule stage. Although many final rules without proposed rules were minor actions, in both that analysis and our recent UMRA review there were major rules that did not have notices of proposed rule making. Another recurring message in our reports has been the effect of unclear terms and definitions that affect the applicability of requirements. Combined with the discretion given rule-making agencies to interpret the requirements in reform initiatives, it is not surprising that we have observed uneven implementation across agencies. In particular, we have often cited the need to clarify key terms in the Regulatory Flexibility Act. RFA requires analyses and other actions to help address concerns about the impact of regulations on small entities, but the requirements do not apply if the agency head certifies that the agency's rule will not have a "significant economic impact on a substantial number of small entities." However, the Act neither defines this key phrase nor places clear responsibility on any party to define it consistently across government. As a result, we found that agencies had different interpretations of RFA's requirements. We said in a series of reports that, if Congress wanted to strengthen the implementation of RFA, it should consider amending the Act to define the key phrases or provide some other entity with clearer authority and responsibility to interpret RFA's provisions. To date, Congress has not acted on our recommendations. Again, there is a domino effect associated with this uncertainty, because other reform initiatives, such as the requirement for agencies to review existing rules under Section 610 of RFA and a requirement to provide compliance assistance guides to regulated entities, only apply if an agency has determined the rule will have a significant economic impact on a substantial number of small entities. Sometimes, though, it might not be uncertainty over the provisions of an initiative that help to limit its effectiveness, but rather an agency's implementation of the requirements. For example, as noted in our recent report on the Paperwork Reduction Act, one of the provisions aimed at helping to achieve the goals of minimizing burden while maximizing utility is a requirement for chief information officers (CIO) to review and certify information collections. However, our analysis of case studies showed that CIOs provided these certifications despite often missing or inadequate support from the program offices sponsoring the collections. We recommended that OMB clarify the kinds of support it asks agency CIOs to provide for certifications and that heads of certain agencies direct responsible CIOs to strengthen agency support for CIO certifications, including with regard to the necessity of collection, burden reduction efforts, and plans for the use of information collected. Our reports over the years have also highlighted issues regarding agencies' implementation of analytical requirements, such as the economic analyses that support regulations. Although the economic performance of some federal actions is assessed prospectively, few federal actions are monitored for their economic performance retrospectively. In addition, our reviews have found that economic assessments that analyze regulations prospectively are often incomplete and inconsistent with general economic principles. Moreover, the assessments are not always useful for comparisons across the government, because they are often based on different assumptions for the same key economic variables. In our recent report on UMRA, we noted that parties from various sectors expressed concerns about the accuracy and completeness of agencies' cost estimates, and some also emphasized that more needed to be done to address the benefits side of the equation. Our reviews have found that not all benefits are quantified and monetized by agencies, partly because of the difficulty in estimation. Finally, although not an explicit finding in any of our reports, it is clear when stepping back to look at the big picture presented by the set of reform initiatives and our body of regulatory work that these initiatives primarily target one particular phase of the regulatory process, agencies' development of rules. While rule making is clearly an important point in the process when the specific substance and impact of regulations are most open to public debate, other phases also help determine the effectiveness of regulation. Few of the reform initiatives contain major requirements or processes that address those other phases in the life cycle of regulations-- from the underlying statutory authorizations, through effective implementation and monitoring of compliance with regulatory provisions, to evaluation and revision of existing rules. For example, only UMRA explicitly addresses the potential effect of legislative proposals in creating mandates that would ultimately be implemented through regulations, and that element of UMRA has generally been viewed as among its most effective elements. We have reported that agencies sometimes have little rule-making discretion, so in some cases concerns raised about burdensome regulations are traceable to the statutes underlying the regulations, rather than a failure of an agency to comply with rule-making requirements. With regard to other phases in the regulatory process, RFA is unique among statutory requirements in having a provision (Section 610) for reviews of existing rules, although it is limited to rules with significant effects on small entities. Executive Order 12866 also includes some provisions to encourage agencies to review and revise existing rules. It is not clear, however, that either the Section 610 or the executive order look back provisions have been consistently and effectively implemented. As this subcommittee begins to develop its regulatory reform agenda, our body of work on regulatory issues, and also on results-oriented government management, suggests two general avenues of effort you may want to consider as useful starting points. One avenue is to revisit the procedures, definitions, exemptions, and other provisions of existing initiatives to determine whether changes might be needed to better achieve their goals. Second, the subcommittee may wish to explore options to more effectively and productively evaluate existing regulations and the results they have generated. Not only could such retrospective evaluations help to inform Congress and other policymakers about ways to improve the design of regulations and regulatory programs, but they could play a part in the overall reexamination of the base of the federal government that we have recommended in our recent work on addressing 21st century challenges. With respect to the first avenue, my testimony to this point indicates that there are ample opportunities to revisit and refine existing regulatory reform initiatives. Although progress has been made to implement recommendations and matters for consideration we have raised in our prior reports, there are still unresolved issues. In particular, Congress may want to consider whether some provisions of existing statutory initiatives need to be amended to make those initiatives more effective. We still believe, for example, that Congress should clarify key terms and definitions in RFA or provide another entity with the authority and responsibility to do so. We also believe there is some value to taking a broader look at how all of the pieces of existing initiatives have, or have not, contributed to achieving the purposes intended. For example, we suggested in our recent review of PRA that a new approach might be required to address burden reduction. As illustrated by our work on lessons learned about UMRA in the 10 years since it was enacted, such reviews can reveal opportunities and options for both reinforcing the strengths and addressing the weaknesses that have emerged in practice. The options can take a number of different directions. For example, in our work on UMRA, concerns about the scope of coverage were most frequently raised by the many knowledgeable parties we consulted, but issues and options were also identified regarding enforcement, consultation, and the analytic framework, among other topics. In undertaking reviews of existing initiatives, it will be important to also revisit the reasons why particular limitations and exceptions were included in the initiatives to begin with. As pointed out in the UMRA work, this probably needs to be an inclusive effort to be successful, involving all affected parties in the debate to find common ground if changes are to be accepted. The second broad avenue I would suggest the subcommittee consider in its reform agenda would be to explore using retrospective evaluations of existing regulations. Such evaluations could help to keep the regulatory process focused on results and identify ways to better meet emerging challenges. Among the potential benefits of more retrospective analysis of federal regulations are that it could enable policymakers to better gauge actual benefits and costs and whether regulations are achieving their desired goals, bring additional accountability to the regulatory process, identify opportunities to revise existing regulations, and provide information that could lead to better decisions regarding future regulations. In our work this year on both UMRA and economic performance measures, we clearly heard from the experts we consulted that they believe more retrospective analysis is needed and, further, that there are ways to improve the quality and credibility of the analyses that are done. In the UMRA work, parties had particularly strong views about the need for better evaluation and research of federal mandates, including those imposed by regulations. The most frequently suggested option to address this issue was to do more postimplementation evaluation of existing mandates or "look backs" at their effectiveness. As one of the parties pointed out, retrospective evaluation of regulations is useful because rules can change people's behavior in ways that cannot be predicted prior to implementation. In our recent workshop where we obtained the views of experts about the use of economic performance measures, such as a comparison of benefits and costs (net benefits) and cost-effectiveness, participants identified several gaps in the application of these measures to analyze federal regulations and programs. For example, while some agencies have done retrospective economic performance assessments, the participants said that in general federal agencies often do not assess the performance of regulations or existing programs retrospectively, even though this information could be useful in managing programs. However, there are also challenges to effectively implementing retrospective evaluations. For example, we previously identified some of the difficulties regulatory agencies face in demonstrating the results of their work, such as identifying and collecting the data needed to demonstrate results, the diverse and complex factors that affect agencies' results (for example, the need to achieve results through the actions of third parties), and the long time period required to see results in some areas of federal regulation. There is also a potential balance concern because, as I noted earlier, it may be more difficult to quantify the benefits of regulations than it is to quantify the costs. Finally, I want to emphasize that this is a particularly timely point to be reviewing the regulatory process because of the long-term fiscal imbalance facing the United States, along with other significant trends and challenges. The 21st century challenges that we have been highlighting this year establish the case for change and the need to reexamine the base of the federal government and all of its existing programs, policies, functions, and activities. We recognize that a successful reexamination of the base of the federal government will entail multiple approaches over a period of years. No single approach or reform can address all of the questions and program areas that need to be revisited. However, federal regulation is a critical tool of government, and regulatory programs play a key part in how the federal government addresses many of the country's needs. Asking the questions necessary to begin reexamining the federal regulatory process is an important first step in the long-term effort to transform what the federal government does and how it does it. Madam Chairman, this concludes my prepared statement. Once again, I appreciate the opportunity to testify on these important issues. I would be pleased to address any questions you or other members of the subcommittee might have at this time. If additional information is needed regarding this testimony, please contact J. Christopher Mihm, Managing Director, Strategic Issues, at (202) 512-6806 or [email protected]. Congresses and Presidents have taken a number of actions to refine and reform the regulatory process within the past 25 years. The following paragraphs summarize the general purpose, applicability, and requirements imposed by some of those regulatory reform initiatives. PRA was originally enacted in 1980, then amended in 1986 and 1995. PRA requires agencies to justify any collection of information from the public in order to minimize the paperwork burden they impose and to maximize the practical utility of the information collected. The Act applies to independent and nonindependent regulatory agencies. Under PRA, agencies are required to submit all proposed information collections to the Office of Management and Budget (OMB) for approval. In their submissions, agencies must establish the need and intended use of the information, estimate the burden that the collection will impose on respondents, and show that the collection is the least burdensome way to gather the information. PRA also established the Office of Information and Regulatory Affairs (OIRA) within OMB to provide central agency leadership and oversight of government efforts to reduce unnecessary paperwork and improve the management of information resources. Subsequent reform initiatives, including amendments of PRA, have added responsibilities for OIRA, such as making the office responsible for overseeing and reporting on agencies' compliance with new regulatory requirements. PRA of 1995, for example, included a requirement that OIRA, in consultation with agency heads, set annual governmentwide goals for the reduction of information collection burdens. RFA was enacted in response to concerns about the effect that federal regulations can have on small entities. RFA requires independent and nonindependent regulatory agencies to assess the impact of their rules on "small entities," defined as including small businesses, small governmental jurisdictions, and certain small not-for-profit organizations. Under RFA an agency must prepare an initial regulatory flexibility analysis at the time proposed rules are issued unless the head of the agency determines that the proposed rule would not have a "significant economic impact upon a substantial number of small entities." The Act also requires agencies to ensure that small entities have an opportunity to participate in the rule- making process and requires the Chief Counsel of the Small Business Administration's Office of Advocacy to monitor agencies' compliance. Further, Section 610 of RFA requires agencies to review existing rules within 10 years of promulgation that have or will have a significant impact on small entities to determine whether they should be continued without change or amended or rescinded to minimize their impact on small entities. Congress amended RFA in 1996 with SBREFA. SBREFA made certain agency actions under RFA judicially reviewable. Other provisions in SBREFA added new requirements. For example, SBREFA requires agencies to develop one or more compliance guides for each final rule or group of related final rules for which the agency is required to prepare a regulatory flexibility analysis, and the Act requires agencies to provide small entities with some form of relief from civil monetary penalties. SBREFA also requires the Environmental Protection Agency and the Occupational Safety and Health Administration to convene advocacy review panels before publishing an initial regulatory flexibility analysis. UMRA was enacted to address concerns about federal statutes and regulations that require nonfederal parties to expend resources to achieve legislative goals without being provided funding to cover the costs. UMRA generates information about the nature and size of potential federal mandates but does not preclude the implementation of such mandates. UMRA applies to proposed federal mandates in both legislation and regulations, but it does not apply to rules published by independent regulatory agencies. With regard to the regulatory process, UMRA requires federal agencies to prepare written statements containing a "qualitative and quantitative assessment of the anticipated costs and benefits" for any rule for which a proposed rule was published that includes a federal mandate that may result in the expenditure of $100 million or more in any 1 year by state, local, and tribal governments in the aggregate, or by the private sector. For such rules, agencies are to identify and consider a reasonable number of regulatory alternatives and from those select the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule (or explain why that alternative was not selected). UMRA also includes a consultation requirement that agencies develop a process to permit elected officers of state, local, and tribal governments (or their designees) to provide input in the development of regulatory proposals containing significant intergovernmental mandates. CRA was enacted as part of SBREFA in 1996 to better ensure that Congress has an opportunity to review, and possibly reject, rules before they become effective. CRA established expedited procedures by which members of Congress may disapprove agencies' rules by introducing a resolution of disapproval that, if adopted by both Houses of Congress and signed by the President, can nullify an agency's rule. CRA applies to rules issued by nonindependent and independent regulatory agencies. CRA requires agencies to file final rules with both Congress and GAO before the rules can become effective. GAO's role under CRA is to provide Congress with a report on each major rule (for example, rules with a $100 million impact on the economy) including GAO's assessment of the issuing agency's compliance with the procedural steps required by various acts and executive orders governing the rule-making process. Congress enacted GPEA in 1998, and the Act promoted the expansion of a trend in the federal government toward using e-government applications to collect and disseminate information and forms. GPEA requires federal agencies to provide the public, when practicable, the option of submitting, maintaining, and disclosing required information--such as employment records, tax forms, and loan applications--electronically, instead of on paper. GPEA also requires agencies to guard the privacy and protect documents from being altered and encourages federal government use of a range of electronic signature alternatives when practicable. In 2000, Congress enacted TIRA to provide a mechanism for Congress to obtain more information about certain rules. TIRA contemplated a 3-year pilot project during which GAO would perform independent evaluations of "economically significant" agency rules when requested by a chairman or ranking member of a committee of jurisdiction of either House of Congress. The independent evaluation would include an evaluation of the agency's analysis of the potential benefits, potential costs, and alternative approaches considered during the rule-making proceeding. Under TIRA, GAO was required to report on its evaluations within 180 calendar days after receiving a committee request. Section 6(b) of the Act, however, provided that the pilot project would continue only if, in each fiscal year, a specific annual appropriation was made. During the 3-year period contemplated for the pilot project, Congress did not enact any specific appropriation to cover TIRA evaluations, and the authority for the 3-year pilot project expired on January 15, 2004. Congress has considered reauthorizing TIRA, and we have strongly urged that any reauthorization of TIRA continue to contain language requiring a specific annual appropriation before we are required to undertake independent evaluations of major rule makings. We have also recommended that TIRA evaluations be conducted under a pilot project basis. Enacted in Section 515 of the Treasury and General Government Appropriations Act of 2001, the Information Quality Act directed OMB to issue governmentwide guidelines to ensure and maximize the quality, objectivity, utility, and integrity of information (including statistical information) disseminated by federal agencies. The Act requires OMB to issue guidelines directing all agencies to issue their own guidelines within 1 year and to establish administrative mechanisms allowing affected persons to seek and obtain correction of information maintained and disseminated by the agency. The Act also requires agencies to report periodically to the Director of OMB on the number and nature of complaints received and how such complaints were handled by the agency. The E-Government Act was intended to enhance the management and promotion of electronic government services and processes. With regard to the regulatory process, the Act requires agencies, to the extent practicable, to accept public comments on proposed rules by electronic means. The Act also requires agencies to ensure that publicly accessible federal Web sites contain electronic dockets for their proposed rules, including all comments submitted on the rules and other relevant materials. The E-Government Act also established an Office of Electronic Government within OMB, headed by an administrator appointed by the President. In addition to congressional regulatory reform initiatives enacted in statutes, it is important to also recognize the key role that presidential initiatives have in the regulatory process. Centralized review of agencies' regulations within the Executive Office of the President has been part of the rule-making process for more than 30 years. The formal process by which OIRA currently reviews agencies' proposed rules and final rules is essentially unchanged since Executive Order 12866 was issued in 1993. Under Executive Order 12866, OIRA reviews significant proposed and final rules from all agencies, other than independent regulatory agencies, before they are published in the Federal Register. The executive order states, among other things, that agencies should assess all costs and benefits of available regulatory alternatives, including both quantitative and qualitative measures. It also provides that agencies should select regulatory approaches that maximize net benefits (unless a statute requires another approach). Among other principles, the executive order encourages agencies to tailor regulations to impose the least burden on society needed to achieve the regulatory objectives. The executive order also established agency and OIRA responsibilities in the review of regulations, including transparency requirements. OIRA provides guidance to federal agencies on implementing the requirements of the executive order, such as guidance on preparing economic analyses required for significant rules. There are also other orders that impose requirements on agencies during rule making, such as Executive Order 13132 on federalism that requires agencies to prepare a federalism summary impact statement for actions that have federalism implications. Also, in January 2005, OMB published a final bulletin on peer review that establishes minimum standards for when peer review is required for scientific information, including stricter minimum standards for the peer review of "highly influential" scientific assessments, and the types of peer review that should be considered by agencies in different circumstances. The selection of an appropriate peer review mechanism is left to the agency's discretion. More detailed information about these various initiatives is available in the related GAO products listed at the end of this testimony. Economic Performance: Highlights of a Workshop on Economic Performance Measures. GAO-05-796SP. Washington, D.C.: July 2005. Paperwork Reduction Act: New Approach May Be Needed to Reduce Government Burden on Public. GAO-05-424. Washington, D.C.: May 20, 2005. Unfunded Mandates: Views Vary About Reform Act's Strengths, Weaknesses, and Options for Improvement. GAO-05-454. Washington, D.C.: March 31, 2005. 21st Century Challenges: Reexamining the Base of the Federal Government. GAO-05-325SP. Washington, D.C.: February 2005. Electronic Government: Federal Agencies Have Made Progress Implementing the E-Government Act of 2002. GAO-05-12. Washington, D.C.: December 10, 2004. Unfunded Mandates: Analysis of Reform Act Coverage. GAO-04-637. Washington, D.C.: May 12, 2004. Paperwork Reduction Act: Agencies' Paperwork Burden Estimates Due to Federal Actions Continue to Increase. GAO-04-676T. Washington, D.C.: April 20, 2004. Rulemaking: OMB's Role in Reviews of Agencies' Draft Rules and the Transparency of Those Reviews. GAO-03-929. Washington, D.C.: September 22, 2003. Electronic Rulemaking: Efforts to Facilitate Public Participation Can Be Improved. GAO-03-901. Washington, D.C.: September 17, 2003. Civil Penalties: Agencies Unable to Fully Adjust Penalties for Inflation Under Current Law. GAO-03-409. Washington, D.C.: March 14, 2003. Regulatory Flexibility Act: Clarification of Key Terms Still Needed. GAO- 02-491T. Washington, D.C.: March 6, 2002. Regulatory Reform: Compliance Guide Requirement Has Had Little Effect on Agency Practices. GAO-02-172. Washington, D.C.: December 28, 2001. Federal Rulemaking: Procedural and Analytical Requirements at OSHA and Other Agencies. GAO-01-852T. Washington, D.C.: June 14, 2001. Regulatory Reform: Implementation of Selected Agencies' Civil Penalties Relief Policies for Small Entities. GAO-01-280. Washington, D.C.: February 20, 2001. Regulatory Flexibility Act: Implementation in EPA Program Offices and Proposed Lead Rule. GAO/GGD-00-193. Washington, D.C.: September 20, 2000. Electronic Government: Government Paperwork Elimination Act Presents Challenges for Agencies. GAO/AIMD-00-282. Washington, D.C.: September 15, 2000. Regulatory Reform: Procedural and Analytical Requirements in Federal Rulemaking. GAO/T-GGD/OGC-00-157. Washington, D.C.: June 8, 2000. Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking. GAO/T-GGD-99-131. Washington, D.C.: June 30, 1999. Regulatory Accounting: Analysis of OMB's Reports on the Costs and Benefits of Federal Regulation. GAO/GGD-99-59. Washington, D.C.: April 20, 1999. Regulatory Flexibility Act: Agencies' Interpretations of Review Requirements Vary. GAO/GGD-99-55. Washington, D.C.: April 2, 1999. Regulatory Burden: Some Agencies' Claims Regarding Lack of Rulemaking Discretion Have Merit. GAO/GGD-99-20. Washington, D.C.: January 8, 1999. Federal Rulemaking: Agencies Often Published Final Actions Without Proposed Rules. GAO/GGD-98-126. Washington, D.C.: August 31, 1998. Regulatory Management: Implementation of Selected OMB Responsibilities Under the Paperwork Reduction Act. GAO/GGD-98-120. Washington, D.C.: July 9, 1998. Regulatory Reform: Agencies Could Improve Development, Documentation, and Clarity of Regulatory Economic Analyses. GAO/RCED-98-142. Washington, D.C.: May 26, 1998. Regulatory Reform: Implementation of Small Business Advocacy Review Panel Requirements. GAO/GGD-98-36. Washington, D.C.: March 18, 1998. Congressional Review Act: Implementation and Coordination. GAO/T- OGC-98-38. Washington, D.C.: March 10, 1998. Regulatory Reform: Agencies' Section 610 Review Notices Often Did Not Meet Statutory Requirements. GAO/T-GGD-98-64. Washington, D.C.: February 12, 1998. Unfunded Mandates: Reform Act Has Had Little Effect on Agencies' Rulemaking Actions. GAO/GGD-98-30. Washington, D.C.: February 4, 1998. Regulatory Reform: Changes Made to Agencies' Rules Are Not Always Clearly Documented. GAO/GGD-98-31. Washington, D.C.: January 8, 1998. Regulatory Reform: Agencies' Efforts to Eliminate and Revise Rules Yield Mixed Results. GAO/GGD-98-3. Washington, D.C.: October 2, 1997. Managing for Results: Regulatory Agencies Identified Significant Barriers to Focusing on Results. GAO-GGD-97-83. Washington, D.C.: June 24, 1997. Regulatory Burden: Measurement Challenges and Concerns Raised by Select Companies. GAO/GGD-97-2. Washington, D.C.: November 18, 1996. Regulatory Reform: Implementation of the Regulatory Review Executive Order. GAO/T-GGD-96-185. Washington, D.C.: September 25, 1996. Regulatory Flexibility Act: Status of Agencies' Compliance. GAO/GGD-94- 105. Washington, D.C.: April 27, 1994.	Federal regulation is a basic tool of government. Agencies issue thousands of rules and regulations each year to achieve goals such as ensuring that workplaces, air travel, and foods are safe; that the nation's air, water and land are not polluted; and that the appropriate amount of taxes are collected. The costs of these regulations are estimated to be in the hundreds of billions of dollars, and the benefits estimates are even higher. Over the past 25 years, a variety of congressional and presidential regulatory reform initiatives have been instituted to refine the federal regulatory process. This testimony discusses findings from the large number of GAO reports and testimonies prepared at the request of Congress to review the implementation of regulatory reform initiatives. Specifically, GAO discusses common strengths and weaknesses of existing reform initiatives that its work has identified. GAO also addresses some general opportunities to reexamine and refine existing initiatives and the federal regulatory process to make them more effective. GAO's prior reports and testimonies contain a variety of recommendations to improve particular reform initiatives and aspects of the regulatory process. GAO's evaluations of regulatory reform initiatives indicate that some of these initiatives have yielded mixed results. Among the goals of the initiatives are reducing regulatory burden, requiring more rigorous regulatory analysis, and enhancing oversight. The initiatives have been beneficial in a number of ways, but they also were often less effective than anticipated. GAO's reviews suggest at least four overall strengths or benefits associated with existing initiatives: (1) increasing the attention directed to rules and rule making, (2) increasing expectations regarding the analytical support for proposed rules, (3) encouraging and facilitating greater public participation in rule making, and (4) improving the transparency of the rule-making process. On the other hand, at least four recurring reasons help explain why reform initiatives have not been more effective: (1) limited scope and coverage of various requirements, (2) lack of clarity regarding key terms and definitions, (3) uneven implementation of the initiatives' requirements, and (4) a predominant focus on just one part of the regulatory process, agencies' development of rules. As Congress develops its regulatory reform agenda, the lessons and opportunities identified by GAO's body of work suggest two avenues that might provide a useful starting point. The first would be to broadly revisit the procedures, definitions, exemptions, and other provisions of existing initiatives to determine whether changes are needed to better achieve their goals. As a second avenue to explore, GAO's reviews found that the regulatory process could benefit from more attention to evaluations of existing regulations, although recognizing some of the difficulties associated with carrying out such evaluations. The lessons that could be learned from retrospective reviews could help to keep the regulatory process focused on results and inform future action to meet emerging challenges. This is a particularly timely point to be reviewing the regulatory process. The long-term fiscal imbalance facing the United States, along with other significant trends and challenges, establishes the case for change and the need to reexamine the base of the federal government and all of its existing programs, policies, functions, and activities. No single approach or reform can address all of the questions and program areas that need to be revisited. However, federal regulation is a critical tool of government, and regulatory programs play a key part in how the federal government addresses many of the country's needs. Therefore, reassessing the regulatory framework must be part of that long-term effort to transform what the federal government does and how it does it.	7,497	731
NNSA conducts nuclear weapon and nonproliferation-related national security activities in research and development laboratories, production plants, and other facilities. Specifically, NNSA operates three weapons laboratories--Lawrence Livermore National Laboratory (LLNL), California; Los Alamos National Laboratory (LANL), New Mexico; and the Sandia National Laboratories, New Mexico and California; and four nuclear weapons production sites--the Pantex Plant, Texas; the Y-12 Plant, Tennessee; the Kansas City Plant, Missouri; and the Savannah River Site, South Carolina. NNSA also operates the Nevada Test Site. To implement its nuclear weapons programs, NNSA received about $6.4 billion for fiscal year 2006 and has requested more than $6.4 billion for fiscal year 2007. Between fiscal years 2008 and 2011, NNSA is proposing to spend almost $27 billion for these programs. Over the past decade, NNSA has invested a substantial amount of money in sustaining the cold war stockpile and upgrading the three weapons laboratories with new, state-of-the-art experimental and computing facilities. However, as described in studies over the past decade, the production infrastructure of the weapons complex is aging and increasingly outdated. For example, a 2000 DOE Office of Inspector General report concluded that the postponement of repairs to aging and deteriorating facilities had resulted in delays in weapons modification, remanufacture, and dismantlement, among other things. In addition, a 2001 report by the Foster Panel found the state of the production facilities to be troubling and recommended that NNSA restore missing production capabilities and refurbish the production infrastructure. In its fiscal year 2007 budget request, NNSA estimated that it will cost $2.4 billion to reduce the backlog of deferred maintenance at these facilities to an appropriate level consistent with industry best practices. Events over the past several years have served to intensify concern about how the United States maintains its nuclear deterrent and what the nation's strategy should be for transforming the weapons complex. Specifically: The 2001 Nuclear Posture Review stated, among other things, that cold war practices related to nuclear weapons planning were obsolete, and few changes had been made to the size or composition of the nation's nuclear forces. Furthermore, there had been underinvestment in the weapons complex, particularly the production sites. The Nuclear Posture Review called for, among other things, the development of a "responsive infrastructure" that would be sized to meet the needs of a smaller nuclear deterrent while having the capability to respond to future strategic challenges. The terrorist attacks of September 11, 2001, led DOE to increase the size of its Design Basis Threat, a classified document that identifies the size and capabilities of terrorist forces. This increase in the size of the Design Basis Threat has greatly increased NNSA's cost for protecting its weapons- grade nuclear material. The 2002 Moscow Treaty between the United States and Russia set a goal of reducing the number of deployed U.S. nuclear warheads to between 1,700 and 2,200 by 2012. However, a significant number of existing warheads would be kept in reserve to address potential technical contingencies with the existing stockpile. NNSA, at the Congress' direction, created the RRW program to study a new approach to maintaining nuclear warheads over the long term. The RRW program would redesign weapon components to be easier to manufacture, maintain, dismantle, and certify without nuclear testing, potentially allowing NNSA to transition to a smaller, more efficient weapons complex. A design competition between LANL and LLNL is scheduled to end in November 2006. Finally, in recent congressional testimony, the Secretary of Energy and the Administrator of NNSA emphasized to the Congress that while they believe stockpile stewardship is working, the current cold war legacy stockpile is the wrong stockpile for the long term, and the current nuclear weapons infrastructure is not responsive to unanticipated events or emerging threats. Current NNSA plans call for substantial funding to operate the existing weapons complex. For example, according to NNSA's fiscal year 2007 budget request, over the next 5 years, NNSA plans to spend about $7.4 billion to operate and maintain the existing infrastructure of the weapons complex. In addition, NNSA plans to spend $1.8 billion on new construction projects. These construction projects include the Highly Enriched Uranium Materials Facility at the Y-12 Plant, which is estimated to cost $335 million and be completed in fiscal year 2007; the Chemistry and Metallurgy Research Replacement facility at LANL, which is estimated to cost $838 million and be completed in fiscal year 2013; and the proposed Uranium Processing Facility at the Y-12 Plant, which is projected to cost between $600 million to $1 billion. During testimony before this Subcommittee in March 2004, the Secretary of Energy agreed to conduct a comprehensive review of the weapons complex. Subsequently, in January 2005, the Secretary of Energy requested the SEAB to form the Nuclear Weapons Complex Infrastructure Task Force to assess the implications of presidential decisions on the size and composition of the stockpile; the cost and operational impacts of the new Design Basis Threat; and the personnel, facilities, and budgetary resources required to support a smaller stockpile. The review was also to evaluate opportunities for consolidating Special Nuclear Material, facilities, and operations across the weapons complex in order to minimize security requirements and the environmental impacts of continuing operations. The SEAB task force formally transmitted the final report to the Secretary of Energy in October 2005. According to the report, the SEAB task force assessed the impact of its recommendations on near-term funding requirements, as well as total costs, for the weapons complex over the next 25 years. The report stated that implementing all of the recommendations will increase near-term costs substantially but would result in a substantial reduction in future operating costs after the CNPC is in full operation. The SEAB task force estimated that the long-term cost savings would be approximately twice the near-term cost increases. Initially, NNSA officials did not provide us with any detailed information concerning their plans for transforming the infrastructure of the weapons complex and for addressing the recommendations in the SEAB task force report. Instead, NNSA officials described to us the following process they were using to establish a detailed vision for the future weapons complex and to identify a "path forward" for achieving that vision: In March 2005, NNSA established a Responsive Infrastructure Steering Committee and created a position within the Office of Defense Programs to lead this effort. In October 2005, NNSA received the final SEAB task force report. NNSA officials said that they have reviewed the recommendations from this report, along with recommendations from other advisory bodies, such as the Defense Science Board. In November 2005 and January 2006, NNSA held two meetings for senior- level officials within the weapons complex to establish a broad range of planning options, which NNSA refers to as its "preferred infrastructure planning scenario." In January 2006, NNSA held a 3-week session for about 50 key midlevel managers within the weapons complex to evaluate the proposed planning options. As a result of this process, NNSA recently offered a proposal for transforming the weapons complex that it believes is responsive to the recommendations in the SEAB task force report. Specifically, NNSA officials stated that NNSA will decide on the RRW design competition in November 2006 and, assuming that the RRW is technically feasible, will seek authorization to proceed to engineering development and production; NNSA is requesting an additional $15.6 million in its fiscal year 2007 budget request to dismantle legacy weapons material at the Pantex Plant; and NNSA is requesting about $15 million for fiscal year 2007, as well as over $30 million annually from fiscal years 2008 through 2011, to support the implementation of its responsive infrastructure strategy, including the creation of an Office of Transformation within the Office of Defense Programs. However, NNSA does not plan to adopt the SEAB task force's recommendation for a CNPC and the accompanying recommendation of consolidating all Category I and II quantities of Special Nuclear Material at the CNPC. NNSA believes that these recommendations are not affordable or feasible. For example, in recent congressional testimony, the Deputy Administrator for Defense Programs said that the SEAB task force report's recommendation on the timing for a CNPC--i.e., that a CNPC could be designed, built, and operational by 2015--is not plausible and underestimates the challenges of transitioning a unique and highly skilled workforce to a new location. He also stated that the recommendation does not recognize the challenge of meeting near-term requirements of the current stockpile and transforming the weapons complex infrastructure at the same time. In addition, he stated that it may be decades before all existing legacy weapons are fully removed from the stockpile and dismantled. Instead, NNSA has proposed the following plan for the 2030 weapons complex, which it states will achieve many of the benefits of the SEAB task force's approach in a way that is technically feasible and affordable over both the near and longer term: Consolidated plutonium center. All research and development (except certain experiments at the Nevada Test Site), surveillance, and production activities involving Category I and II quantities of plutonium would be transferred to a consolidated plutonium center. The center would have a baseline production capacity of 125 pits per year by 2022 and would be situated at an existing Category I and II Special Nuclear Material site. In the interim, NNSA would upgrade the plutonium facility at Tech Area 55 at LANL to produce 30-50 pits per year and operate the Chemistry and Metallurgy Research Replacement facility at LANL as a Category I and II Special Nuclear Material facility. Consolidation of Category I and II Special Nuclear Material. This material would be consolidated to fewer sites, and to fewer locations within sites. Specifically, NNSA would remove all Category I and II Special Nuclear Material from Sandia National Laboratory by 2008 and from LLNL by 2014, and would cease all activities involving this material at LANL by 2022. The remaining NNSA sites with Category I and II Special Nuclear Material would include the consolidated plutonium center, the Nevada Test Site, the Pantex Plant, the Y-12 Plant, and the Savannah River Site. Modernizing the remaining production sites. The planned Uranium Processing Facility at the Y-12 Plant would consolidate existing highly enriched uranium contained in legacy weapons, dismantle legacy warhead secondaries, support associated research and development, and provide a long-term capacity for new secondary production. Tritium production and stockpile support services would remain at the Savannah River Site. All weapons assembly and disassembly would be carried out at a Pantex Plant modernized for increased throughput for the long term. In addition, NNSA would build a new, nonnuclear component production facility by 2012 at an unspecified location. Finally, the Nevada Test Site would become the only site for large-scale hydrodynamic testing, which measure how stockpile materials behave when exposed to explosively driven shocks. Regardless of the approach chosen to transform the weapons complex, any attempt to change such an extremely complex enterprise must be based on solid analysis, careful planning, and effective leadership. We have identified four actions that, in our view, are critical to the successful transformation of the weapons complex. As the Congress oversees NNSA's future actions, it should expect to see each of these actions carefully and fully implemented. The U.S. nuclear weapons stockpile consists of nine weapon types. (See table 1.) The lifetimes of the weapons currently in the stockpile have been extended well beyond the minimum life for which they were originally designed--generally about 20 years--increasing the average age of the stockpile and, for the first time, leaving NNSA with large numbers of weapons that are close to 30 years old. NNSA is currently rebuilding several of these weapon types through the Stockpile Life Extension Program. Already, the W87 has been refurbished. In addition, the B61, W76, and W80 are well into their respective refurbishments. The first production unit for the B61 is scheduled for September 2006, while the first production unit for the W76 is scheduled for September 2007 and for the W80 for January 2009. These are costly and difficult undertakings. According to NNSA's fiscal year 2007 budget request, over the next 5 years, the agency will need $118.4 million for the B61 life extension, $669.9 million for the W76, and $581.5 million for the W80. These efforts place considerable demands on the computational and experimental facilities of the weapons laboratories, as well as the production facilities. Finally, some of the life extensions have experienced significant cost and schedule overruns. For example, the total cost of the W80 life extension has increased by almost $600 million, while the first production unit date has slipped from February 2006 to the current date of January 2009. In its 2001 Nuclear Posture Review, DOD described the need to substantially reduce operationally deployed strategic warheads through 2012. These reductions were subsequently reflected in the Moscow Treaty between the United States and Russia, which was signed in May 2002. As part of this strategy, DOD has stated its support for the development of an RRW, which could enable reductions in the number of older, nondeployed warheads maintained as a hedge against reliability problems in deployed systems and assist in the evolution to a smaller and more responsive nuclear weapons infrastructure. Currently, LANL and LLNL are developing competing designs for an RRW deployed on a submarine-launched ballistic missile, with the first production unit planned for fiscal year 2012. However, since the RRW design competition will not be completed until November 2006, more information on the viability of the RRW program will be necessary before any firm plans can be drawn up, budgeted, and implemented. In particular, it is not clear at this point whether the RRW can achieve the military characteristics, such as yield, provided by the current stockpile. Some NNSA officials have indicated that the military characteristics may need to be relaxed in order to design a warhead that is safer, easier to build, and easier to maintain. Producing an RRW warhead, while at the same time refurbishing a significant portion of the stockpile and continuing to dismantle retired weapons, will be a difficult and costly undertaking. Given NNSA's performance to date with the life extension programs and the current unresolved questions about the RRW, in our view, DOD will need to establish clear, long-term requirements for the nuclear stockpile before NNSA can make any final decisions about transforming the weapons complex. Specifically, DOD, working with NNSA through the Nuclear Weapons Council, needs to determine the types and quantities of nuclear weapons that will provide for our nation's nuclear deterrent over the long term. To facilitate this process, and to provide a foundation for transforming the weapons complex, the Congress may wish to consider setting firm deadlines for DOD, NNSA, and the Nuclear Weapons Council to determine the future composition of the nuclear stockpile. Once a decision about the size and composition of the stockpile is made, NNSA will need accurate estimates of the costs of proposals for transforming the weapons complex. However, historically, NNSA has had difficulty developing realistic, defensible cost estimates, especially for large complex projects. For example, in our August 2000 report on the National Ignition Facility, we found that NNSA and LLNL managers greatly underestimated the costs of creating such a technically complex facility and failed to include adequate contingency funding, which virtually assured that the National Ignition Facility would be over budget and behind schedule. Similarly, as noted in a March 2005 NNSA report, inadequate appreciation of the technical complexities and inadequate contingency funding directly contributed to the cost overruns and schedule slippage experienced by the Dual Axis Radiographic Hydrodynamic Test facility. As noted earlier, NNSA has experienced similar cost and schedule problems with some of its life extension efforts. Some cost estimates to transform the weapons complex were included in the SEAB task force report. Specifically, using the results of computer models developed at LANL and LLNL, the SEAB task force estimated that NNSA would need about $175 billion between now and 2030 to support its current baseline program and modernize the current weapons complex in place, while NNSA would need only $155 billion to carry out the task force's recommendations. According to NNSA officials, NNSA is currently using the same cost models to evaluate its proposal. However, according to SEAB task force and NNSA and laboratory officials, while the LANL and LLNL models are useful for analyzing overall cost trends and evaluating the cost implications of alternative strategies, they are not currently designed to provide overall life-cycle cost estimates. In addition, we found, among other things, that the cost data used in the models have a high degree of uncertainty associated with them and that the models do not currently have the ability to provide any confidence intervals around their estimates. Several of the SEAB task force members told us that they recognize the limitations associated with their cost estimates. Since they did not have the time to fully analyze the costs and implementation issues associated with their recommendations, they expected that the proposed Office of Transformation would perform the necessary, detailed cost-benefit analyses of their recommendations in order to make the most informed decisions. As previously mentioned, NNSA officials have stated that they do not support building a CNPC because they believe that it is neither affordable nor feasible. However, until NNSA develops a credible, defensible method for estimating life-cycle costs and performs detailed cost analyses of the recommendations contained in the SEAB task force report, as well as its own proposal, it will not be possible to objectively evaluate the budgetary impact of any path forward. According to one count, NNSA has established over 70 plans with associated performance measures to manage the Stockpile Stewardship Program. Nevertheless, over the last 6 years, we have repeatedly documented problems with NNSA's process for planning and managing its activities. For example, in a December 2000 report prepared for this Subcommittee, we found NNSA needed to improve its planning process so that there were linkages between individual plans across the Stockpile Stewardship Program and that the milestones contained in NNSA's plans were reflected in contractors' performance criteria and evaluations. However, in February 2006, we reported similar problems with how NNSA is managing the implementation of its new approach for assessing and certifying the safety and reliability of the nuclear stockpile. Specifically, we found that NNSA planning documents did not contain clear, consistent milestones or a comprehensive, integrated list of the scientific research being conducted across the weapons complex in support of the Primary and Secondary Assessment Technologies programs. These programs are responsible for setting the requirements for the computer models and experimental data needed to assess and certify the safety and reliability of nuclear warheads. We also found that NNSA had not established adequate performance measures to determine the progress of the weapons laboratories in developing and implementing this new methodology. However, the need for effective planning applies to more than the Stockpile Stewardship Program. One of the major recommendations of the SEAB task force is to consolidate Category I and II Special Nuclear Material at the CNPC. In our July 2005 report, we noted that the successful consolidation of Special Nuclear Material into fewer locations is a crucial component of several DOE sites' Design Basis Threat implementation plans. Such consolidation requires the cooperation of a variety of entities, including NNSA's Office of Secure Transportation, which moves weapons- grade material from site to site. In our report, we recommended that DOE develop a departmentwide Design Basis Threat implementation plan that includes the consolidation of Special Nuclear Material. However, while DOE has established a Nuclear Material Disposition Consolidation and Coordination Committee, it has yet to develop such a comprehensive plan. The process of transforming the weapons complex will take a long time to complete--as long as two decades, according to some estimates. As a result, NNSA will need to develop a transformation plan with clear milestones that all involved can work toward and that the Congress can use to hold NNSA accountable. For example, as we stated in a 2003 report, one key practice in successful transformations is to set implementation goals and a time line to build momentum and show progress from day 1. In addition, given the demand for transparency and accountability in the public sector, these goals and time lines should be made public. We would note that NNSA should be able to establish milestones for some activities quickly, while others will take more time. For example, NNSA's Deputy Administrator for Defense Programs has indicated a willingness to establish an Office of Transformation and to implement other SEAB task force recommendations, such as developing a consistent set of business practices across the weapons complex. In these situations, the Congress should expect NNSA to move quickly to establish specific milestones needed to create the Office of Transformation, select key staff to fill this office, and implement key initiatives. We recognize that NNSA will not be able to establish specific milestones in some areas until after the Office of Transformation has performed a detailed, cost-benefit analysis of both the recommendations in the SEAB task force report and of NNSA's own preferred approach. However, once this analysis is complete, the Congress should expect to see specific, detailed plans and accompanying milestones for the RRW program, the establishment of a pit production capability, and the other adopted recommendations from the SEAB task force report. Many of the recommendations in the SEAB report are not new. A number of studies over the past 15 years have stressed the need to transform the weapons complex. However, for a variety of reasons, DOE and NNSA have never fully implemented these ideas. One of the key problems that NNSA has experienced during this time has been its inability to build an organization with clear lines of authority and responsibility. As we noted in our June 2004 report, NNSA, through its December 2002 reorganization, made important strides in providing clearer lines of authority and responsibility. However, we also noted problems in certain oversight functions, such as safety. We are currently evaluating NNSA's management effectiveness for the Subcommittee on Strategic Forces of the House Committee on Armed Services. The Congress, and Chairman Hobson in particular, have offered leadership in supporting the creation of the SEAB task force and in funding the RRW program. However, as we stated in a 2003 report, organizational transformation entails fundamental and often radical change. As a result, top leadership must set the direction, pace, and tone for the transformation, while simultaneously helping the organization remain focused on the continued delivery of services. One key strategy is to dedicate a strong and stable implementation team that will be responsible for the transformation's day-to-day management. Accordingly, this team must be vested with the necessary authority and resources to set priorities, make timely decisions, and move quickly to implement decisions. Therefore, in our view, it is imperative that the proposed Office of Transformation (1) report directly to the Administrator of NNSA; (2) be given sufficient authority to conduct its studies and implement its recommendations; and (3) be held accountable for creating real change within the weapons complex. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or Members of the Subcommittee may have. For further information on this testimony, please contact 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. James Noel, Assistant Director; Jason Holliday; and Peter Ruedel made key contributions to this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.	Over the past several years, a serious effort has begun to comprehensively reevaluate how the United States maintains its nuclear deterrent and what the nation's approach should be for transforming its aging nuclear weapons complex. The National Nuclear Security Administration (NNSA), a separately organized agency within the Department of Energy, is responsible for overseeing this weapons complex, which comprises three nuclear weapons design laboratories, four production plants, and the Nevada Test Site. At the direction of the Subcommittee on Energy and Water Development, the Secretary of Energy Advisory Board's (SEAB) Nuclear Weapons Complex Infrastructure Task Force issued a report in October 2005 that provided a systematic review of the requirements for the weapons complex for the next 25 years and offered its vision for an agile and responsive weapons complex. GAO was asked to discuss (1) the current actions NNSA is taking to address the SEAB task force's recommendations and (2) the critical steps that will be needed to achieve and sustain a meaningful, cost-effective transformation of the weapons complex. The SEAB task force report contained the following five recommendations: (1) immediately begin to modernize the cold war nuclear stockpile by designing a Reliable Replacement Warhead (RRW); (2) create a Consolidated Nuclear Production Center (CNPC) that contains a modern set of production facilities in one location; (3) consolidate all weapons-grade material and weapons components at the CNPC; (4) aggressively dismantle the cold war stockpile; and (5) create an Office of Transformation to oversee the transformation of the nuclear weapons complex. NNSA has offered a proposal for transforming the nuclear weapons complex that it believes is responsive to the recommendations in the SEAB task force report. Specifically, NNSA officials noted, they (1) will decide on a design competition for the RRW in November 2006, (2) have requested an increase of over $15 million in funding for dismantling legacy weapons in fiscal year 2007, and (3) have requested $15 million in their fiscal year 2007 budget proposal to create an Office of Transformation, among other things. However, NNSA does not support the SEAB task force's recommendation for a CNPC and the accompanying recommendation of consolidating weapons-grade material at the CNPC, primarily because it views these recommendations as too costly. Instead, NNSA has proposed building a consolidated center for processing plutonium, removing weapons-grade material from the three weapons laboratories, and modernizing the remaining production capabilities at their existing locations. Regardless of the approach chosen, any attempt to change an extremely complex enterprise must be based on solid analysis, careful planning, and effective leadership. GAO has identified the following four actions that, in its view, are critical to successfully transforming the weapons complex: (1) the Department of Defense will need to establish clear, long-term requirements for the nuclear stockpile by determining the types and quantities of nuclear weapons needed to provide for our nation's nuclear deterrent; (2) after the Department of Defense determines the size and composition of the future stockpile, NNSA will need to develop accurate cost estimates of the proposals for transforming the weapons complex because current estimates of the costs of transforming the weapons complex contain considerable uncertainty; (3) after NNSA selects a proposal based on accurate cost estimates, it will need to develop a clear transformation plan containing measurable milestones so that it can evaluate progress and the Congress can hold it accountable; and (4) the proposed Office of Transformation must have authority to make and enforce its decisions on transformation and must be held accountable by the Congress for achieving timely and cost-effective results.	5,228	765
Established in 1972, WIC is designed to improve the health and nutritional well-being of participants by providing nutritious supplemental foods, nutrition education, and referrals to health care services. The program is available in each state, the District of Columbia, 33 Indian tribal organizations, Puerto Rico, the U.S. Virgin Islands, American Samoa, and Guam. FCS administers the program in cooperation with state and local health departments and related agencies. The supplemental foods that WIC provides include milk, cheese, fruit and vegetable juices, iron-fortified adult and infant cereals, dried beans or peas, peanut butter, eggs, and infant formula. Special infant formulas are also available to meet unusual dietary or health-related conditions. Each state designates the types and amounts of foods that local WIC agencies can prescribe to meet each participant's nutritional needs. The WIC food benefit (referred to as a food package) can be provided through local WIC health clinics or home delivery. More commonly, participants receive their food benefits in the form of a check or a voucher that is used to purchase the specific foods at authorized retail vendors. These vendors have been selected by the state to participate in the program for a period of time. FCS requires the states to operate a rebate program for infant formula. By negotiating rebates with infant formula manufacturers for each can of formula purchased through WIC, the states greatly reduce their average per person food costs so that more people can be served. In fiscal year 1996, infant formula rebates to all states totaled about $1.2 billion. Federal WIC appropriations totaled $3.47 billion in fiscal year 1995 and $3.73 billion annually in fiscal years 1996 and 1997. The program is primarily funded by federal appropriations; some states supplement the federal grant with their own funds. In fiscal years 1995 and 1996, the average monthly WIC participation nationwide was about 6.9 million and 7.2 million, respectively, and in fiscal year 1997, the average monthly participation was about 7.4 million through February 1997. Grants to the states are divided into food grants and nutrition services and administration grants. Food grants cover the costs of supplemental foods and are allocated to the states through a formula that is based on the number of individuals in each state who are eligible for WIC benefits because of their income. The nutrition services and administration grants are allocated to the states through a formula that is based on factors such as the state's number of projected program participants and WIC salary costs. Nutrition services and administration grants cover costs for program administration, start-up, monitoring, auditing, the development of and accountability for food delivery systems, nutrition education, breast-feeding promotion and support, outreach, certification, and developing and printing food vouchers. State WIC agencies establish program eligibility criteria that are based on federal guidelines. To qualify for the program, WIC applicants must show evidence of nutritional risk that is medically verified by a health professional. In addition, participants may not have incomes that exceed 185 percent of the poverty guidelines that are established annually by the U.S. Department of Health and Human Services. In 1997, for example, the annual WIC income limit for a family of four is $29,693 in the 48 contiguous states and the District of Columbia. Federal regulations allow the states to individually determine their income documentation requirements for applicants seeking to participate in WIC. The states are also required by federal regulations to automatically certify as income eligible those individuals who document their participation in the Food Stamp Program, Medicaid, and the Temporary Assistance for Needy Families Program. Approximately two-thirds of all WIC participants were enrolled in one or more of these programs in fiscal year 1994, the last year for which complete data were available at the time of our review. In addition, WIC participants are required by federal regulations to reside in the jurisdiction of the state where they receive benefits, and the states are required to check the identification of all participants when they seek certification for program participation and when they receive their vouchers. Although the applicants who meet the program's health and nutrition, income, and residency requirements may be certified as eligible to participate in WIC, the number of participants that are actually served each year primarily depends on the total amount of funds available to the states. According to FCS' estimates, about 75 percent of the eligible women, infants, and children actually participated in WIC during fiscal year 1995. States' initiatives to control food costs by limiting the types and package sizes of WIC foods and by more carefully selecting and regulating vendors have reduced the program's costs by millions of dollars. These practices could be expanded in the states that have already implemented them and could be adopted by other states. However, the National Association of WIC Directors and some WIC directors we spoke with are concerned that, among other things, the program's regulations can constrain a state's ability to effectively use the additional funds that become available as a result of cost containment initiatives. Two practices that some states are using to contain food costs are reported by state WIC directors to be saving millions of dollars. These two practices include (1) contracting with manufacturers to obtain rebates on WIC foods in addition to infant formula and (2) limiting authorized food selections by, for example, requiring participants to select brands of foods that have the lowest cost. In fiscal year 1996, nine state agencies received rebates for two WIC-approved foods--infant cereal and/or infant fruit juices. Table 1 shows the states that were receiving rebates during fiscal year 1996 from the expanded use of rebates through individual or multistate contracts. The cost savings resulting from these infant cereal and juice rebates are relatively small in comparison with the savings resulting from infant formula rebates. As shown by the figures in table 1, the rebates for infant cereal and juices represented about 1 percent of the total rebates received in these nine states in fiscal year 1996. The $6.2 million in infant cereal and juice rebates reduced total food costs in these states by about six-tenths of a percent in fiscal year 1996. Eleven states--Alaska, California, Delaware, the District of Columbia, Hawaii, Missouri, New Jersey, New York, Oklahoma, Rhode Island, and West Virginia--reported that their agencies were considering, or were in the process of, expanding their use of rebates to foods other than infant formula. In May 1997, Delaware joined the District of Columbia, Maryland, and West Virginia in a multistate rebate contract for infant cereal and juices. California was the first state to expand its rebate program to include adult juices, adding this option in March 1997. California currently spends about $65 million annually on adult juice purchases. California's WIC director told us that the state expects to collect about $12 million in annual rebates on the adult juices, thereby allowing approximately 30,000 additional persons to participate in the program each month. According to FCS officials, there is the potential to reduce WIC costs further through the expanded use of rebates. They said that FCS has encouraged the states to examine and aggressively pursue rebates to stretch food dollars to serve a maximum number of eligible participants. In May 1997, FCS sent its regional directors a memorandum outlining a strategy to "manage, contain, and control" food costs using rebates on products such as special infant formula and other WIC foods in addition to infant formula. The officials told us that if federal funding for WIC remains constant or declines, more states may consider expanding the use of rebate contracts to provide funds for their WIC programs. FCS officials also told us that some states' WIC agencies may not be expanding the use of rebates because other cost containment practices have proven effective in reducing food costs. For example, the states that have elected to use only store brand foods may be incurring lower costs than the states that receive rebates on national brand products. While these rebates reduce costs, the procurement process requires additional administrative effort by the states. The California WIC director and FCS officials told us that the process of entering into and monitoring rebate contracts can be complicated and time-consuming. In addition, FCS officials told us that bid protests filed by the manufacturers that are not awarded contracts impose additional administrative burdens on the states. The administrative burden associated with procuring and monitoring rebate contracts can be exacerbated if a state contracts with more than one manufacturer for rebates. For example, when California expanded its rebate program to include adult juices, the state requested bids on rebate contracts from juice companies for frozen and ready-to-drink apple, grape, orange, and pineapple juices that were available in all parts of the state and had to negotiate five separate contracts. The states also need to use additional resources to manage the rebate contracts. FCS officials told us that disagreements between the states and manufacturers occur over the rebate billings that the manufacturers are obligated to pay the states. They said that the states must therefore develop billing systems that track the amount of the manufacturers' products selected by WIC clients using their vouchers. For example, the California WIC director told us that before the state implemented its adult juice rebate contracts, the state agency had to develop a system for determining the amount and quantity of each type of juice selected by WIC participants and a system for rebate billing that was acceptable to the juice manufacturers. FCS officials told us that the states could become increasingly dependent on the funds provided by their rebate contracts. Historically, the annual funds received by the states from their infant formula rebate contracts have continued to increase, but this source of funding may not always be reliable. If manufacturers begin offering lower rebates, the states could have insufficient funds to provide program benefits to their current level of WIC participants. According to FCS officials, such a decrease in rebate funds would be similar to an increase in food prices because of inflation, something which the program has experienced before. In such instances, the states would need to make adjustments to the foods they offer to contain the escalating costs and/or remove people from the program. According to FCS officials, the prices of the food items provided by WIC can vary dramatically, depending, for example, on the brand of the item or how it is packaged. Individually wrapped sliced cheese can cost substantially more than the same cheese in block form, and a national brand of juice could cost substantially more than a vendor's own brand. All state WIC directors responding to our survey reported that their agencies imposed limits on one or more of the WIC food items. The states may specify certain brands; limit certain types of foods, such as sliced cheese; restrict container sizes; and require the selection of only the lowest-cost brands. Figure 1 shows the number of WIC directors who reported that their states use various types of limits for one or more food items. As the figure indicates, some types of restrictions are more widely used than others. Forty-seven of the 48 WIC directors reported that their states' participants are allowed to choose only certain container or package sizes of one or more food items. For example, 27 of the 48 directors who responded to our questionnaire reported that their states limit the container or package size of infant juice. In addition, 8 states limit allowable types of infant juice, and 18 do not offer infant juice. Some states have also extended limits to non-infant foods. For example, Texas participants can select only cheese that is not packaged as individually wrapped slices or shredded, and milk must be in 1-gallon or half-gallon sizes and must be the least expensive brand. In Pennsylvania, dry beans or peas must be in 1-pound packages, ready-to-drink juices must be in 46-ounce cans, and the price of a dozen eggs must not exceed $1.75. While all states have one or more food selection restrictions, 17 of the 48 WIC directors responding to our questionnaire reported that their states are considering the use of additional food selection limits to contain or reduce costs in the WIC program. Most of the 48 WIC directors reported that placing selection limits on WIC foods has at least moderately decreased their food costs. Twelve of these directors reported that selection limits have greatly or very greatly reduced their WIC food costs. Figure 2 shows the range of food cost reductions that the directors reported from implementing these restrictions. Texas, for example, which reported that the restrictions had a very great impact, uses a combination of food selection limits, including a least-cost brand policy. The policy requires participants to buy the cheapest brand of milk, evaporated milk, and cheese available in the store--usually the store's own brand. Texas also requires participants to buy the lowest-cost 46-ounce fluid or 12-ounce frozen fruit juices from an approved list of types (orange, grapefruit, orange/grapefruit, purple grape, pineapple, orange/pineapple, and apple) and/or specific brands. According to Texas WIC officials, the least-cost brand policy has had a "tremendous" impact on lowering the dollar amount that the state pays for WIC food products. For example, in fiscal year 1989 (the first full fiscal year that the policy was in effect), the cost of milk was reduced by about $3 million. In fiscal year 1996, Texas had a lower than average food cost per person among the 50 states and the District of Columbia even before rebates were factored in. (See app. I.) FCS headquarters officials told us that the selection by state agencies of the foods available to participants is one of the states' most powerful cost containment tools. FCS encourages the states to approve WIC foods that are low in price. However, the officials said that while cost efficiencies are important, the states must maintain the nutritional integrity of the program's food package. The practice of limiting food items can have a negative impact if participants do not select the food products or do not eat them. For example, Texas WIC officials told us that they discontinued the least-cost brand requirement for peanut butter when they discovered that participants were not selecting the product. In addition, FCS officials said that the restrictions may make food selections more confusing for participants and burdensome for vendors. For example, Texas WIC officials told us that participants and cashiers often have difficulty determining which products have the lowest price. A 1995 study of participants' selections of lowest-cost WIC foods performed by a Texas WIC food chain found that 95 percent of the participants were selecting one or more nonapproved food items that had to be exchanged for the correct item. In response, the food chain, among other things, upgraded the quality, location, and clarity of WIC labels and signs in all of its stores, adding color displays and descriptions of approved WIC items. The Texas WIC agency has also published and displayed a color brochure of approved items that has helped participants to select the approved foods. According to an official of the supermarket chain, these actions have reduced exchanges of food items between 19 and 50 percent. Separately or in conjunction with measures to contain food costs, some state agencies have placed restrictions on vendors to hold down costs. Some states are also selecting alternatives to vendor distribution for certain food products. Thirty-nine of the 48 states responding to our questionnaire reported that they use special selection requirements or limits to contain the number of authorized vendors. Twenty-nine WIC directors reported that they considered it extremely or very important to contain the number of vendors in order to control the program's costs, and 9 reported that it is moderately important. Of the 39 states, 34 reported using competitive food costs as one of their criteria for selecting vendors. In addition, 27 states have established price limits that vendors cannot exceed for allowable foods, and 5 states require vendors to bid competitively for vendor slots. The food prices of WIC vendors in Texas must not exceed by more than 8 percent the average prices charged by vendors doing a comparable dollar volume in the same area. Once selected, vendors must maintain competitive prices. According to Texas WIC officials, the state does not limit the number of vendors that can participate in the WIC program. However, Texas' selection criteria for approving vendors exclude many stores from the program. By approving only stores with competitive prices, Texas officials said that they save WIC food dollars by paying competitive prices for WIC products. Similarly, Delaware's Project SAVE (Selecting Authorized Vendors Efficiently) requires vendors to bid competitively for all authorized WIC food items. Vendors that meet the minimum qualification requirements and bid the lowest prices are selected to fill the available retail outlet slots. Delaware selects vendors every 2 years. Delaware's WIC director said that while SAVE maintains the clients' access to vendors, administrative savings have been achieved by training and monitoring vendors, and the number of potentially high-risk vendors has declined. The director noted that SAVE enables the state to control unexpected price increases because the prices are locked in for 2 years through agreements with vendors, thereby allowing grant funds to be more effectively and efficiently managed. Between fiscal years 1991 and 1996, the director estimated, the agreements saved the program about $1.8 million in food costs. Eighteen WIC directors reported that their states use ratios of participants to vendors to restrict the number of vendors allowed to participate in the program. By limiting the number of vendors, the states can more frequently monitor stores and conduct compliance investigations, according to FCS and state WIC officials. For example, Delaware uses a ratio of 200 participants per store to determine the total number of vendors that can participate in the program in each WIC service area. Of the 39 states reporting that they contain the number of vendors, 31 states reported that as a result, their programs' costs have decreased somewhat or greatly. Figure 3 presents the WIC directors' estimates of the cost reductions resulting from limits on vendors and selection policies. The WIC directors in 7 of the 39 states (Maine, Massachusetts, Nebraska, New Mexico, Rhode Island, South Carolina, and Wisconsin) that currently contain the number of vendors allowed to participate in the program reported that they are planning to introduce additional initiatives, such as requiring competitive food pricing by currently authorized vendors, to contain the program's costs. In addition, the directors in two other states (Connecticut and North Carolina) also reported that they plan to select vendors on the basis of competitive pricing. FCS headquarters officials told us that limiting the number of vendors and selecting vendors with competitive prices are important aspects of containing WIC costs. However, they told us that the retail community does not favor limits on the number of approved vendors. Instead, vendors have pressured state WIC agencies and FCS officials to allow all vendors that qualify to participate. According to the FCS officials, the amount that the WIC program spends for food would be substantially higher if stores with higher prices were authorized for the program. Upon a physician's instructions, WIC infants with special dietary needs or medical conditions may receive special infant formula. While only a small percentage of the WIC infants nationwide require these formulas, the monthly retail costs for them can be high--ranging in one state we surveyed from $540 to $900 for each infant. Twenty-one states avoid paying retail prices by purchasing the special formula at much lower wholesale prices and distributing it to participants. Opportunities exist to substantially lower the cost of special infant formula. Cost savings may be achieved if the states purchase special infant formula at wholesale instead of retail prices. Additional savings may also be possible if these states are able to reduce or eliminate the cost of authorizing and monitoring the retail vendors and pharmacies that distribute only special infant formula to WIC participants. Pennsylvania, for example, turned to direct purchasing to make special infant formula more available and to avoid the high cost of vendor-provided formulas. It established a central distribution warehouse for special formulas in August 1996 to serve the less than 1 percent of WIC infants in the state--about 400--who needed special formulas in fiscal year 1996. Pennsylvania purchases the special formulas directly from the manufacturers at wholesale prices, usually for between $300 to $500 for a 1-month supply. The warehouse ships the special formulas, at the participant's option, either directly to the participant or to the WIC clinic. According to the state WIC director, in many instances, the WIC warehouse delivers the formula faster than pharmacies do. The program is expected to save about $100,000 annually. In addition, by relying on its warehouse, the state can remove over 200 pharmacies from the program, resulting in significant and measurable administrative cost savings, according to the WIC director. Appendix II provides information on the states' use of cost containment practices that affect the program's costs. According to the National Association of WIC Directors and some WIC directors we spoke with, the program's funding structure can constrain a state's ability to make effective use of the additional funds that become available as a result of cost containment initiatives. FCS policy requires that during the grant year, any savings from cost containment accrue to the food portion of the WIC grant, thereby allowing the states to provide food benefits to additional WIC applicants. None of the cost containment savings are automatically available to the states for support services, such as staffing, clinic facilities, voucher issuance sites, outreach, and other activities that are needed to increase participation in the program. As a result, the states may not be able to serve more eligible persons or they may have to carry a substantial portion of the program's support costs until the federal nutrition services and administration grant is adjusted for the increased participation level--a process that can take up to 2 years--according to the National Association of WIC Directors. FCS officials pointed out that provisions in the federal regulations allow the states where participation increases to use a limited amount of their food grant funds for program support activities. However, some states may be reluctant to use the option. For example, according to a Texas WIC official, states may not want to redirect food funds to support services because doing so may be perceived as taking food away from babies. Although California implemented cost containment initiatives during the current and past year, the WIC director told us that the state received less funding for support services this year compared with last year. As a result, she said California has a large, multimillion-dollar imbalance between food money and program support funds that is likely to get worse. She told us that the California program has been hampered by the lack of adequate support funds to sustain its caseload. Some WIC directors told us that such shortfalls in funding for support services may discourage state agencies from expanding the use of cost containment initiatives. FCS officials stated that while the WIC funding process does not immediately adjust the amount of funds for support services to reflect cost containment savings, such adjustments are generally made in the following year's funding allocation. FCS officials also noted that a major reason for the lack of adequate funding for program support activities is an insufficient appropriation level overall--a factor that affected California as well as all WIC state agencies. Federal regulations allow the states to establish their own documentation requirements for applicants who do not automatically meet the income requirements for participation in WIC. Thirty-two of the 48 WIC directors reported that their state agencies generally require documentation of income eligibility for these applicants. Fourteen directors reported that their states do not require documentation. These states allow applicants to declare their income without providing supporting documentation. Finally, two directors reported that income documentation procedures are determined individually by the local WIC agencies. In addition, 20 state WIC directors reported that their states do not require applicants to provide proof of residency, and 12 reported that their states do not require applicants to provide proof of identity when they seek certification for program participation. Thirty of the 32 states that generally require applicants to document their income will waive this requirement under certain conditions. The responses to our questionnaire and our review of state policies indicate that waiving this requirement can be routine. For example, in some instances when individuals report that they are homeless or lack any income, the documentation requirement can be waived. We found that some states also allow individuals to self-declare their income if they do not bring income documents to their certification meeting. While these states will waive their documentation requirements, 27 of the 32 state directors reported that 75 percent or more of the participants who were not automatically income eligible provided documentation, such as pay stubs and letters, to establish eligibility in fiscal year 1996. Appendix III provides information on the states' income documentation requirements and the percentage of participants who were not automatically income eligible and provided income documentation during fiscal year 1996. In addition to meeting income requirements, WIC applicants must reside within the jurisdiction of the state where they expect to establish eligibility to receive benefits. FCS allows the states to accept an applicant's declaration of state residency without documentation. While 20 of the 48 WIC directors reported that their states do not require applicants to provide any proof of state residency, 28 states do require applicants to provide proof of state residency. The types of residency documentation accepted by these states include utility bills, rent receipts, driver's licenses, voter registration cards, and bank statements. To prevent duplicate payments, the program's regulations require the local WIC agency to check the identification of each participant at certification and when issuing food or food vouchers. The types of identification accepted by states include driver's licenses, birth certificates, hospital records, pay stubs, voter registration cards, or recent correspondence. Twelve of the 48 WIC directors reported that their states do not require such proof of identification at certification. There has not been a study of the incidence and magnitude of errors in determining income eligibility for the WIC program since 1988. The 1988 study found that 5.7 percent of the participants were not eligible. According to FCS officials, there is potential for error in making income eligibility decisions, and income documentation requirements may need to be tightened. FCS has begun a nationwide study, scheduled to be completed in 1999, that will develop a national estimate of the number of people participating in the program who are not income eligible. The study will also assess the extent to which various income documentation procedures reduce the level of participation by individuals who are ineligible. The information from this study will assist FCS in determining what changes are needed in income documentation to ensure that the states provide benefits only to applicants who are eligible. FCS officials told us they strongly encourage the states to obtain income documentation. However, they said that imposing stricter documentation requirements could result in increased administrative costs for state and local agencies and might discourage some eligible individuals from applying for benefits. They also noted that certain subgroups of the WIC population, such as aliens, may find stricter documentation requirements a barrier to participation because individuals may be intimidated by the paperwork. FCS officials also expressed concern that the states not requiring proof of personal identification may not be able to ensure that they are complying with the federal requirement that they check the identification of participants when they are certified and when they receive vouchers. Also, FCS officials expressed concern that the states not obtaining evidence of participants' residency may not be able to ensure that the participants are residents of their states as required by federal regulations. A number of the states are making effective use of a variety of practices to contain the WIC program's costs and to extend coverage to more women and children. However, these states have had to overcome various obstacles to implement cost containment. These obstacles include incurring the increased administrative burden associated with procuring and monitoring rebate contracts, ensuring that cost reduction does not result in a food package that is unacceptable to participants, and overcoming resistance from the retail community when attempting to establish special selection requirements or limits on vendors authorized to participate in the program. Given such obstacles, and the states' concern with how the program allocates the additional funds made available through cost containment initiatives, some states may be discouraged from adopting or expanding the use of cost containment practices. As they seek to expand cost containment practices, FCS and the states can benefit from the experiences of those states that have implemented such practices effectively. Expanding cost containment depends, in part, on reducing or eliminating the obstacles that can discourage the states from initiating such practices. The expansion of these practices can have a substantial impact on the WIC program because for every 1-percent reduction in food costs that may result from these initiatives, the federal food expenditure of about $2.7 billion could be reduced by about $27 million annually. Cost savings could be used to provide benefits to additional participants, improve the quality of WIC services, and/or reduce the cost of the program to the federal government. The states that base income-eligibility decisions on WIC applicants' declarations of income without documentation may be allowing applicants who are not eligible to participate in the WIC program. It is clear that this policy may result in unintentional or deliberate misreporting of income information. However, the extent of the problem is unknown because there has not been a recent study of the number of participants in the program that are not income eligible. Information from the new study FCS has begun should enable the agency to determine what changes are needed in the program's income documentation requirements. Similarly, WIC participants must reside in the jurisdiction of the state where they receive benefits and provide identification at the time they are certified to participate in the program and when they receive their vouchers. However, some states are not requiring proof of residency or identity. Without such proof, the states cannot ensure that these requirements are being met. To encourage further implementation of WIC cost containment initiatives, the Secretary of Agriculture should direct the Administrator of FCS to work with the states to identify and implement strategies, including policy and regulatory and legislative revisions, to reduce or eliminate the obstacles that may discourage such initiatives. These strategies could include modifying policies and procedures that allow the states to use cost containment savings for the program's support services and establishing regulatory guidelines for selecting vendors to participate in the program. The Secretary should also direct the Administrator to take the necessary steps to ensure that the state agencies are requiring participants to provide evidence that they reside in the states where they receive WIC benefits and to provide identification when their eligibility is certified and when they receive food or food vouchers. We provided the Food and Consumer Service with copies of a draft of this report for review and comment. We met with agency officials, including the Administrator, the Acting Deputy Administrator for Special Nutrition Programs, and the Director of the Supplemental Food Program Division. FCS generally agreed with the report's findings and recommendations, but FCS suggested revising the presentation of our first recommendation that FCS work with the states to reduce or eliminate the obstacles that may discourage the use of cost containment initiatives. FCS believed that the clarity of our recommendation could be improved by emphasizing that a variety of additional approaches could be taken by the agency to reduce or eliminate cost containment obstacles or provide additional incentives to encourage more cost containment. In response to these concerns, we revised the wording of the recommendation. FCS also provided us with a number of technical comments that we incorporated into the report as appropriate. In developing information for this report, we spoke with and obtained documents from officials at FCS headquarters. We also spoke with officials at all seven of FCS' regional offices. We interviewed state WIC officials in California, Delaware, Pennsylvania, and Texas. In addition, we collected pertinent information from the National Association of WIC Directors. We reviewed federal laws and regulations applicable to the establishment and operation of the WIC program. We also mailed questionnaires to the WIC agency directors in the 50 states and the District of Columbia. We received responses to our questionnaire from 48 directors (94 percent). We conducted our work from December 1996 through August 1997 in accordance with generally accepted government auditing standards. We did not, however, independently verify the accuracy of the state WIC agency directors' responses to our questionnaire. We are sending copies of this report to the appropriate congressional committees, interested Members of Congress, the Secretary of Agriculture, and other interested parties. We will also make copies available upon request. If you have any questions, please call me at (202) 512-5138. Major contributors to this report are listed in appendix IV. Postrebate average food cost per person (continued) Direct purchase of special infant formula (continued) Percentage of applicants who were not automatically income eligible and provided documentation (continued) Thomas Slomba, Assistant Director Peter Bramble Leigh McCaskill White Carolyn Boyce Carol Herrnstadt Shulman The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.	Pursuant to a congressional request, GAO reviewed cost containment initiatives states are using to control the cost of the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), focusing on the practices that the states use to: (1) contain costs by controlling the foods approved for use in the WIC program and by more closely selecting and regulating participating vendors; and (2) ensure that WIC applicants' incomes meet the program's eligibility requirements. GAO noted that: (1) the states are using a variety of cost containment initiatives to control the WIC program's costs; (2) for example, 10 states have contracted with manufacturers to obtain rebates on WIC foods in addition to infant formula, and some states have placed greater limits on WIC participants' food choices than other states; (3) separately, or in conjunction with efforts to contain food costs, 39 states use various practices to restrict the number of vendors or ensure that the prices vendors charge for WIC food items are competitive; (4) these and other practices to contain food costs have saved millions of dollars annually and enabled more individuals to enroll in the program, according to WIC directors; (5) while the use of cost containment practices could be expanded, certain obstacles, including the states' concern with how the program allocates the additional funds made available through cost containment initiatives, may discourage the states from adopting or expanding their use; (6) federal regulations provide that WIC program applicants who participate in the Food Stamp Program, Medicaid, and the Temporary Assistance for Needy Families Program automatically meet the income eligibility requirements of the WIC program; (7) the states use a variety of procedures to certify the income eligibility of the applicants who do not participate in these programs; (8) thirty-two of the 48 state WIC directors responding to GAO's questionnaire reported that their states generally require these applicants to provide documents, such as pay stubs and letters, to verify their income; (9) of the remaining 16 WIC directors, 14 reported that their states do not require documentation; (10) these states allow applicants to declare their income without providing supporting documentation; and (11) the other two directors reported that income documentation procedures are determined individually by the local WIC agencies.	7,166	465
ERISA, among other requirements, establishes the responsibilities of employee benefit plan decision makers (fiduciaries) and the requirements for disclosing and reporting plan fees. ERISA is designed to protect the rights and interests of participants and beneficiaries of employee benefit plans and to outline the responsibilities of the employers and administrators who sponsor and manage these plans. Under Titles I and IV of ERISA and the Internal Revenue Code (IRC), pension and other employee benefit plan administrators are required to file information annually on the financial condition and operations of the plan. The requirements for completing the Form 5500 vary according to the type of plan. If a company sponsors more than one plan, it must file a Form 5500 for each plan. Additionally, ERISA and the IRC provide for the assessment or imposition of penalties by Labor and the Internal Revenue Service (IRS) for plan sponsors not submitting the required information when due. There are various types of Form 5500 filers. Filers are classified as either single-employer plans, multiemployer plans, multiple-employer plans, or direct filing entities (DFE). In general, a separate Form 5500 must be filed for each plan or DFE. Single-employer plans are maintained by one employer or employee organization. Multiemployer plans are established pursuant to collectively bargained pension agreements negotiated between labor unions representing employees and two or more employers and are generally jointly administered by trustees from both labor and management. Multiple-employer plans are maintained by more than one employer and are typically established without collective bargaining agreements. DFEs are trusts, accounts, and other investment or insurance arrangements in which plans participate and that are required to or allowed to file the Form 5500. The Form 5500 was intended, in part, to measure employers' compliance with ERISA's fiduciary and funding provisions, among other requirements. It provides information about the financial condition of the plan, annual amounts contributed by participants, and the plan's investment income. The form also provides information on plan characteristics, such as plan type (defined benefit or defined contribution), method of funding, and numbers of employees and participants as well as the number of employees who are excluded from the plan for various reasons. The Form 5500 is the principal source of information about employer- sponsored pension and welfare benefit plans that is available to Labor, IRS, and the Pension Benefit Guaranty Corporation (PBGC), and is the reporting vehicle for about 730,000 such plans. Accordingly, the Form 5500 constitutes an integral part of each agency's enforcement, research, and policy formulation programs. It is also a source of information and data for use by other federal agencies, Congress, and the private sector in assessing employee benefit, tax, and economic trends and policies. The form also serves as a primary means by which plan operations can be monitored by participants, beneficiaries, and the general public. Labor, IRS, and PBGC jointly developed the Form 5500 so that employee benefit plans could satisfy (1) the provisions of the IRC that apply to tax- qualified pension plans and (2) the annual reporting requirements under ERISA. Labor enforces ERISA's reporting and disclosure provisions and fiduciary responsibility standards, which, among other things, concern the type and extent of information provided to the federal government and plan participants and ensure that employee benefit plans are operated solely in the interests of plan participants. IRS enforces standards that relate to such matters as how employees become eligible to participate in benefit plans; how they become eligible to earn rights to benefits; and how much, at a minimum, employers must contribute. PBGC insures the benefits of participants in defined benefit private pension plans. Labor's regulatory initiatives to expand disclosure requirements cover the following three distinct areas: (1) disclosures by plan sponsors to assist participants in making informed investment decisions; (2) disclosures by service providers to assist plan fiduciaries in assessing the reasonableness of provider compensation and potential conflicts of interest; and (3) more efficient, expanded fee and compensation disclosures to the government and the public through a substantially revised, electronically filed Form 5500 Annual Return/Report. Labor implemented the third initiative on expanding fee and compensation disclosures on the Form 5500--issuing regulations revising the Form 5500 in November 2007--in an effort to facilitate the transition to an electronic filing system; reduce and streamline annual reporting burdens; and update the annual reporting forms to reflect current issues, agency priorities, and new requirements under the Pension Protection Act of 2006. According to officials at Labor, these changes were made to increase transparency regarding the fees and expenses paid by employee benefit plans. Labor also wanted to ensure that plan officials obtain the information they need to assess the compensation paid for services rendered to the plan, taking into consideration revenue-sharing arrangements among plan service providers and potential conflicts of interest. For the 2009 plan year Form 5500, the new Schedule C requires plan sponsors to classify the fees they pay service providers as either "direct" or "indirect" compensation. As shown in table 1, fees are separated into those paid directly by the plan to a service provider and those received by a service provider indirectly from another service provider. Plan sponsors must also determine whether any indirect compensation is reportable (i.e., "ineligible" or "eligible" for exemption from Labor's reporting requirements, as shown in table 2). Most indirect compensation starts out as having to be reported on the Schedule C. However, indirect compensation can readily become "eligible" indirect compensation (EIC). For indirect compensation to be EIC, and thus not reported on the Schedule C, the plan sponsor must receive written materials from the service provider that describe and disclose the following information: 1. the existence of indirect compensation, 2. services provided for this compensation, 3. formulas used to calculate the value of this compensation, 4. who received the compensation, and 5. who paid the compensation. When indirect compensation does qualify as "eligible," sponsors have the option of using an alternative reporting format that, according to Labor, is simpler than the format that must be used to report ineligible indirect compensation. With the alternative reporting format, plan sponsors only have to disclose the name, address, and employer identification number of these service providers. Whether a plan sponsor receives the required written disclosures is the key to whether indirect compensation is reportable on the Schedule C. According to Labor, reporting indirect compensation as EIC is an option that the sponsor may choose instead of reporting under the rules applicable to other indirect compensation. Indirect compensation does not qualify as EIC if a service provider does not provide the required disclosures to the plan sponsor. In this case, the plan sponsor is required to report the available information from the service provider on the Schedule C, such as the identity of the service provider and nature of the services provided. The plan sponsor is also required to list the service provider for failing to or refusing to provide necessary information. However, if the plan sponsor does receive information from the service provider upon request, the plan sponsor has the option of reporting the indirect compensation as EIC (i.e., reporting only that indirect compensation was paid and who provided the disclosure). Many of the fees and expenses associated with mutual fund investments are not explicitly reported on the Form 5500. According to a 2004 report by Labor's ERISA Advisory Council Working Group on Plan Fees and Reporting on Form 5500, many 401(k) and 403(b) plans have moved toward using mutual funds as an investment option. With mutual funds, the plan service provider takes the investment management fees and expenses of managing the mutual fund directly from the mutual fund earnings, and these fees are not explicitly reported to plan sponsors. Without data on mutual funds, the largest component of most 401(k) retirement plans, Labor is unable to fully assess the impact of service provider fees on investment returns. In our November 2006 report, we recommended that Congress consider a statutory change with explicit disclosure requirements for service providers. Without such a change, we concluded, Labor will continue to lack comprehensive information on all fees being charged directly or indirectly to 401(k) plans. Figure 1 illustrates the disclosure of plan fee information from service providers to plan sponsors, which then report the fees to the federal government. The figure also shows that some fees are reported to the Securities and Exchange Commission (SEC), not to Labor. Additionally, many plan fiduciaries enter into bundled arrangements with other plan service providers for recordkeeping or other administrative services that typically do not entail explicit charges to the plan. In a "bundled arrangement" plan, service providers such as recordkeepers and trustees are often compensated for their services to the plan (1) through either subtransfer agent fees, 12b-1 fees, or other administrative fees or (2) through what are called "revenue-sharing arrangements." As a result, fees and expenses are not paid from plan assets, but rather from the expenses of one of the plan's investments (e.g., a mutual fund's operating expense, which is shared with the plan's service provider). Even though Labor has provided guidance on their recent changes to the Form 5500 Schedule C, plan sponsors and service providers reported that they were unclear about Labor's new reporting requirements. Specifically, plan sponsors and experts told us that they have questions regarding the distinction between eligible and ineligible indirect compensation, and several said that they were unclear about what types of compensation qualified as EIC. A recent survey of service providers also reports confusion regarding compliance. An industry association representing service providers surveyed its membership, asking if sponsors and service providers understand Labor's new Schedule C requirements enough to effectively comply. Although only a small number of members (19) responded to the survey, 74 percent of the respondents (14) reported that Labor has not provided sufficient guidance for providers to accurately determine what elements of compensation qualify as EIC. Plan sponsors and experts were also concerned about how much compensation should be disclosed. Figure 2 illustrates the potential difficulty. For example, a plan pays a recordkeeper direct compensation to administer the plan, which includes sending new participants a welcome packet about the plan. Part of the compensation that the recordkeeper receives goes toward paying a fulfillment vendor to make the welcome packets and send them to participants. The fulfillment vendor, in turn, pays a printer to print and collate the packets. As a result, there are multiple layers of payments involved, and sponsors and experts were unsure of how much of the indirect compensation they should be required to disclose. They were also concerned that the compensation would be reported multiple times on the Schedule C. For example, amounts paid by the recordkeeper to vendors would already be included in the overall amount paid by the plan sponsor to the recordkeeper. Concerns have also been raised about how to report noncash compensation. Sponsors and service providers said that they were uncertain about the new Schedule C requirement to report noncash compensation, which is also a type of indirect compensation. Sixty-three percent (12 of 19) of members who responded to the industry survey reported insufficient guidance on this issue. For example, one plan sponsor explained that he was not sure how he would handle, or whether he would even report, the noncash compensation benefit (food, entertainment, and making contacts) of attending a marketing event designed to facilitate future sales of ERISA plans. Respondents (service providers) in the industry survey were asked to imagine that their organization sponsored a similar event for customers and potential customers. Respondents were evenly split on how they would communicate the value of the benefit to attendees for purposes of Schedule C reporting. Some respondents believed the event would not be reportable, while others said they would provide its full value to all attendees and leave it to them to decide whether the event is reportable. Because service providers may have difficulty determining what elements of compensation qualify as EIC, different interpretations and reporting practices may ensue and could result in inconsistent and incomplete data being reported to Labor. For example, some sponsors may interpret certain compensation as reportable, while others may not, leaving Labor with incomplete information from some plans. In addition, since amounts categorized as EIC will not be reported, Labor will have no way of using these data to determine whether the amounts being paid by plans are reasonable and will be unable to compare these types of compensation across plans. According to Labor, not having to report amounts categorized as EIC is intended to simplify the annual reporting process and reduce the burden for plans and service providers for the types of indirect compensation that commenters said would be difficult and potentially expensive to allocate to individual plans. Industry experts and plan sponsors with whom we spoke said additional guidance on reporting indirect compensation may make it easier for plan sponsors to comply. Labor has posted a set of FAQs on its Web site regarding the changes that are specific to Schedule C reporting. However, industry officials with whom we spoke said that although these FAQs answered many questions, additional questions have stemmed from reading the FAQs that have not yet been addressed. Labor officials told us that they were reviewing and prioritizing the additional questions they have received to develop further guidance. As filing deadlines for the 2009 plan year draw closer, sponsors and service providers have told us that they still have questions about the new Schedule C requirements, and may need more time to comply. Labor has already noted on its Web site that there is flexibility regarding reporting for the 2009 plan year, stating that as long as sponsors receive a statement from their service providers that, despite a good-faith effort, they were unable to provide the newly required information to them, sponsors will not be required to report those service providers on the Schedule C. According to industry experts and plan sponsors with whom we spoke, the coordination of one of Labor's other initiatives on fee disclosure with the current Form 5500 requirements could make it easier for plan sponsors to comply. Specifically, sponsors and service providers stressed the importance of Labor coordinating the new Form 5500 requirements, which govern reporting at the end of a plan year, with the finalization of its proposed rule on "up-front" service provider disclosure to plan sponsors. Labor has requirements that govern the entering of a service agreement between a sponsor and service provider, referred to as the 408(b)(2) requirements, and has proposed changes to them that have not yet been finalized. Consequently, the new Schedule C requirements, or "after-the- fact" disclosures," were finalized before the 408(b)(2) regulation, which governs "up-front" disclosures. Since plan sponsors report on the Schedule C an after-the-fact summary of the fees and expenses paid by their plans during the plan year, the information provided on this form is directly related to information about fees and expenses that service providers will be required to disclose to plan sponsors by the 408(b)(2) requirements "up front," at the beginning of a service relationship. In our discussions with Labor officials, they noted that the better scenario would have been publishing the finalized 408(b)(2) regulation before the new Form 5500 requirements and acknowledged the importance of coordinating the finalization of the proposed regulation with the Form 5500 requirements. The officials told us that the move to require electronic filing for the 2009 plan year led them to finalize the Schedule C requirements first. However, it is unclear when the 408(b)(2) regulation will be finalized, which is important given that the first Form 5500s will be filed under the new requirements in July 2010. If the Schedule C requirements are not coordinated with the finalization of the proposed rule to change up-front disclosure, there could be competing sets of disclosure requirements for sponsors and service providers. Service providers had anticipated that the 408(b)(2) regulations would have already been finalized to coordinate with the changes to the Form 5500 to ensure they comply with both sets of rules at once. Without the coordination, service providers are in the position of potentially having to make expensive investments to update their data systems two separate times. In addition, coordinating the 408(b)(2) requirements with the Form 5500 requirements could help ensure that plan sponsors are meeting their fiduciary responsibilities when selecting or renewing a contract with a service provider. Labor officials told us that they do not have specific plans for using the data received as a result of the new requirements, and we found that even with the changes, the Form 5500 may not be useful to Labor, sponsors, or others. Labor officials told us that they will wait to see how the newly required information is reported before determining its use. In addition, because plan sponsors will be required to list any service provider who fails to or refuses to provide the necessary information on the Schedule C, Labor could potentially pursue listed service providers for enforcement action. However, it is unclear whether Labor has any plans to devote additional resources to follow up on service providers. In fact, for the 2009 plan year, plan sponsors will not be required to list service providers who fail to provide information if the service provider provides a statement that they made a good-faith effort to make any necessary recordkeeping and information system changes in a timely fashion. It is also unclear whether Labor has a plan to follow up with plan sponsors to ensure that they have received the newly required disclosures. Labor officials told us that the new requirements are meant to reinforce a fiduciary's obligation of monitoring service providers and plan fees and also are intended as an "exercise in discipline" for the sponsor, since the sponsor will have to create a financial record to submit it to Labor. According to these officials, this will ensure that sponsors receive the information they need about indirect compensation paid to service providers. Labor's efforts are also meant to effect a behavioral change in plan sponsors and service providers. According to Labor officials, the intent is for plan sponsors to understand and then obtain the information they need to determine the reasonableness of the fees they are paying. Since service providers often prepare the Form 5500 on behalf of plan sponsors, the regulatory changes are also designed to notify service providers that compensation information should be provided to sponsors. Still, Labor and others are concerned that some service providers, who may not feel bound by Labor's reporting requirements, may neglect to list the indirect compensation they may have received. Finally, the Form 5500 continues to have limited use for Labor, sponsors, and participants. Labor. Despite Labor's efforts with the new Form 5500 requirements, information on asset-based fees is still not explicitly required to be reported on the form. As we have previously reported, the form does not explicitly list all of the fees paid from plan assets. For example, plan sponsors were not required to report mutual fund investment fees to Labor, even though they received this information for each of the mutual funds they offered in the 401(k) plan in the form of a prospectus. While prospectuses are provided to SEC, on a fund-by-fund basis, neither SEC nor Labor have readily available information to be able to link individual fund information to the various 401(k) plans to which the funds may be offered as investment options. Furthermore, prospectuses provide fees as expense ratios, which are used as an intermediate step in calculating net rates of return, and, as such, the dollar amount of deductions from plan assets are not explicitly stated. Labor officials told us that asset-based fees are now required to be reported on the Schedule C. However, even with the changes made to the reporting of indirect compensation, plan sponsors may wind up only reporting the presence of such fees on the Schedule C along with the identity of the service provider. Because these fees are already reported to SEC, the service provider must either (1) provide the plan sponsor with a document that discloses the documents already sent to SEC, with references to the pages or sections of the documents that contain the required information, or (2) determine whether the amount of the fund's investment management fee that is allocable to the specific 401(k) plan is enough to be reportable, and then provide the dollar amount or a description of the formula used to calculate the amount of the compensation to the plan sponsor. The plan sponsor can then treat the asset-based fee or compensation as EIC and only report the identity of the service provider. Without information on all of the fees charged directly or indirectly to 401(k) plans, Labor is limited in its ability to identify fees that may be questionable. Labor officials told us that the changes to the Form 5500 were not meant to result in a comprehensive database of plan fees, because Labor did not want to put an undue burden on plan sponsors to comply with the new Form 5500 requirements. Labor asserts the expansion of the Schedule C is already significant. In addition, Labor officials told us that because the Schedule C is only filled out by larger plans with more than 100 participants, the schedule is not a complete picture of the universe of plan fees. Sponsors. The Form 5500 may also not be the best vehicle for sponsors to assess service provider fee reasonableness or to understand business arrangements between service providers, since the form is filed long after the plan sponsor has already engaged the provider and selected the investment options. For the most part, the form is filled out for plan sponsors by service providers, who know the compensation arrangements and how to calculate the fees charged. According to industry experts, determining the dollar amounts to attach to ineligible indirect compensation is a source of confusion, because although some indirect compensation is straightforward, the calculation of other compensation is left to the best judgment of the service provider. Also, service providers may also choose to disclose only the formulas they use to determine ineligible indirect compensation, making it difficult for sponsors to assess fees or understand business arrangements. Participants. Participant groups told us that plan sponsors who use the Form 5500 to inform participants are likely to overwhelm participants with the volume and detail required as a result of Labor's new regulations. Both Labor and industry experts told us that the Schedule C is not designed to be used by participants because it does not provide them with an easy comparison of available investment options. Labor has recently made some effort to improve the Form 5500, specifically the Schedule C. However, the changes made seem unlikely to resolve the issues surrounding service provider disclosure to plan sponsors. Absent detailed guidance aimed at clarifying the indirect compensation reporting requirements, Labor is at risk of receiving inconsistent and incomparable information on the Schedule C. In addition, the new requirements currently give plan sponsors the option of not disclosing EIC on the Schedule C. If Labor allows certain indirect compensation to be deemed EIC, and therefore not to be reported, Labor will continue to have incomplete information on compensation received by service providers, and will be no better informed. Similarly, as long as asset-based fees netted from an investment fund's performance are not required to be reported on the Form 5500, sponsors, participants, and Labor will not know the true costs of a plan. Requiring plan sponsors or administrators to report more complete information to Labor on fees--that is, those paid out of plan assets or by participants-- puts the agency in a better position to effectively oversee defined contribution plans. Despite Labor's intentions in changing the Form 5500 Schedule C, the way the regulations are currently written may not result in an increase in the amount of meaningful service provider compensation information reported to Labor. In addition, it is unclear whether plan sponsors will actually receive the information on service provider compensation that Labor believes is important for them to have. Because of the option to distinguish indirect compensation as either eligible or ineligible, service providers may choose to qualify their compensation as EIC and not provide their disclosures to plan sponsors. Meanwhile, Labor has also proposed regulatory changes that could eliminate some of the confusion surrounding 408(b)(2) disclosure requirements. However, it is unclear whether the final regulations will be coordinated with the existing changes to the Form 5500 reporting requirements. Coordinating these initiatives may reduce the burden and the cost to service providers and clarify for plan sponsors the information they need for the service provider selection and renewal processes. Finally, as we suggested in our November 2006 report, absent a statutory change with explicit requirements for service providers, Labor will continue to lack comprehensive information on all fees being charged directly or indirectly to 401(k) plans. To minimize the possibility that inconsistent and incomparable information will be reported on the Schedule C and to ensure that the data collected results in meaningful information for Labor, sponsors, and participants, we recommend that the Secretary of Labor take the following action: Provide additional guidance regarding the reporting of indirect compensation and require that all indirect compensation be disclosed on the Schedule C. Furthermore, consistent with our previous recommendation, to ensure comparable disclosure among all types of service providers and ensure that all investment products' fees are fairly disclosed, we recommend that the Secretary of Labor take the following action: Require asset-based fees that are netted from an investment fund's performance (and, as such, are not paid with plan assets) be explicitly reported on the Form 5500. To reduce the potential for additional costs and burden being placed on service providers, we recommend that the Secretary of Labor take the following action: Coordinate the implementation of the Form 5500 revisions with the publication of its final 408(b)(2) regulations, since the two initiatives are closely related. We provided a draft of this report to the Department of Labor (Labor). We received written comments from the Assistant Secretary for Employee Benefits Security Administration, which we reproduced in appendix I. Labor generally agreed with our recommendations. Labor also provided technical comments, which we have incorporated in this report where appropriate. Labor stated that it is committed to making the shift to the expanded Schedule C reporting requirements as smooth as possible, and that it has already engaged in substantial outreach on the new reporting requirements. Specifically, regarding our recommendation that Labor provide additional guidance on the reporting of indirect compensation, Labor stated that it has plans to continue its outreach efforts, including publishing additional Schedule C guidance. Regarding our recommendation that all indirect compensation be disclosed on the Schedule C and that asset-based fees be explicitly reported on the Form 5500, Labor explained that it had originally proposed that all indirect compensation charged against a plan's investments be required to be reported on the Schedule C, without providing an alternative reporting option. However, Labor provided an alternative reporting option for eligible indirect compensation to plan fiduciaries on the basis of comments received on the proposed rule. Labor stated that the alternative reporting option would provide the department with enough information to engage in effective oversight activities. Labor also stated that once Schedule C reporting begins (for most plans, July 2010 and later), it will be able to evaluate the data it receives, taking into consideration our recommendation. Although Labor stated in its comments that its eligible indirect compensation reporting requirements are intended to help ensure fiduciaries are collecting information and evaluating service provider indirect compensation, we believe that it is also important for the indirect compensation information to be reported to Labor. As we stated in our report, we continue to believe that Labor will not receive enough information to engage in effective oversight activities. Finally, Labor stated that it agreed with our recommendation to coordinate the implementation of the Form 5500 regulations with the publication of its final 408(b)(2) regulation, and that it will continue to coordinate the two initiatives. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution until 30 days after the date of this report. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of Labor, and other interested parties. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff has any questions concerning this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. The following team members made key contributions to this report: Tamara Cross, Assistant Director; Monika Gomez, Analyst-in-Charge; Christopher Langford; James Bennett; Jessica Orr; Walter Vance; and Roger Thomas. Private Pensions: Conflicts of Interest Can Affect Defined Benefit and Defined Contribution Plans. GAO-09-503T. Washington, D.C.: March 24, 2009. Private Pensions: Fulfilling Fiduciary Obligations Can Present Challenges for 401(k) Plan Sponsors. GAO-08-774. Washington, D.C.: July 16, 2008. Private Pensions: GAO Survey of 401(k) Plan Sponsor Practices (GAO-08-870SP, July 2008), an E-supplement to GAO-08-774. GAO-08-870SP. Washington, D.C.: July 16, 2008. Private Pensions: Information That Sponsors and Participants Need to Understand 401(k) Plan Fees. GAO-08-222T. Washington, D.C.: October 30, 2007. Private Pensions: 401(k) Plan Participants and Sponsors Need Better Information on Fees. GAO-08-95T. Washington, D.C.: October 24, 2007. Defined Benefit Pensions: Conflicts of Interest Involving High Risk or Terminated Plans Pose Enforcement Challenges. GAO-07-703. Washington, D.C.: June 28, 2007. Private Pensions: Increased Reliance on 401(k) Plans Calls for Better Information on Fees. GAO-07-530T. Washington, D.C.: March 6, 2007. Private Pensions: Changes Needed to Provide 401(k) Plan Participants and the Department of Labor Better Information on Fees. GAO-07-21. Washington, D.C.: November 16, 2006. Private Pensions: Government Actions Could Improve the Timeliness and Content of Form 5500 Pension Information. GAO-05-491. Washington, D.C.: June 3, 2005.	The Department of Labor (Labor) collects information on fees charged to 401(k) plans primarily through its Form 5500. Labor issued final regulations in November 2007, making changes to, among other things, Schedule C of the Form 5500. Labor put emphasis on reporting the indirect compensation paid to service providers and between service providers, in an effort to capture all of the costs that plan sponsors incur. Congress and others are concerned that Labor's rules could result in duplicative and confusing reporting. Given these concerns, Government Accountability Office (GAO) was asked to examine the new requirements and determine whether Labor's new requirements will provide (1) clear and understandable guidance to plan sponsors and (2) useful information to Labor and others. GAO analyzed Labor's regulations and interviewed Labor and other officials about disclosure and reporting practices. Sponsors and service providers report confusion over Labor's new reporting requirements for the Form 5500 Schedule C and over how plan expenses are defined. Specifically, they have questions regarding the distinction between eligible and ineligible indirect compensation, that is, which types of indirect compensation must be reported on the Form 5500 (compensation that qualifies as "eligible" does not have to be reported). Labor's guidance on its Web site thus far has been limited, and, according to sponsors and service providers GAO spoke with, has raised additional questions that remain unanswered. Specifically, Labor has not provided sufficient guidance for sponsors and providers to accurately determine what elements of compensation qualify as eligible indirect compensation (fees or expense reimbursements charged to investment funds and reflected in the value of the investment). Therefore, interpretations have been left up to sponsors and providers and may result in a range of reporting practices, causing Labor to receive inconsistent and incomplete data. In addition to the new Form 5500 requirements, Labor has proposed another regulation on service provider fee disclosure (its 408(b)(2) regulation), but it has not yet been finalized. Sponsors and service providers GAO talked with stressed the importance of coordinating this initiative with the new Form 5500 requirements. Doing so may reduce the burden and the cost to service providers of making changes to their data gathering and reporting systems and clarify for plan sponsors the information they need to understand and compare the fees charged by various service providers. In GAO's discussions with Labor officials, they agreed that there was a need to coordinate the two regulations, and said that although they are working to finalize the proposed 408(b)(2) regulation, it is uncertain when it will be published. Labor officials told GAO that they do not have specific plans for using the data received as a result of the new Form 5500 requirements and will wait to see what information is reported before deciding what to do with the data. Although Labor's new requirements are meant to ensure that plan sponsors obtain the information they need to assess the compensation paid to service providers for services rendered to the plan, the Form 5500 may not provide useful information to Labor and others. Because plan sponsors are likely to report indirect compensation in varying formats, it is unclear how Labor will be able to compare such data across plans. In addition, GAO previously reported that the information provided to Labor on the Form 5500 has limited use for effectively overseeing fees paid by 401(k) plans because it does not explicitly list all of the fees paid from plan assets, yet these types of fees comprise the majority of fees in 401(k) plans. For example, plan sponsors are not required to explicitly report asset-based fees that are netted from an investment fund's performance, even though they receive this information for each of the mutual funds they offer in the 401(k) plan. Thus, despite the changes to the Form 5500, the new information provided may not be very useful to Labor, plan sponsors, and others.	6,364	807
Both government and private entities increasingly depend on computerized information systems to carry out operations and to process, maintain, and report essential information. Public and private organizations rely on computer systems to transmit sensitive and proprietary information, develop and maintain intellectual capital, conduct operations, process business transactions, transfer funds, and deliver services. In addition, the Internet serves as a medium for hundreds of billions of dollars of commerce each year. Cyberspace--where much business activity and the development of new ideas often take place--amplifies potential threats by making it possible for malicious actors to quickly steal and transfer massive quantities of Threat actors data while remaining anonymous and difficult to detect.may target businesses, among others targets, resulting in the compromise of proprietary information or intellectual property. In addition, the rapid growth of Internet use has significantly contributed to the development of technologies that enable the unauthorized distribution of copyrighted works and is widely recognized as leading to an increase in piracy. Digital products are not physical or tangible, can be reproduced at very low cost, and have the potential for immediate delivery through the Internet across virtually unlimited geographic markets. Sectors facing threats from digital piracy include the music, motion picture, television, publishing, and software industries. Piracy of these products over the Internet can occur through methods including peer-to-peer networks, streaming sites, and one-click hosting services. As we reported in April 2010, IP is an important component of the U.S. economy and IP-related industries pay higher wages and contribute a significant percentage to the U.S. economy. However, the U.S. economy as a whole may grow at a slower pace than it otherwise would because of counterfeiting and piracy's effect on U.S. industries, government, and consumers. The importance of patents and other mechanisms to enable inventors to capture some of the benefits of their innovations has long been recognized in the United States as a tool to encourage innovation, dating back to Article 1 of the U.S. Constitution and the 1790 patent law. Ensuring the protection of IP rights encourages the introduction of innovative products and creative works to the public. Protection is granted by guaranteeing proprietors limited exclusive rights to whatever economic reward the market may provide for their creations and products. As we reported in April 2010, intellectual property is an important component of the U.S. economy, and the United States is an acknowledged global leader in the creation of intellectual property. According to the United States Trade Representative, "Americans are the world's leading innovators, and our ideas and intellectual property are a key ingredient to our competitiveness and prosperity." The United States has generally been very active in advocating strong IP protection and encouraging other nations to improve these systems for two key reasons. First, the U.S. has been the source of a large share of technological improvements for many years and, therefore, stands to lose if the associated IP rights are not respected in other nations. Secondly, a prominent economist noted that IP protection appears to be one of the factors that has helped to generate the enormous growth in the world economy and in the standard of living that has occurred in the last 150 years. This economist pointed out that the last two centuries have created an unprecedented surge in growth compared to prior periods. Among the factors attributed to creating the conditions for this explosion in economic growth are the rule of law, including property rights and the enforceability of contracts. The U.S. economy as a whole may grow at a slower pace than it otherwise would because of counterfeiting and piracy's effect on U.S. industries, government, and consumers. As we reported in April 2010, according to officials we interviewed and a 2008 OECD study, to the extent that companies experience a loss of revenues or incentives to invest in research and development for new products, slower economic growth could occur. IP-related industries play an important role in the growth of the U.S. economy and contribute a significant percentage to the U.S. gross domestic product. IP-related industries also pay significantly higher wages than other industries and contribute to a higher standard of living in the United States. To the extent that counterfeiting and piracy reduce investments in research and development, these companies may hire fewer workers and may contribute less to U.S. economic growth, overall. The U.S. economy may also experience slower growth due to a decline in trade with countries where widespread counterfeiting hinders the activities of U.S. companies operating overseas. The U.S. economy, as a whole, also may experience effects of losses by consumers and government. An economy's gross domestic product could be measured as either the total expenditures by households (consumers), or as the total wages paid by the private sector (industry). Hence, the effect of counterfeiting and piracy on industry would affect consumers by reducing their wages, which could reduce consumption of goods and services and the gross domestic product. Finally, the government is also affected by the reduction of economic activity, since fewer taxes are collected. In addition to the U.S. economy-wide effects, as we reported in April 2010, counterfeit or pirated products that act as substitutes for genuine goods can have a wide range of negative effects on industries, according to experts we spoke with and literature we reviewed. These sources further noted that the economic effects vary widely among industries and among companies within an industry. The most commonly identified effect cited was lost sales, which leads to decreased revenues and/or market share. Lost revenues can also occur when lower-priced counterfeit and pirated goods pressure producers or IP owners to reduce prices of genuine goods. In some industries, such as the audiovisual sector, marketing strategies must be adjusted to minimize the impact of counterfeiting on lost revenues. Movie studios that use time-related marketing strategies-- introducing different formats of a movie after certain periods of time-- have reduced the time periods or "windows" for each format as a countermeasure, reducing the overall revenue acquired in each window. Experts stated that companies may also experience losses due to the dilution of brand value or damage to reputation and public image, as counterfeiting and piracy may reduce consumers' confidence in the brand's quality. Companies are affected in additional ways. For example, to avoid losing sales and liability issues, companies may increase spending on IP protection efforts. In addition, experts we spoke with stated that companies could experience a decline in innovation and production of new goods if counterfeiting leads to reductions in corporate investments in research and development. Another variation in the nature of the effects of counterfeiting and piracy is that some effects are experienced immediately, while others are more long-term, according to the OECD. The OECD's 2008 report cited loss of sales volume and lower prices as short-term effects, while the medium- and long-term effects include loss of brand value and reputation, lost investment, increased costs of countermeasures, potentially reduced scope of operations, and reduced innovation. Finally, one expert emphasized to us that the loss of IP rights is much more important than the loss of revenue. He stated that the danger for the United States is in the accelerated "learning effects"-- companies learn how to produce and will improve upon patented goods. They will no longer need to illegally copy a given brand--they will create their own aftermarket product. He suggested that companies should work to ensure their competitive advantage in the future by inhibiting undesired knowledge transfer. In addition, private sector organizations have experienced a wide range of incidents involving data loss or theft, economic loss, computer intrusions, and privacy breaches, underscoring the need for improved security practices. The following examples from news media and other public sources illustrate types of cyber crimes. In February 2011, media reports stated that computer hackers had broken into and stolen proprietary information worth millions of dollars from the networks of six U.S. and European energy companies. In mid-2009 a research chemist with DuPont Corporation reportedly downloaded proprietary information to a personal e- mail account and thumb drive with the intention of transferring this information to Peking University in China and also sought Chinese government funding to commercialize research related to the information he had stolen. Between 2008 and 2009, a chemist with Valspar Corporation reportedly used access to an internal computer network to download secret formulas for paints and coatings, reportedly intending to take this proprietary information to a new job with a paint company in Shanghai, China. In December 2006, a product engineer with Ford Motor Company reportedly copied approximately 4,000 Ford documents onto an external hard drive in order to acquire a job with a Chinese automotive company. Generally, as we reported in April 2010, the illicit nature of counterfeiting and piracy makes estimating the economic impact of IP infringements extremely difficult, so assumptions must be used to offset the lack of data. Efforts to estimate losses involve assumptions such as the rate at which consumers would substitute counterfeit for legitimate products, which can have enormous impacts on the resulting estimates. Because of the significant differences in types of counterfeited and pirated goods and industries involved, no single method can be used to develop estimates. Each method has limitations, and most experts observed that it is difficult, if not impossible, to quantify the economy-wide impacts. Nonetheless, research in specific industries suggests that the problem is sizeable. As we reported in April 2010, quantifying the economic impact of counterfeit and pirated goods on the U.S. economy is challenging primarily because of the lack of available data on the extent and value of counterfeit trade. Counterfeiting and piracy are illicit activities, which makes data on them inherently difficult to obtain. In discussing their own effort to develop a global estimate on the scale of counterfeit trade, OECD officials told us that obtaining reliable data is the most important and difficult part of any attempt to quantify the economic impact of counterfeiting and piracy. OECD's 2008 report stated that available information on the scope and magnitude of counterfeiting and piracy provides only a crude indication of how widespread they may be, and that neither governments nor industry were able to provide solid assessments of their respective situations. The report stated that one of the key problems is that data have not been systematically collected or evaluated and, in many cases, assessments "rely excessively on fragmentary and anecdotal information; where data are lacking, unsubstantiated opinions are often treated as facts." Because of the lack of data on illicit trade, methods for calculating estimates of economic losses must involve certain assumptions, and the resulting economic loss estimates are highly sensitive to the assumptions used. Two experts told us that the selection and weighting of these assumptions and variables are critical to the results of counterfeit estimates, and the assumptions should, therefore, be identified and evaluated. Transparency in how these estimates are developed is essential for assessing the usefulness of an estimate. However, according to experts and government officials, industry associations do not always disclose their proprietary data sources and methods, making it difficult to verify their estimates. Industries collect this information to address counterfeiting problems associated with their products and may be reluctant to discuss instances of counterfeiting because consumers might lose confidence. OECD officials, for example, told us that one reason some industry representatives were hesitant to participate in their study was that they did not want information to be widely released about the scale of the counterfeiting problem in their sectors. As we reported in April 2010, there is no single methodology to collect and analyze data that can be applied across industries to estimate the effects of counterfeiting and piracy on the U.S. economy or industry sectors. The nature of data collection, the substitution rate, value of goods, and level of deception are not the same across industries. Due to these challenges and the lack of data, researchers have developed different methodologies. In addition, some experts we interviewed noted the methodological and data challenges they face when the nature of the problem has changed substantially over time. Some commented that they have not updated earlier estimates or were required to change methodologies for these reasons. A commonly used method to collect and analyze data, based on our literature review and interviews with experts, is the use of economic multipliers to estimate effects on the U.S. economy. Economic multipliers show how capital changes in one industry affect output and employment of associated industries. Commerce's Bureau of Economic Analysis guidelines make regional multipliers available through its Regional Input- Output Modeling System (RIMS II). These multipliers estimate the extent to which a one-time or sustained change in economic activity will be Multipliers can provide an attributed to specific industries in a region.illustration of the possible "induced" effects from a one-time change in final demand. For example, if a new facility is to be created with a determined investment amount, one can estimate how many new jobs can be created, as well as the benefit to the region in terms of output (e.g., extra construction, manufacturing, supplies, and other products needed). It must be noted that RIMS II multipliers assume no job immigration or substitution effect. That is, if new jobs are created as a result of investing more capital, those jobs would not be filled by the labor force from another industry. Most of the experts we interviewed were reluctant to use economic multipliers to calculate losses from counterfeiting because this methodology was developed to look at a one- time change in output and employment. Nonetheless, the use of this methodology corroborates that the effect of counterfeiting and piracy goes beyond the infringed industry. For example, when pirated movies are sold, it damages not only the motion picture industry, but all other industries linked to those sales. While experts and literature we reviewed in our April 2010 report provided different examples of effects on the U.S. economy, most observed that despite significant efforts, it is difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole. For example, according to the 2008 OECD study, it attempted to develop an estimate of the economic impact of counterfeiting and concluded that an acceptable overall estimate of counterfeit goods could not be developed. OECD further stated that information that can be obtained, such as data on enforcement and information developed through surveys, "has significant limitations, however, and falls far short of what is needed to develop a robust overall estimate." Nonetheless, the studies and experts we spoke with suggested that counterfeiting and piracy is a sizeable problem, which affects consumer behavior and firms' incentives to innovate. Chairman Murphy, Ranking Member DeGette, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions you may have at this time. If you or your staff have any questions about this testimony, please contact me at 202-512-3763 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 Christine Broderick, Assistant Director; Pedro Almoguera; Karen Deans; and Rachel Girshick. 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.	The United States is an acknowledged global leader in the creation of intellectual property. According to the Federal Bureau of Investigation, IP theft is a growing threat which is heightened by the rise of the use of digital technologies. IP is any innovation, commercial or artistic, or any unique name, symbol, logo, or design used commercially. IP rights protect the economic interests of the creators of these works by giving them property rights over their creations. Cyber attacks are one way that threat actors--whether nations, companies, or criminals--can target IP and other sensitive information of federal agencies and American businesses. While bringing significant benefits, increasing computer interconnectivity can create vulnerabilities to cyber-based threats. GAO was asked to testify on efforts to estimate the economic impacts of theft of intellectual property. Accordingly, this statement discusses (1) the economic significance of intellectual property protection and theft on the U.S. economy and (2) insights from efforts to quantify the economic impacts of counterfeiting and piracy on the U.S. economy. This statement is based on products GAO issued from April 2010 through June 2012 on the economic impacts of theft of intellectual property and on cyber threats and economic espionage. In April 2010, GAO reported that intellectual property (IP) is an important component of the U.S. economy and IP-related industries contribute a significant percentage to the U.S. gross domestic product. IP-related industries also pay significantly higher wages than other industries and contribute to a higher standard of living in the United States. Ensuring the protection of IP rights encourages the introduction of innovative products and creative works to the public. According to experts and literature GAO reviewed, counterfeiting and piracy have produced a wide range of effects on consumers, industry, government, and the economy as a whole. The U.S. economy as a whole may grow more slowly because of reduced innovation and loss of trade revenue. To the extent that counterfeiting and piracy reduce investments in research and development, companies may hire fewer workers and may contribute less to U.S. economic growth, overall. Furthermore, as GAO reported in June 2012, private sector organizations have experienced data loss or theft, economic loss, computer intrusions, and privacy breaches. For example, in February 2011, media reports stated that computer hackers had broken into and stolen proprietary information worth millions of dollars from the networks of six U.S. and European energy companies. Generally, as GAO reported in April 2010, the illicit nature of counterfeiting and piracy makes estimating the economic impact of IP infringements extremely difficult. Nonetheless, research in specific industries suggests that the problem is sizeable, which is of particular concern as many U.S. industries are leaders in the creation of intellectual property. Because of the difficulty in estimating the economic impact of IP infringements, assumptions must be used to offset the lack of data. Efforts to estimate losses involve assumptions such as the rate at which consumers would substitute counterfeit for legitimate products, which can have enormous impacts on the resulting estimates. Because of the significant differences in types of counterfeited and pirated goods and industries involved, no single method can be used to develop estimates. Each method has limitations, and most experts observed that it is difficult, if not impossible, to quantify the economy-wide impacts. GAO is not making any new recommendations in this statement.	3,319	711
Historically, the Congress has limited VA's authority to provide medical care to veterans, expanding it in a careful and deliberate manner. Although VA's authority has increased significantly over the years, important limitations have not been recognized by VA in establishing and operating new access points. At the access points we visited, many veterans receive primary care contrary to applicable statutory limitations and priorities on their eligibility for such services. As authority for operating contract access points, VA relies on a statute (38 U.S.C. 8153) that permits it to enter into agreements "for the mutual use, or exchange of use, of specialized medical resources when such an agreement will obviate the need for a similar resource to be provided" in a VA facility. Specialized medical resources are equipment, space, or personnel that--because of cost, limited availability, or unusual nature--are unique in the medical community. VA officials assert that primary care provided at access points is a specialized medical resource because its limited availability to veterans in areas where VA facilities are geographically inaccessible (or inconvenient) makes it unique. One significant aspect of VA's reliance on this authority is that it effectively broadens the eligibility criteria for contract outpatient care, thus allowing some veterans, who would otherwise be ineligible, to receive treatment. In our view, this statute does not authorize VA to provide primary care through its access points. Nothing in the statute suggests that the absence of a VA facility close to veterans in a particular area makes primary care physicians unique in the medical community. The purpose of allowing VA to contract for services under the specialized medical resources authority is not to expand the geographic reach of its health care system, but to make available to eligible veterans services that are not feasibly available at a VA facility that presently serves them. Furthermore, contracting for the provision of primary care at access points does not obviate the need for primary care physicians at the parent VA facility. VA has specific statutory authority (38 U.S.C. 1703) to contract for medical care when its facilities cannot provide necessary services because they are geographically inaccessible. that are more restrictive than those under 38 U.S.C. 8153, upon which VA relies. For example, under 38 U.S.C. 8153, a veteran who has income above a certain level and no service-connected disability is eligible for pre- and post-hospitalization medical services and for services that obviate the need for hospitalization. But under 38 U.S.C. 1703, that same veteran is not eligible for pre-hospitalization medical services or for services that obviate the need for hospitalization. If access points are established in conformance with 38 U.S.C. 1703, VA would need to limit the types of services provided to all veterans except those with service-connected disabilities rated at 50 percent or higher (who are eligible to receive treatment of any condition). All other veterans are generally eligible for VA care based on statutory limitations (and to the extent that VA has sufficient funds). For example, veterans with service-connected conditions are eligible for all care needed to treat those conditions. Those with disabilities rated at 30 or 40 percent are eligible for care of non-service-connected conditions at contract access points to complete treatment incident to hospital care. Furthermore, veterans with disabilities rated at 20 percent or less, as well as those with no service-connected disability, may only be eligible for limited diagnostic services and follow-up care after hospitalization. Most veterans currently receiving care at access points do not have service-connected conditions and, therefore, do not appear to be eligible for all care provided. VA is to assess each veteran's eligibility for care on the merits of his or her unique situation each time that the veteran seeks care for a new medical condition. We found no indication that VA requires access point contractors to establish veterans' eligibility or priority for primary care or that contractors were making such determinations for each new condition. Last year, VA proposed ways to expand its statutory authority and veterans' eligibility for VA health care. Several bills have been introduced that, if enacted, should authorize VA hospitals to establish contract access points and provide more primary care services to veterans in the same manner as the new access points are now doing. VA hospital directors are likely to face an evolving series of financial challenges as they establish new access points. In the short term, hospitals must finance new access points within their existing budgets; this will generally require a reallocation of resources among hospitals' activities. Over the longer term, VA hospitals may incur unexpected, significant cost increases to provide care to veterans who would otherwise not have used VA's facilities. These costs may, however, be offset somewhat if access points allow hospitals to serve current users more efficiently. So far, VA hospitals have successfully financed access points by implementing local management initiatives, unrelated to the access points, which allow the hospitals to operate more efficiently. For example, one hospital director estimated that he had generated resources for new access points by consolidating underused medical wards at a cost savings of $250,000. To date, most directors have concluded that it was more cost-effective to contract for care in the target locations than operate new access points themselves. Essentially, they have found that it is not cost-effective to operate their own access points for a relatively small number of veterans. For example, one hospital that targeted 173 veterans for an access point concluded that this number could be most efficiently served by contracting for care. By contrast, private providers seem willing to serve small numbers of veterans on a contractual, capitated basis because they already have a non-VA patient base and sufficient excess capacity to meet VA's needs. The longer-term effects of new access points on VA's budget are less certain. This is because VA has not clearly delineated its goals and objectives; nor has it developed a plan that specifies the total number of potential access points, time frames for beginning operations, estimates of current and potential new veterans to be served, and related costs. Of these, key cost factors appear to be the magnitude of new users and their willingness to be referred to VA hospitals for specialty and inpatient care. Costs could potentially vary greatly depending on whether VA hospitals' primary objective is to improve convenience for current users or to expand their market share by attracting new users. average, each spend about $300,000 a year to provide primary care to about 1,500 veterans. This hospital can reduce the number of teams to 4 once it enrolls 1,500 veterans at new access points closer to their homes. These newly established access points could be cost-effective if their total costs are the same or lower than the VA hospital's costs--$300,000 or less in this case. VA hospitals, however, could experience significant budget pressures if new access points modestly increase VA's market share. For example, VA currently serves about 2.6 million of our nation's 26 million veterans. To date, 40 percent of the 5,000 veterans enrolled at VA's 12 new access points had not received VA care within the last 3 years. Most of the new users we interviewed had learned about the access points through conversations with other veterans, friends, and relatives or from television, newspapers, and radio. VA's access points may prove more attractive to veterans in part because they overcome barriers such as geographic inaccessibility and quality of care. About half of the veterans who have used VA health care in the past, and a larger portion of the new users, said that it matters little whether they receive care in a VA-operated facility. In fact, almost two-thirds of the new users indicated that if hospitalization is needed, they would choose their local hospital rather than a distant VA facility. Veterans will also generally benefit financially by enrolling in new VA access points. For example, prior VA users will save expenses incurred traveling to distant VA facilities as well as out-of-pocket costs for any primary care received from non-VA providers; most said that they use both VA and non-VA providers. New VA users will also save out-of-pocket costs, with low-income veterans receiving free care and high-income veterans incurring relatively nominal charges. now VA pays the contract provider a capitated rate and then bills the insurer to recover its costs on a fee-for-service basis. The combination of these factors could lead to VA attracting several hundred thousand new users through its access points. This may force VA to turn veterans away if sufficient resources are not available, or it may cause VA to seek additional appropriations to accommodate the potential increased demand. Currently, VA is to provide outpatient care to the extent resources are available. When resources are insufficient to care for all eligible veterans, VA is to care for veterans with service-connected disabilities before providing care to those without such disabilities. Furthermore, when VA provides care to veterans without service-connected disabilities, it is to provide care for those with low incomes before those with high incomes. Presently, most of the nine hopsitals encourage current and new users to enroll in their new access points. For example, the 3 hospitals we visited had enrolled 1,250 veterans in new access points. Of the 1,250, about 20 percent had service-connected disabilities, including about 4 percent rated at 50 percent or higher. Of the remaining 80 percent, most had low incomes, including about 10 percent who were receiving VA pensions or aid and attendance benefits. Inequities in veterans' access to VA care have been a long-standing concern. For example, about three-fourths of veterans (both those with service-connected conditions and others) using VA clinics live over 5 miles away, including about one-third who live over 25 miles away. Establishing new access points gives VA the opportunity to reduce some of these veterans' travel distances. Although VA provided general guidance, it left the development of specific criteria for targeting new locations and populations to be served to network and hospital directors. Directors have several options when targeting new locations and populations to be served. For example, they could target those current users or potential new users living the greatest distances from VA facilities. have improved convenience for existing users and attracted new users as well. However, two new access points have served only current VA users, while another one has served only new users. VA's plans to establish access points could represent a defining moment for its health care system as it prepares to move into the 21st century. On one hand, VA hospitals could use a relatively small amount of resources to improve access for a modest number of current or new users, such as those living the greatest distances from VA facilities or in the most underserved areas. On the other hand, VA hospitals could, over the next several years, open hundreds of access points and greatly expand market share. There are over 26 million veterans and 550,000 private physicians who could contract to provide care at VA expense. VA's growth potential appears to be limited only by the availability of resources and statutory authority, new veteran users' willingness to be referred to VA hospitals, and other health care providers' willingness to contract with VA hospitals. Although VA should be commended for encouraging hospital directors to serve veterans using their facilities in the most convenient way possible, VA has not established access points in conformance with existing statutory authority. In our view, under current statutes, new access points should be VA-operated or provide contract care for only those services or classes of veterans specifically designated by VA's geographic inaccessibility authority. While legislative changes are needed to authorize VA hospitals to provide primary care to veterans in the same manner as the new access points are now doing, such changes carry with them several financial and equity-of-access implications. In addition, VA has not developed a plan to ensure that hospitals establish access points in an affordable manner. If developed, such a plan could articulate the number of new access points to be established, target populations to be served, time frames to begin operations, and related costs and funding sources. It could also articulate specific travel times or distances that represent reasonable veteran travel goals that hospitals could use in locating access points. points in accordance with the statutory service priorities. If sufficient resources are not available to serve all eligible veterans expected to seek care, new access points that are established would serve, first, veterans with service-connected disabilities and then, second, other categories of veterans, with higher income veterans served last. Finally, this approach could provide for more equitable access to VA care than VA's current strategy of allowing local hospitals to establish access points that serve veterans on a first-come, first-served basis and then rationing services when resources run out. Mr. Chairman, this concludes my statement. I will be happy to answer any questions that you or other Members may have. For more information, please call Paul Reynolds, Assistant Director, at (202) 512-7109. Michael O'Dell, Patrick Gallagher, Abigail Ohl, Robert Crystal, Sylvia Shanks, Linda Diggs, Larry Moore, and Joan Vogel also contributed to the preparation of this statement. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.	GAO discussed the Department of Veterans Affairs' (VA) plan to improve veterans' access to primary health care. GAO noted that: (1) by creating new access points, VA may be able to cost-effectively improve users' access to health care and reduce the inequities in veterans' access caused by geographic inaccessibility; (2) creating new access points may increase costs dramatically, since VA failure to adhere to statutory eligibility limitations has resulted in an increase in the amount of services provided and members receiving benefits; (3) the lack of a VA facility in a particular area does not necessarily justify the establishment of a new primary care access point in that area; (4) VA hospitals need to find ways to finance new access points through reorganization of resources rather than with additional funds; (5) in some underserved areas, it has been more cost-effective to contract for health care services rather than establishing a new VA access point; and (6) new access points could cause financial difficulties for VA, because these new facilities will make VA funded care more accessible to veterans who would otherwise not have used VA facilities.	3,042	235
Historically, DOD's programs for acquiring major weapon systems have taken longer, cost more, and often delivered fewer quantities and other capabilities than planned. GAO has documented these problems for decades. In 1970, GAO reported that considerable cost growth had been and was continuing to occur on many current development programs. Since that report was issued, numerous changes have been made to DOD's acquisition process and environment to try to improve acquisition outcomes. Those changes include numerous executive branch initiatives and legislative actions as well as roughly 11 revisions to DOD's acquisition policy between 1971 and 2005. Despite these efforts, defense acquisition programs in the past 3 decades continued to routinely experience cost overruns, schedule slips, and performance shortfalls. Figure 1 illustrates the continued problem of development cost overruns. The figure depicts the combined cost overruns for large development programs (programs totaling more than $1 billion for research, development, testing and evaluation in fiscal year 2005 dollars) in each of the past 3 decades. The figure also identifies some of the major studies and improvement efforts initiated during this time frame. As the figure illustrates, efforts to improve acquisition outcomes have not been successful in curbing acquisition cost problems. Programs initiated in the 1970s exceeded DOD's initial investment estimate by 30 percent, or $13 billion (in fiscal year 2005 dollars), and similar outcomes continued during the subsequent decades despite numerous reform efforts and policy revisions. Since the mid-1990s, we have studied the best practices of leading commercial companies. Taking into account the differences between commercial product development and weapons acquisitions, we articulated a best practices product development model that relies on increasing knowledge when developing new products, separating technology development from product development, and following an evolutionary or incremental product development approach. This knowledge-based approach requires developers to make investment decisions on the basis of specific, measurable levels of knowledge at critical junctures before investing more money and before advancing to the next phase of acquisition. An evolutionary product development process defines the individual increments on the basis of mature technologies and a feasible design that are matched with firm requirements. Each increment should be managed as a separate and distinct acquisition effort with its own cost, schedule and performance baseline. An increment that excludes one of these key elements puts an extra burden on decision makers and provides a weak foundation for making development cost and schedule estimates. The knowledge-based, evolutionary approach in our model is intended to help reduce development risks and to achieve better program outcomes on a more consistent basis. Hoping to improve acquisition outcomes, DOD leaders initiated significant revisions to the department's acquisition policy again in October 2000, by adopting the knowledge-based, evolutionary system development approach. We reported in November 2003, that much of the revised policy agrees with GAO's extensive body of work and that of successful commercial firms. DOD's revised policy emphasizes the importance of and provides a good framework for capturing knowledge about critical technologies, product design, and manufacturing processes. If properly implemented and enforced this approach could help DOD's decision makers gain the confidence they need to make significant and sound investment decisions for major weapon systems. Furthermore, the policy's emphasis on evolutionary system development sets up a more manageable environment for achieving knowledge. We also noted that DOD's policy strongly suggests the separation of technology development from system development, a best practice that helps reduce technological risk at the start of a program and makes cost and delivery estimates much more predictable. Figure 2 depicts in general how DOD's revised policy adopts key aspects of the best practices model. Although DOD took significant steps in the right direction, its policy does not include controls that require program officials to meet the key criteria that we believe are necessary for ensuring that acceptable levels of knowledge are actually captured before making additional significant investments. We previously recommended that DOD design and implement necessary controls to ensure that appropriate knowledge is captured and used to make decisions about moving a program forward and investing more money at critical junctures. DOD officials acknowledged the advantages of using knowledge-based controls, but stated that they believed the policy already included enough controls to achieve effective program results. The officials agreed to monitor the acquisition process to assess the effectiveness of those controls and to determine whether additional ones are necessary. The cost and schedule outcomes being achieved by development programs initiated since DOD first issued its revised policy have not improved over those achieved by programs managed under prior versions of the policy. Of the 23 major programs we assessed, 10 have already reported estimated development cost growth greater than 30 percent or expected delays of at least 1 year in delivery of an initial operational capability to the warfighter. These programs combined represent a cost increase of $23 billion (in fiscal year 2005 dollars) and an average delay in delivery of initial capability of around 2 years. Most of the other programs were still in the early stages as of December 2005 with over half of system development remaining and had not yet reported an adequate amount of cost or schedule data to effectively analyze their progress. Table 1 contains the cost and schedule increases for the 23 programs we assessed, expressed as a percentage of each program's development estimate. The Army's Future Combat System is a case in point. Less than 3 years after program initiation and with $4.6 billion invested, the Army has already increased its development cost estimate $8.9 billion or 48 percent and delayed delivery of initial capability by 4 years over the original business case. Similarly, just over 1 year after initiating development of the Aerial Common Sensor aircraft, the Army has reported that severe weight and design problems discovered during development have stopped work on the program. As a result, program officials are anticipating at least a 45 percent cost increase and a delay of 2 years in delivering an initial capability to the warfighter. These two Army programs are not the only ones experiencing problems. Table 2 contains cost and schedule data for 6 of the 10 largest development programs initiated under the revised policy, including the Future Combat System and Aerial Common Sensor. As the table illustrates there are several programs experiencing large cost increases and schedule delays. A good measure of acquisition performance is return on investment as expressed in acquisition program unit cost because unit cost represents the value DOD is getting for its acquisition dollars invested in a certain program. The programs listed in table 2 will not achieve the return on investment that DOD anticipated when they began development. In the case of Joint Strike Fighter, for example, DOD initially intended to purchase 2,866 aircraft at an acquisition program unit cost of about $66 million. The Navy has reduced the number of Joint Strike Fighter aircraft it plans to buy; technology and design problems encountered during development have led to the significant cost growth. As a result, the acquisition program unit cost is now about $84 million, an increase of 27 percent. We recently reported that the risk of even greater increases is likely because flight testing has not yet started and the acquisition strategy involves substantial overlap of development and production. Similar problems have led to increases in the Future Combat System program. At program initiation, the Army anticipated that each of 15 units would cost about $5.5 billion to develop and deliver. Since that time, instability in the program's technologies and requirements have led to significant cost increases, leading to a 54 percent increase in acquisition program unit cost, now estimated to be $8.5 billion. Regarding all 23 development programs, DOD leaders originally planned to invest a total of about $83 billion (fiscal year 2005 dollars) for system development and anticipated delivering an initial operational capability to the warfighter in 77 months on average. However, development costs have grown and delivery schedules have been delayed significantly. DOD now expects to invest over $106 billion in those same programs, an increase of over $23 billion or 28 percent. The delivery of initial capability to the warfighter is expected to take an average of 88 months or nearly 1 year longer than originally planned. Figure 3 shows changes in these business case elements for these programs in the short time since their initiation. DOD is not effectively implementing the knowledge-based process and evolutionary approach emphasized in its acquisition policy. While the policy outlines a specific knowledge-based process of concept refinement and technology development to help ensure a sound business case is developed before committing to a new development program, almost 80 percent of the programs we reviewed were permitted to bypass this process. Furthermore, the policy emphasizes the need to mature all critical technologies before starting system development and to demonstrate that the product's design is mature before beginning system demonstration. However, nearly three-fourths of the programs reported having immature critical technologies when they received approval to start development, and at least half of the programs had not achieved design maturity before holding their design review and gaining approval to enter the system demonstration phase of development. The policy also emphasizes the use of an evolutionary product development approach, yet program officials continue to structure major acquisition programs to achieve large advances in capability within a single step development program. This strategy has historically resulted in poor cost and schedule outcomes. DOD decision makers continue to approve programs for system development that have not followed key elements of the policy's suggested knowledge-based process. The policy requires program managers to provide senior decision makers with knowledge about key aspects of a system at critical investment points in the acquisition process. Our prior reviews have identified those critical points as the start of system development or program start (referred to as Milestone B in the DOD acquisition policy), design readiness review separating system integration and system demonstration, and production commitment (Milestone C in the DOD acquisition policy). The most important point occurs at program start, when system development begins. DOD acquisition guidance emphasizes the importance of the acquisition phases preceding program start, noting that the decisions made during those phases--concept refinement and technology development--generally define the nature of an entire acquisition program. Acquisition officials continue to begin system development without following early processes for developing executable business cases. A business case should provide demonstrated evidence that (1) the warfighter's needs are real and necessary and that they can best be met with the chosen concept and (2) the chosen concept can be developed and produced within existing resources--including technologies, design knowledge, funding, and the time to deliver the product when it is needed. Establishing a business case calls for a realistic assessment of risks and costs; doing otherwise undermines the intent of the business case and invites failure. This process requires the user and developer to negotiate whatever trade-offs are needed to achieve a match between the user's requirements and the developer's resources before system development begins. The revised policy and associated guidance emphasize the importance of following a sound process of systems engineering and decision making prior to initiating a system development program. The process established in the policy consists of two phases, concept refinement and technology development, and a major decision review called Milestone A, which if rigorously followed, would provide acquisition officials with an opportunity to assess whether program officials had the knowledge needed to develop an executable business case. However, almost 80 percent of the programs we reviewed began system development without holding any prior decision review. Senior officials with the Office of the Secretary of Defense confirmed that this is a common practice among defense acquisition programs. This practice eliminates a key opportunity for decision makers to assess early product knowledge needed to establish a business case that is based on realistic cost, schedule, and performance expectations. Although program officials conduct analysis before starting a development program, they do not consistently follow a process to capture the critical knowledge needed to produce executable business cases, as evidenced by the poor outcomes current programs are experiencing. Officials with the Office of the Secretary of Defense recognized this lack of rigor and discipline in acquisition process, and in February 2004, the Under Secretary of Defense (Acquisition, Technology and Logistics) issued a department-wide policy memorandum directing acquisition officials to place greater emphasis on systems engineering when planning and managing acquisition programs. The policy requires programs to develop a systems engineering plan that describes the programs' overall technical approach, including processes, resources, metrics, and applicable performance incentives. Although DOD's systems engineering initiative has the potential to improve program performance, officials have found that the preliminary results are mixed. Early analysis shows that implementation is inconsistent while program officials learn to develop and implement systems-engineering plans. DOD decision makers continue to permit programs to enter system development before critical technologies are mature. Our review of technology readiness assessments and acquisition decision memorandums for our nine case study programs found that seven of the nine programs were approved to begin development even though program officials reported levels of knowledge below the criteria suggested in the policy and associated guidance, specifically in the area of technology maturity. Those seven programs are not isolated cases. As illustrated in Figure 4, 13 of the programs (nearly three-fourths) that received approval to enter system development under the revised policy did so with less than 100 percent of their critical technologies mature to the level specified by DOD. Only 2 of those programs had more than 75 percent of their technologies mature when they began (see appendix III for technology maturity data for each program). Even though acquisition policy states that technologies shall be mature before beginning system development, the practice of accepting high levels of technology risk at program start continues to be the norm and not the exception. An official with Office of the Secretary of Defense responsible for reviewing and validating program assessments of technology maturity informed us that the office generally views immature critical technologies at the beginning of development as an acceptable risk as long as program officials can show that they have a plan to mature the technologies by the time the program reaches its design readiness review, which requires additional investments to move a program from system integration into system demonstration. Therefore, risk management plans are consistently viewed as acceptable substitutes for demonstrated knowledge. In addition to emphasizing the importance of capturing technology knowledge before starting system development, DOD's policy also highlights the importance of demonstrating design maturity before moving from the integration phase of system development into system demonstration and initial manufacturing. The policy establishes a design readiness review between the two phases to determine whether a product's design is mature and stable and whether the product is ready to move ahead. While DOD's policy does not require programs to demonstrate any specific level of design maturity, our past work has found that a key indicator of design maturity is the completion of 90 percent of the system's engineering drawings. We found that defense programs that moved forward with lower levels of design maturity, as indicated by drawing completion, encountered costly design changes and parts shortages that, in turn, caused labor inefficiencies, schedule delays, and quality problems. Consequently, those programs required significant increases in resources--time and money--over what was estimated at the point each program entered the system demonstration phase. We analyzed engineering drawing completion data for 8 programs initiated under the revised policy that have held a design review, and found that more than half of those programs had not completed 90 percent of their design drawings before they received approval to enter the system demonstration phase of development. We also analyzed drawing-release data for three programs that have not yet held their design review but have projected the number of drawings officials anticipate will be completed when their reviews are held. Based on projections provided by program officials, 2 of those 3 programs are expected to have less than 55 percent of their drawings complete before they seek approval to begin system demonstration and initial manufacturing. Despite the revised policy's guidance that capabilities should be developed and delivered in individually defined and separately managed increments, a majority of major weapon acquisition programs we assessed continue to be structured to achieve revolutionary increases in capability within one development program. According to the policy, the objective of an evolutionary approach is to balance needs and available capability with resources and put capability into the hands of the user quickly. The policy states that the success of the strategy depends on consistent and continuous definition of requirements and the maturation of technologies that lead to disciplined development and production of systems that provide increasing capability. In this approach, requirements that cannot be satisfied within these limits as well as available financial resources must wait for future generations of the product and be managed as separate system development programs with separate milestones, costs, and schedules. In our case studies of nine acquisition programs initiated under the revised policy, we found only one program--the Small Diameter Bomb--that satisfied all of the criteria of an evolutionary approach. In five case studies, we found that program officials had claimed that their programs were evolutionary, yet our evidence shows they were not evolutionary in practice; and in three cases, program officials chose not to use evolutionary acquisition from the outset. Table 3 summarizes our assessment of the nine case studies. The revised acquisition policy does not contain effective controls that require the demonstration of product knowledge measured against specific criteria to ensure that acquisition officials make disciplined, transparent, and knowledge-based investment decisions. The lack of specific required criteria creates an environment in which unknowns about technology, design, and manufacturing processes are acceptable. Decision makers and program officials are left with no objective measures against which to gauge a program's level of knowledge, making accountability difficult. In the absence of criteria, transparency in acquisition decisions is essential to ensuring accountability, but key decision documents do not provide sufficient information about major decisions. DOD believes that acquisition decision memorandums, used to document program decisions, provide adequate transparency. However, the decision memorandums we reviewed did not contain an explanation of the decision maker's rationale and rarely identify remaining risks, especially as they relate to the key knowledge standards emphasized in the policy. Further, the timeliness, accessibility, and depth, of the data contained in the Selected Acquisition Reports, DOD's primary means of providing Congress with a status report of program performance, inhibits the reports' usefulness as a management and oversight tool. In November 2003, we reported that the revised acquisition policy lacked many of the controls that leading commercial companies rely on to attain an acceptable level of knowledge before making additional significant investments. Controls are considered effective if they are backed by specific criteria and if decision makers are required to consider the resulting data before deciding to advance a program to the next level. Controls used by leading companies help decision makers gauge progress in meeting cost, schedule, and performance goals and hold program managers accountable for capturing relevant product knowledge to inform key investment decisions. The controls we have articulated as best practices used by successful commercial product developers are listed below in table 5. Some senior officials with the Office of the Secretary of Defense believe that the effective use of controls in DOD's policy and the establishment of more specific criteria for decision making would improve program outcomes. They note that specific criteria need to be established and that programs need to be held accountable to those criteria before being permitted to proceed into the next phase. They also note that the criteria for moving an acquisition effort from one phase of the process to the next, primarily documented in acquisition decision memorandums as exit criteria, are not typically specific and often do not relate to the key knowledge-based criteria suggested in the policy. We found this to be true for our nine case study programs. We reviewed acquisition decision memorandums in our case studies and determined that they were not useful in explaining the decision maker's rationale and in almost all of the cases they did not address the key knowledge criteria suggested in the acquisition policy. In most instances, the decision maker simply noted that the program being assessed was ready to proceed into system development, but did not provide an explanation of the rationale for the decision. Senior officials with the Office of the Secretary of Defense told us that they agree that a better explanation of the decision maker's rationale, specifically in instances where the knowledge criteria are not fully met, would provide transparency and ultimately allow for a more accountable decision-making process. The following two examples illustrate how decision documentation is lacking: The Future Combat System program received approval to enter system development and demonstration in 2003, with 19 percent of its critical technologies mature, well below the policy's standard. The acquisition decision memorandum supporting this decision did not provide the rationale for approving the system with such a large number of immature critical technologies. The memo did direct an updated review of the decision 18 months later and that the program "remain flexible and open to accommodate trades in the system architecture and in the individual systems' designs." The Joint Strike Fighter program was approved to enter system development in 2001. The acquisition decision memorandum did not address the fact that 75 percent of the program's critical technologies were not mature to the policy's standard. The memorandum did acknowledge that the program's requirements could be changed or modified, noting that further refinements in the requirements should be explored as a potential way to reduce program costs. However, the memorandum did not explain why the decision maker determined that the program should enter development without achieving the technology and requirements knowledge emphasized in the policy. The acquisition decision memorandums for most of the other programs we reviewed did not specifically address critical gaps in knowledge, nor did they effectively explain the decision makers' rationale for deeming those programs ready to begin system development. In memos where we found a reference to key knowledge principles, such as technology maturity, the decision makers acknowledged that more effort was needed to meet the policy's suggested criteria but considered the risk acceptable to begin development. These memos did not explain why risks were considered acceptable. For example, the Navy's Multi-Mission Maritime Aircraft program had none of its critical technologies mature at program initiation. The decision maker acknowledged the need to further mature the critical technologies but approved the program to enter development. Instead of holding the program to the policy's criteria for entering development, the decision maker simply directed the Navy to work with the Office of the Secretary of Defense to implement risk mitigation and technology maturation plans during the integration phase of system development. In addition to the lack of transparency provided through acquisition decision memoranda, we also found that the data presented to Congress in DOD's Selected Acquisition Reports (SARs) provided only limited usefulness as an oversight tool. Since 1969, SARs have been the primary means by which DOD reports the status of major weapon system acquisitions to Congress. SARs are reports that are expected to contain information on the cost, schedule, and performance of major weapon systems in comparison with baseline values established at program start, full-scale development, and production decision points. Our analysis, as well as a previous GAO review, of current and historical SAR data found that the timeliness, accessibility, and depth of the data contained in the reports limits their usefulness as an oversight tool. Our prior review noted that a number of opportunities exist for DOD to give Congress more complete information on the performance of major defense acquisition programs. DOD agreed that SAR data could be improved to make it more useful to Congress. Failing to consistently implement the knowledge-based process and evolutionary principles emphasized in the revised acquisition policy-- coupled with a lack of specific criteria for making key investment decisions--are keeping DOD on its historical path of poor cost and schedule outcomes. Most programs are incurring the same scope of cost overruns and schedule delays as programs managed under prior DOD policies. More consistent use of the early acquisition processes would improve the quality and viability of program business cases by ensuring they are founded on knowledge obtained from rigorous and disciplined analysis. The initiative by Office of the Secretary of Defense to reinstitute the use of systems engineering is a step in the right direction. However, in order for this initiative to be effective DOD must establish and enforce specific criteria at key decision points. Our past work has identified and recommended criteria and controls that should be consistently applied at major decision points. The enforcement of these criteria is critical to ensuring that programs have the knowledge necessary to successfully move forward through the acquisition process. DOD officials have acknowledged the advantages of using knowledge-based criteria and controls, but believe the policy already includes enough controls to achieve effective program results. However, without enforceable criteria, defense officials are challenged to determine whether adequate knowledge has been obtained for investing taxpayer dollars. The lack of enforceable criteria also makes it difficult to hold defense officials accountable for their decisions. DOD must ensure that appropriate knowledge is captured and used at critical junctures to make decisions about moving a program forward and investing more money. We recommend that the Secretary of Defense require program officials to demonstrate that they have captured appropriate knowledge at three key points--program start, design review for transitioning from system integration to system demonstration, and production commitment--as a condition for investing resources. At a minimum those controls should require program officials to demonstrate that they have achieved a level of knowledge that meets or exceeds the following criteria at each respective decision point: Program start (Milestone B): Start of product development Demonstrate technologies to high readiness levels Ensure that requirements for the product are informed by the systems- Establish cost and schedule estimates for product on the basis of knowledge from preliminary design using system engineering tools Conduct decision review for program start Design readiness review: Beginning of system demonstration Complete 90 percent of design drawings Complete subsystem and system design reviews Demonstrate with prototype that design meets requirements Obtain stakeholders' concurrence that drawings are complete and Complete the failure modes and effects analysis Identify key system characteristics Identify critical manufacturing processes Establish reliability targets and growth plan on the basis of demonstrated reliability rates of components and subsystems Conduct decision review to enter system demonstration Production commitment (Milestone C): Initiation of low-rate production Demonstrate manufacturing processes Build production-representative prototypes Test production-representative prototypes to achieve reliability goal Test production-representative prototypes to demonstrate product in Collect statistical process control data Demonstrate that critical processes are capable and in statistical Conduct decision review to begin production Furthermore, to ensure that major decisions are transparent and that program officials and decision makers are held accountable, we recommend that the Secretary of Defense require decision makers to include written rationale for each major decision in acquisition decision documentation. The rationale should address the key knowledge-based criteria appropriate for milestone decisions, explain why a program's level of knowledge in each area was deemed acceptable if criteria have not been met and provide a plan for achieving the knowledge necessary to meet criteria within a given time frame. DOD provided written comments on a draft of this report. The comments appear in appendix II. DOD partially concurred with our recommendation that the Secretary of Defense should establish specific controls to insure that program officials demonstrate that they have captured a level of knowledge that meets or exceeds specific criteria at three key points in the acquisition process: program start, design readiness review, and production commitment. DOD agreed that knowledge-based decision making is consistent with sound business practice and stated that it would continue to develop policy that reflects a knowledge-based approach and improves acquisition outcomes. DOD noted that it would consider our recommendations as it reassesses the DOD acquisition business model and the knowledge required at each decision point. We believe that DOD's plan to reassess its business model provides a good opportunity to establish the controls and specific criteria recommended in this report. Therefore, we are retaining our recommendation that the Secretary of Defense should establish controls to insure that program officials demonstrate that they have captured a level of knowledge that meets or exceeds specific criteria at three key points in the acquisition process. DOD also partially concurred with our recommendation that the Secretary of Defense require decision makers to provide written rationale in acquisition decision documentation for each major decision. DOD agreed that acquisition decisions should be documented, decision makers should be held accountable, and that they should provide the rationale for their decisions. DOD believes that the implementation of Section 801 of the National Defense Authorization Act for FY 2006 reinforces these processes. The act calls for the decision maker to certify that the program meets certain requirements, such as technology maturity, prior to starting a new development program at Milestone B. However, the act is focused on the decision to start a development program and does not identify specific criteria for programs to be measured against at design readiness review or production commitment. We believe our recommendation adds transparency and accountability to the process because it requires the decision maker to provide the rationale for a decision to allow a program to move forward, not only at Milestone B but at other key decision points as well. Therefore, we are retaining our recommendation that the Secretary of Defense require decision makers to provide written rationale for each major decision in acquisition decision documentation. We are sending copies of this report to the Secretary of Defense; the Secretaries of the Air Force, Army, and Navy; and the Director of the Office of Management and Budget. We will provide copies to others on request. This report will also be available at no charge on GAO's Web site at http://www.gao.gov. If you have any questions about this report or need additional information, please call me at (202) 512-4841 ([email protected]). Contact points for the offices of Congressional Relations and Public Affairs are located on the last page of this report. Key contributors to this report were Michael Hazard, Assistant Director; Lily Chin; Ryan Consaul; Christopher DePerro; Travis Masters; and Adam Vodraska. To assess the impact of DOD's revised acquisition policy, we analyzed cost and schedule data for 23 major defense acquisition programs that were approved to begin system development under the revised policy. We did not assess space, missile defense, or ship programs. We collected our data from Selected Acquisition Reports, presidential budget documents, ongoing GAO work, and pertinent program officials. We utilized previous GAO reports related to defense acquisition policies and worked with knowledgeable GAO staff to ensure the use of current, accurate data. We also analyzed more than 150 annual Selected Acquisition Reports covering a 36-year period from 1969 to 2005, to determine historical trends related to outcomes of acquisition policy implementation. We assessed whether the revised policy's knowledge-based, evolutionary acquisition principles were being effectively implemented by conducting 9 case study reviews and analyzing design maturity data for 11 programs that have made engineering-drawing data available to GAO. Our case study programs were the Aerial Common Sensor, Multi-Platform Radar Technology Insertion Program, Global Hawk Unmanned Aerial Vehicle, Small Diameter Bomb, Future Combat System, Joint Strike Fighter, Expeditionary Fighting Vehicle, Multi-Mission Maritime Aircraft, and the E-2 Advanced Hawkeye. We interacted directly with numerous program officials to seek input on current developments with their programs. We studied program documents to assess how well programs understand and are implementing the revised acquisition policy. We also analyzed drawing release data for those programs that have either passed their design review or have provided GAO with estimated drawing release data for a future design review to assess design maturity. In several cases, we asked that program offices verify information in these various documents. We also reviewed Department of Defense (DOD) Directive 5000.1, DOD Instruction 5000.2, and the Defense Acquisition Guidebook. In addition we examined each of the military services' policy directives and guidance, DOD memorandums to include policy intent and DOD expectations regarding policy implementation as well as Joint Capabilities Integration and Development System documents. We interviewed relevant officials in Washington, D.C., from the Office of the Director, Defense Research and Engineering, the Joint Staff, the Office of the Secretary of Defense, and Army, Navy, and Air Force acquisition policy staff in order to better understand the content of these documents and the intent of DOD's policy. We conducted our review from May 2005 to February 2006 in accordance with generally accepted government auditing standards. Appendix III: Program Data for 23 Programs Initiated under DOD's Revised Acquisition Policy (as of December 2005) Formal Milestone I or Milestone A decision review? Program office projections. DOD Acquisition Outcomes: A Case for Change. GAO-06-257T. Washington, D.C.: November 15, 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. 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 Programs Implement Best Practices. GAO/NSIAD-99-206. Washington, D.C.: August16, 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 17, 1998. Best Practices: DOD Can Help Suppliers Contribute More to Weapon System Programs. GAO/NSIAD-98-87. Washington, D.C.: March 17, 1998. Best Practices: Successful Application to Weapon Acquisition Requires Changes in DOD's Environment. GAO/NSIAD-98-56. Washington, D.C.: February 24, 1998. Best Practices: Commercial Quality Assurance Practices Offer Improvements for DOD. GAO/NSIAD-96-162. Washington, D.C.: August 26, 1996.	The Department of Defense (DOD) is planning to invest $1.3 trillion between 2005 and 2009 in researching, developing, and procuring major weapon systems. How DOD manages this investment has been a matter of congressional concern for years. Numerous programs have been marked by cost overruns, schedule delays, and reduced performance. Over the past 3 decades, DOD's acquisition environment has undergone many changes aimed at curbing cost, schedule, and other problems. In order to determine if the policy DOD put in place is achieving its intended goals, we assessed the outcomes of major weapons development programs initiated under the revised policy. Additionally, we assessed whether the policy's knowledge-based, evolutionary principles are being effectively implemented, and whether effective controls and specific criteria are in place and being used to make sound investment decisions. Changes made in DOD's acquisition policy over the past 5 years have not eliminated cost and schedule problems for major weapons development programs. Of the 23 major programs we assessed, 10 are already expecting development cost overruns greater than 30 percent or have delayed the delivery of initial operational capability to the warfighter by at least 1 year. The overall impact of these costly conditions is a reduction in the value of DOD's defense dollars and a lower return on investment. Poor execution of the revised acquisition policy is a major cause of DOD's continued problems. DOD frequently bypasses key steps of the knowledge-based process outlined in the policy, falls short of attaining key knowledge, and continues to pursue revolutionary--rather than evolutionary or incremental--advances in capability. Nearly 80 percent of the programs GAO reviewed did not fully follow the knowledge-based process to develop a sound business case before committing to system development. Most of the programs we reviewed started system development with immature technologies, and half of the programs that have held design reviews did so before achieving a high level of design maturity. These practices increase the likelihood that problems will be discovered late in development when they are more costly to address. Furthermore, DOD's continued pursuit of revolutionary leaps in capability also runs counter to the policy's guidance. DOD has not closed all of the gaps in the policy that GAO identified nearly 3 years ago, particularly with regard to adding controls and criteria. Effective controls require decision makers to measure progress against specific criteria and ensure that managers capture key knowledge before moving to the next acquisition phase. However, DOD's policy continues to allow managers to approach major investment decisions with many unknowns. Without effective controls that require program officials to satisfy specific criteria, it is difficult to hold decision makers or program managers accountable to cost and schedule targets. In this environment, decision-making transparency is crucial, but DOD is lacking in this area as well.	7,354	585
In March 2009, $26.7 billion of Recovery Act funding was apportioned to all 50 states and the District for activities allowed under the Federal-Aid Highway Surface Transportation Program, including restoration, repair, and construction of highways, and for other eligible surface transportation projects. The act requires that 30 percent of these funds be suballocated for projects in metropolitan and other areas of the state. Highway funds are apportioned to the states through federal-aid highway program mechanisms, and states must follow the requirements of the existing program. Under the Recovery Act, the maximum federal fund share of highway infrastructure investment projects is 100 percent, whereas the federal share under the existing federal-aid highway program is generally 80 percent. As of July 17, 2009, $16.8 billion of the apportioned funds had been obligated for over 5,700 projects nationwide, including $9.8 billion that had been obligated for over 2,900 projects in the 16 states and the District that are the focus of our review. About half of Recovery Act highway obligations nationwide have been for pavement improvements. Specifically, $8.2 billion is being used for projects such as reconstructing or rehabilitating deteriorated roads. Many state officials told us they selected a large percentage of resurfacing and other pavement improvement projects because they did not require extensive environmental clearances, were quick to design, could be quickly obligated and bid, could employ people quickly, and could be completed within 3 years. In addition, about $2.8 billion, or about 17 percent of Recovery Act funds nationally, has been obligated for pavement-widening projects, and around 12 percent has been obligated for the replacement and improvement of existing bridges, and the construction of new bridges. Figure 1 shows obligations by the types of road and bridge improvements being made. As of July 17, 2009, $401.4 million had been reimbursed nationwide by the Federal Highway Administration (FHWA), including $140.8 million that had been reimbursed for projects in the 16 states and the District. DOT officials told us that although funding has been obligated for more than 5,000 projects, it may be months before contractors mobilize and begin work. States make payments to these contractors for completed work and then can request reimbursement from FHWA. Nevertheless, this is a notable increase in reimbursements since we issued our report on July 8, 2009. At that time we reported that, according to June 25 data, FHWA had reimbursed $233 million nationwide, including $96.4 million that had been reimbursed to the 16 states and the District. This is an increase of about 72 percent and 46 percent respectively over a period of about three weeks, compared with increases in obligations in the 6 percent range. We will continue to monitor these trends in the weeks ahead. According to state officials, because an increasing number of contractors are looking for work, bids for Recovery Act contracts have come in under estimates. State officials told us that bids for the first Recovery Act contracts were ranging from around 5 percent to 30 percent below the estimated cost. Several state officials told us they expect this trend to continue until the economy substantially improves and contractors begin taking on enough other work. Funds appropriated for highway infrastructure spending must be used as required by the Recovery Act. States are required to do the following: Ensure that 50 percent of apportioned Recovery Act funds are obligated within 120 days of apportionment (before June 30, 2009) and that the remaining apportioned funds are obligated within 1 year. The 50 percent rule applied only to funds apportioned to the state and not to the 30 percent of funds required by the Recovery Act to be suballocated, primarily based on population, for metropolitan, regional, and local use. The Secretary of Transportation is to withdraw and redistribute to other states any amount that is not obligated within these time frames. Give priority to projects that can be completed within 3 years and to projects located in economically distressed areas, as defined by the Public Works and Economic Development Act of 1965, as amended. According to this act, to qualify as an economically distressed area, an area must meet one or more of three criteria, two of which related to income and unemployment based on the most recent federal or state data, and the third of which is based on a Department of Commerce determination of special need. Certify that the state will maintain the level of spending for the types of transportation projects funded by the Recovery Act that it planned to spend the day the Recovery Act was enacted. As part of this certification, the governor of each state is required to identify the amount of funds the state plans to expend from state sources from February 17, 2009, through September 30, 2010. All states have met the first Recovery Act requirement that 50 percent of their apportioned funds are obligated within 120 days. Of the $18.7 billion nationally that is subject to this provision, 69 percent was obligated as of June 25, 2009. The percentage of funds obligated nationwide and in each of the states included in our review is shown in figure 2. The second Recovery Act requirement is to give priority to projects that can be completed within 3 years and to projects located in economically distressed areas. While officials from almost all of the states said that they considered project readiness, including the 3-year completion requirement, when making project selections, there was substantial variation in the extent to which states prioritized projects in economically distressed areas and how they identified these areas. Due to the need to select projects and obligate funds quickly, many states first prioritized projects based on other factors and only later identified whether these projects fulfilled the requirement to give priority to projects in economically distressed areas. According to the American Association of State Highway and Transportation Officials, in December 2008, states had already identified more than 5,000 "ready-to-go" projects as possible selections for federal stimulus funding, 2 months prior to enactment of the Recovery Act. Officials from several states also told us they had selected projects prior to the enactment of the Recovery Act and that they only gave consideration to economically distressed areas after they received guidance from DOT. States also based project selection on other priorities, such as geographic distribution, the potential for job creation or other economic benefits, and state planning criteria or funding formulas. DOT and FHWA have yet to provide clear guidance regarding how states are to implement the requirement that priority be given to economically distressed areas. In February 2009, FHWA published replies to questions from state transportation departments on its Recovery Act Web site stating that because states have the authority to prioritize and select federal-aid projects, it did not intend to develop or prescribe a uniform procedure for applying the Recovery Act's priority rules. Nonetheless, FHWA provided a tool to help states identify whether projects were located in economically distressed areas. Further, in March 2009, FHWA provided guidance to its division offices stating that FHWA would support the use of "whatever current, defensible, and reliable information is available to make the case that has made a good faith effort to consider economically distressed areas" and directed its division offices to take appropriate action to ensure that the states gave adequate consideration to economically distressed areas. We also found some instances of states developing their own eligibility requirements for economically distressed areas using data or criteria not specified in the Public Works and Economic Development Act. According to the act, to qualify for this designation, an area generally must (1) have a per capita income of 80 percent or less of the national average or (2) have an unemployment rate that is, for the most recent 24-month period for which data are available, at least 1 percent greater than the national average unemployment rate. For areas that do not meet one of these two criteria, the Secretary of Commerce has the authority to determine that an area has experienced or is about to experience a special need arising from actual or threatened severe unemployment or economic adjustment problems resulting from severe short-term or long-term changes in economic conditions. In each of the cases we identified, the states informed us that FHWA approved the state's use of alternative criteria. However, FHWA did not consult with or seek the approval of the Department of Commerce, and it is not clear under what authority FHWA approved these criteria. For example: Arizona based the identification of economically distressed areas on home foreclosure rates and disadvantaged business enterprises--data not specified in the Public Works Act. Arizona officials said they used alternative criteria because the initial determination of economic distress based on the act's criteria excluded three of Arizona's largest and most populous counties, which also contain substantial areas that, according to state officials, are clearly economically distressed and include all or substantial portions of major Indian reservations and many towns and cities hit especially hard by the economic downturn. The state of Arizona, in consultation with FHWA, developed additional criteria that resulted in these three counties being classified as economically distressed. Illinois based the classification of economically distressed areas on increases in the number of unemployed persons and the unemployment rate, whereas the act bases this determination on how a county's unemployment rate compares with the national average unemployment rate. According to FHWA, Illinois opted to explore other means of measuring recent economic distress because the initial determination of economic distress based on the act's criteria was based on data not as current as information available within the state and did not appear to accurately reflect the recent economic downturn in the state. Using the criteria established by the Public Works Act, 30 of the 102 counties in Illinois were identified as not economically distressed. Illinois's use of alternative criteria resulted in 21 counties being identified as economically distressed areas that had not been so classified following the act's criteria. California based its economically distressed area determinations on the January 2009 monthly unemployment rates developed by the California Employment Development Department. While the use of state data is allowed under the act, the data must cover a 24-month period. California officials stated that county-level unemployment data from December 2006 through November 2008 were not sufficiently representative of the current unemployment situation in California. Our July 2009 report recommended that the Secretary of Transportation develop (1) clear guidance on identifying and giving priority to economically distressed areas that is in accordance with the requirements of the Recovery Act and the Public Works and Economic Development Act of 1965, as amended, and (2) more consistent procedures for FHWA to use in reviewing and approving states' criteria. In its response to this recommendation, DOT said that it has already provided clear and consistent guidance to assist states and localities in identifying economically distressed areas and prioritizing projects in these areas, and that it has also conducted extensive outreach with state and local governments. However, we believe DOT's existing guidance is insufficient because, while it emphasizes the importance of giving priority to these areas, it does not define what giving priority means, and thus does not ensure that the act's priority provisions will be consistently applied. DOT also stated that it is consulting with the Department of Commerce to develop additional guidance on criteria that may be used to classify areas as economically distressed for the purpose of Recovery Act funding. We will review the additional guidance when it becomes available and plan to continue to monitor this issue in the weeks ahead for our future reports. Finally, the states are required to certify that they will maintain the level of state effort for programs covered by the Recovery Act. With one exception, the states have completed these certifications, but they face challenges. Maintaining a state's level of effort can be particularly important in the highway program. We have found that the preponderance of evidence suggests that increasing federal highway funds influences states and localities to substitute federal funds for funds they otherwise would have spent on highways. As we previously reported, substitution makes it difficult to target an economic stimulus package so that it results in a dollar-for-dollar increase in infrastructure investment. Most states revised the initial certifications they submitted to DOT. As we reported in April, many states submitted explanatory certifications--such as stating that the certification was based on the "best information available at the time"--or conditional certifications, meaning that the certification was subject to conditions or assumptions, future legislative action, future revenues, or other conditions. The legal effect of such qualifications was being examined by DOT when we completed our review. On April 22, 2009, the Secretary of Transportation sent a letter to each of the nation's governors and provided additional guidance, including that conditional and explanatory certifications were not permitted, and gave states the option of amending their certifications by May 22. Each of the 16 states and District selected for our review resubmitted their certifications. According to DOT officials, the department has concluded that the form of each certification is consistent with the additional guidance, with the exception of Texas. Texas submitted a revised certification on July 9, 2009. According to DOT officials, as of July 28, 2009, the status of Texas' revised certification remained unresolved. For the remaining states, while DOT has concluded that the form of the revised certifications is consistent with the additional guidance, it is currently evaluating whether the states' method of calculating the amounts they planned to expend for the covered programs is in compliance with DOT guidance. States face drastic fiscal challenges, and most states are estimating that their fiscal year 2009 and 2010 revenue collections will be well below estimates. In the face of these challenges, some states told us that meeting the maintenance-of-effort requirements over time poses significant challenges. For example, federal and state transportation officials in Illinois told us that to meet its maintenance-of-effort requirements in the face of lower-than- expected fuel tax receipts, the state would have to use general fund or other revenues to cover any shortfall in the level of effort stated in its certification. Mississippi transportation officials are concerned about the possibility of statewide, across-the-board spending cuts in 2010. According to the Mississippi transportation department's budget director, the agency will try to absorb any budget reductions in 2010 by reducing administrative expenses to maintain the state's level of effort. We will continue to monitor states' and localities' use of Recovery Act funds for transportation programs and their compliance with program rules. In our next report, in September 2009, we plan to provide information on action taken by states and DOT in response to our recommendation on economically distressed areas and follow up on the progress states and metropolitan areas have made in obligating Recovery Act funds for highway infrastructure programs. We also plan to examine the use of Recovery Act funds for the Federal Transit Administration's Transit Capital Assistance program--the transit program receiving the most recovery act funding--in selected states. We expect that subsequent reports will include information on states' use of Recovery Act funds for other transit programs, such as the Fixed Guideway Modernization program. In addition to the two reports we have issued to date, we have also reported or testified on the following issues related to other transportation programs receiving Recovery Act funding: Discretionary transportation infrastructure grants. We reported that DOT followed key elements of federal guidance in developing selection criteria for awarding grants under this $1.5 billion dollar program. These key elements include communicating important elements associated with funding opportunities and using selection criteria that support a framework for merit-based spending and follow transportation infrastructure investment principles. High-speed passenger rail projects. We examined the factors that can lead to economically viable projects and whether the Federal Railroad Administration's (FRA) strategic plan to use the $8 billion of Recovery Act funds provided for high-speed and other intercity passenger rail projects incorporates those factors. We found that factors such as costs, ridership projections, and determination of public benefits affect which projects are likely to be economically viable. We also found that FRA's strategic plan for high-speed rail outlines, in general terms, how the federal government may invest Recovery Act funds for high-speed rail development but that it does not establish clear goals or a clear role for the federal government in high-speed rail. We are beginning follow-up work aimed at, among other things, identifying how project sponsors and others have surmounted the challenges of instituting new rail service and how FRA is positioned to develop, implement, and oversee its new high-speed rail program. We hope to have this work completed by next spring. We will continue to monitor these and other areas in which the committee might be interested. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or other Members of the Committee might have. For further information regarding this statement, please contact Katherine A. Siggerud at (202) 512-2834 or [email protected], or A. Nicole Clowers at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement are Steve Cohen, Heather Halliwell, David Hooper, Bert Japikse, Hannah Laufe, Leslie Locke, and Crystal Wesco. 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.	The American Recovery and Reinvestment Act of 2009 (Recovery Act) included more than $48 billion for the Department of Transportation's (DOT) investment in transportation infrastructure, including highways, rail, and transit. This testimony--based on GAO report GAO-09-829 , issued on July 8, 2009 and updated with more recent data, in response to a mandate under the Recovery Act--addresses (1) the uses of Recovery Act transportation funding including the types of projects states have funded, (2) the steps states have taken to meet the act's requirements, and (3) GAO's other work on transportation funding under the Recovery Act. In GAO-09-829 , GAO examined the use of Recovery Act funds by 16 states and the District of Columbia (District), representing about 65 percent of the U.S. population and two-thirds of the federal assistance available through the act. GAO also obtained data from DOT on obligations and reimbursements for the Recovery Act's highway infrastructure funds. A substantial portion of Recovery Act highway funds have been obligated, with most funded projects focusing on pavement improvements. In March 2009, $26.7 billion was apportioned to 50 states and the District for highway infrastructure and other eligible projects. As of July 17, 2009, $16.8 billion of the apportioned funds had been obligated for over 5,700 projects nationwide. About half of the funds has been obligated for pavement improvements such as reconstructing or rehabilitating roads; 17 percent has been obligated for pavement-widening projects; and about 12 percent has been obligated for bridge projects. Remaining funds were obligated for the construction of new roads and safety projects, among other things. States have generally complied with the act's three major requirements on the use of transportation funds: (1) Fifty percent of funds must be obligated within 120 days of apportionment. All states have met this requirement. (2) Priority for funding must be given to projects that can be completed within 3 years and are located in economically distressed areas, as defined by the Public Works and Economic Development Act. Officials from almost all of the states included in GAO's review said they considered project readiness, including the 3-year completion requirement, when making project selections. However, due to the need to select projects and obligate funds quickly, many states first selected projects based on other factors and only later identified whether these projects fulfilled the economically distressed area requirement. Additionally, some states identified economically distressed areas using data or criteria not specified in the Public Works or Recovery Act. In each of these cases, states told us that DOT's Federal Highway Administration (FHWA) approved the use of alternative criteria but it is not clear under what authority it did so as FHWA did not consult with or seek the approval of the Department of Commerce. (3) State spending on transportation projects must be maintained at the level the state had planned to spend as of the day the Recovery Act was enacted. With one exception, the states have certified that they will maintain their level of spending. GAO will continue to monitor states' use of Recovery Act funds for transportation programs and their compliance with program rules. In the next report, in September 2009, GAO plans to provide information on the use of Recovery Act funds for transit programs and for highway programs. Previous GAO work on the act has addressed other transportation issues. For instance, GAO's work on discretionary transportation grants found that DOT followed key elements of federal guidance in developing selection criteria for awarding these grants, and GAO's work on intercity rail funding found that although DOT's strategic plan for high-speed rail generally outlines how the act's funds may be invested for high-speed rail development, the plan does not establish clear goals or a clear role for the federal government.	3,691	819
DOD uses its secondary inventories, such as spare parts, clothing, and medical supplies, to support its operating forces worldwide. However, its logistics system to acquire, store, and deliver these materials has frequently been criticized as cumbersome, inefficient, and costly. DOD's inventory management problems have been long-standing, characterized by the expenditure of billions of dollars on excess supplies and the failure to acquire sufficient tools and expertise to manage them effectively. DOD's culture has historically encouraged maintaining excessive inventories rather than managing with just the right amount of stock, and DOD has been slow to adopt new management practices, technologies, and logistics systems. Lately, however, DOD has taken several steps, such as developing a prime vendor for medical, food, and clothing supplies, to help change this culture. In fiscal year 1994, DOD developed a logistics strategic plan, which it has updated annually, to provide an integrated logistics roadmap to support its warfighting strategy. The plan, which is prepared by the Office of the Deputy Under Secretary of Defense (Logistics) and approved by the Under Secretary of Defense (Acquisition and Technology), indicates senior leaders' commitment and support, which are important in overcoming barriers to changing DOD's culture. Its current plan states that DOD is striving to cut secondary inventories from the current $70 billion to $53 billion or less by October 2001, or about 24 percent, and occupied storage space from 631 million cubic feet to 375 million cubic feet or less, or about 40 percent. DOD's data appear to indicate that, for the most part, DOD is on target in achieving these outcomes by the end of the decade. DOD also hopes to reduce logistics response times by one-third from its fiscal year 1996 first-quarter average by September 1997, and to reduce the average age for backordered items to 30 days by October 2001. DOD's plan can further serve as a fundamental building block to creating a results-oriented organization as envisioned by the Government Performance and Results Act (GPRA) of 1993, which requires federal agencies, including DOD as a total entity, to develop strategic plans no later than September 30, 1997, for a 5-year period. In previous work, we have found that leading organizations that successfully implement results-oriented management have established clear hierarchies of performance goals and measures throughout all levels of their organizations. GPRA was designed to create a new results-oriented federal management and decision-making approach that requires agencies to clearly define their missions, set goals, link activities and resources to goals, measure performance, and report on their accomplishments. In crafting GPRA, Congress recognized that agencies must be alert to the environment in which they operate; in their strategic plans, they are required to identify the external factors that could affect their ability to accomplish their missions. The cost of DOD's logistics system is larger than the budgets of some federal agencies that are required to submit their strategic plans to Congress under GPRA. Although DOD is required to develop and submit a DOD-wide plan to Congress, the GPRA approach to strategic planning is, in our opinion, a useful technique for larger efforts, such as DOD's logistics system. Recognizing that it needed an integrated logistics roadmap to support its warfighting strategy into the next century, DOD developed a strategic plan in 1994 to improve its logistics system. The plan does a good job setting out a vision of what DOD expects the logistics system to do, that is "provide reliable, flexible, cost-effective and prompt logistics support, information, and services to the warfighters; and achieve a lean infrastructure." DOD's vision is guided by several principles, which its plan highlights, such as the need for near real-time information on material and logistics support need for both performance metric and performance measurement use of process reengineering and investment to reduce the operational and support cost burden on defense resources without reducing readiness. The plan recognizes that the future logistics environment will require greater mobility, visibility of key assets, and more dynamic workload management to provide a rapid response to changing requirements and improved and accurate management information to better control logistics resources as defense budgets decline. The plan also points out that streamlining to a leaner logistics system can be achieved through greater integration of business and production processes but that performance of logistics processes must be continually assessed to identify opportunities for improvement through the adoption of new initiatives. DOD's fiscal year 1996-97 edition of its plan reiterates the 1994 plan's goals and aims to achieve them by 2001. According to DOD's plan, its overall goals are to (1) reduce logistics cycle times, (2) develop a seamless logistics system, and (3) streamline the logistics infrastructure. The plan also sets forth the objectives and strategies for addressing these goals. In all, the plan lists a total of 95 specific strategies, including the identification of 12 priority strategies, such as the total asset visibility, battlefield distribution, and continuous acquisition and life-cycle support (CALS) strategies. The strategies are to help accomplish the plan's goals and, as a result, "achieving world-class capabilities, while reducing the cost of DOD's logistics system." DOD reported that it has made progress in achieving all three of its goals. DOD recognized, however, that implementing certain strategies was often more complex than originally anticipated and that while most strategies included specific milestones, many actions do not happen just once but continue. As a result, DOD has adjusted its approaches to some of the strategies and its projected completion dates for others. DOD can further improve its planning process by (1) linking its priority strategies to resources, (2) better linking the services' and DLA's plans to its logistics strategic plan, and (3) identifying interim approaches when milestones of a priority strategy have been extended. Although DOD's plan indicates that staffing and financing requirements are to be aligned to the planning, programming, and budgeting system's (PPBS) cycle, it does not indicate the magnitude and source of resources that are required to implement many of its strategies, particularly the priority strategies. By including the resources to carry out the plan's strategies, DOD could help ensure that a strategy based on priorities, and agreed to by those who must approve the resources to implement them, guides management actions and shapes the budget consistent with the direction and outcomes it wishes to achieve. In this connection, logistics managers for one of DOD's priority logistics strategies--the CALS strategy--have not identified, either in DOD's plan or the CALS implementation plan, the magnitude and source of resources that are required to implement its many initiatives. CALS, which began in 1985, is intended to automate and integrate acquisition, engineering, manufacturing, and logistics data on weapons. If successfully implemented, this effort is expected to allow for more efficient management of weapon systems information by converting into digital format millions of technical manuals and engineering drawings used throughout a weapon's life cycle, linking databases, and providing access to users within and outside of DOD for managing this information. CALS managers acknowledged that there is no single point of funding accountability for implementing CALS and that DOD also does not know the total cost associated with this effort. Because CALS funding comes from many sources, such as weapon system budgets and CALS-related system budgets, CALS managers further indicated that it is difficult to arrive at an estimated total cost to implement CALS. We and the DOD Inspector General have reported over the years problems associated with implementing CALS. We recognize that it is difficult to arrive at a cost for CALS, but until resource requirements for CALS are clearly identified and tied to the PPBS cycle, DOD will continue to have difficulty implementing CALS. Effective strategic planning helps guide members of an organization to envision their future and develop the necessary procedures and operations to achieve that future. Therefore, it is equally important that DOD's plan cascade through all its organizations so that responsible elements of those organizations work toward attaining the same goals. However, the Executive Steering Group, which is responsible for directing implementation of the plan, assessing progress, setting priorities, and developing plan updates, has not required the services and DLA to develop logistics strategic plans that link their individual goals and strategies to DOD's plan. Consequently, the services' goals, objectives, and strategies do not always support DOD's plan. We did note that DLA is the only major defense agency to take the initiative to ensure that the goals and strategies of its corporate plan (similar to a strategic plan) link directly to DOD's plan. The Army's and the Air Force's logistics plans have evolved over the last several years to better reflect DOD's goals and objectives. The Navy has only recently begun to develop its first logistics strategic plan and expects to complete it by the end of the year. In our opinion, this is an opportune time for the Navy to ensure its plan ties directly to DOD's goals and objectives. During this review, we noted that DOD's plan did not contain interim approaches that could be developed and implemented when milestones of a priority strategy have been extended. Interim approaches are particularly important in cases where other strategies outlined in the plan are interrelated and dependent on the success of the priority strategy, such as the corporate information management (CIM) initiative, to accomplish their goals and objectives. To illustrate, in 1989, DOD introduced the CIM strategy to improve business practices and the use of information technology and to eliminate redundant systems in medical, civilian payroll, and material management. According to DOD's plan, CIM's milestones have been extended an additional 5 years because of operational difficulties.But, the plan does not describe any interim approaches to achieve the objectives of the CIM strategy and continue furthering the goals and objectives of other priority strategies that depend on CIM to be successful. There are several interrelated strategies in DOD's plan that depend on CIM for success, such as the joint battlefield distribution, the joint total asset visibility, and the in-transit visibility strategies. CIM migration systems are required to provide the communication links for transmitting logistics data to managers. For example, the joint battlefield distribution strategy, which is intended to improve delivery of supplies to fighting units, depends on improved battlefield communications and real-time asset information, which CIM was expected to provide, to be successful. Similarly, the joint total asset visibility strategy is ultimately dependent on CIM migration systems to help it provide timely, accurate information on the location and movement of personnel, equipment, and supplies. Likewise, in-transit visibility, intended to track the identity, status, and location of cargo in transit, is also dependent on both total asset visibility and CIM migration systems to communicate the data. Therefore, until CIM migration systems are fully implemented, these dependant strategies may experience considerable difficulty achieving their goals and objectives. These issues are in line with similar issues that we reported in September 1996 on problems with the development of materiel management systems, which are a part of the CIM initiative. In that report, we stated that DOD had made a major change in its materiel management migration system policy and that it did so before critical steps were taken that would help ensure good business decisions were made and that risks were minimized. We concluded that DOD (1) may likely deploy systems that will not be significantly better than those already in place and (2) could waste millions of dollars resolving problems that result from a lack of developing and implementing a clear and cohesive strategy. We stated that, before proceeding with any new strategy, DOD needs to take the necessary steps to fully define its approach, plan for risks, ensure adequate oversight, and complete testing of new systems. We also recently reported that weaknesses in the materiel management information system strategy were evident in the migration information systems strategies for the depot maintenance and transportation business areas, putting even more millions of information technology investment dollars at risk. For example, for depot maintenance systems, we found that even if the migration effort was successfully implemented as envisioned, the planned depot maintenance standard system would not dramatically improve depot maintenance operations principally because there were problems with the system that delayed reengineering efforts to make the improvements. For the transportation area, we found that had DOD followed its own regulations and calculated investment returns on its transportation migration selections, it would have found, based on data available when the systems were selected, that two of the systems would lose money. We concluded that many of these systems' problems may have been prevented if DOD had employed a strategic information resources planning effort beforehand. Such planning would have helped DOD focus on meeting the objectives intended to dramatically improve operations for these areas rather than incrementally improving them. Strategic planning for information resources is supported by the Clinger-Cohen Act of 1996, which Congress recently passed, in part, to provide for the cost effective and timely acquisition, management, and use of effective information technology solutions. Moreover, strategic information resources planning is a critical step in the development of a strategic business plan, such as DOD's logistics strategic plan. To build on DOD's existing strategic planning efforts and to have a better chance of achieving the major logistics system improvements that its plan envisions, we recommend that the Secretary of Defense direct the Deputy Under Secretary of Defense for Logistics to (1) ensure that future logistics plans include a recognition of the magnitude of the investment that is required to accomplish the plan's goals, objectives, and strategies and (2) issue specific guidance to the Secretaries of the Army, the Navy, and the Air Force and the Director of DLA instructing the services and DLA on how to link their goals and budgets to the DOD logistics strategic plan's overall goals and strategies. In its comments on a draft of this report, DOD generally agreed with the thrust of our report and partially concurred with our recommendations. DOD stated that the resourcing process for the logistics strategic plan needs to be strengthened, but it believed it is presently impractical to include the magnitude of the investment made to implement the plan's goals, objectives, and strategies in the plan itself. DOD stated that it relies on PPBS to cost and resource the plan's priority strategies. It pointed out that, under the current PPBS process, the magnitude of the investment of the plan's various alternatives is generally not known until the PPBS process is completed, long after the plan is issued. DOD acknowledged, however, that resourcing the plan's requirements through PPBS may not be the best way for ensuring its accomplishment, but presently, there is not a better alternative. DOD's explanation has some merit, and we recognize the inherent difficulties it faces in identifying investment requirements for the plan that must compete with other requirements for scarce resources. However, we believe that future plans still need to recognize that trade-offs between and among the priority strategies must be made from time to time, often necessitating a reevaluation of the financial resources that are currently needed or will be available to fund them. In this regard, GPRA will require federal agencies, including DOD, to develop plans that link activities and resources to goals, starting next year. However, for purposes of the logistics strategic plan itself, we have revised our recommendation to encourage DOD to include a recognition of the difficulties involved in making these financial trade-offs in its plan, and DOD agreed to ensure that the next edition of the plan includes language to that effect. DOD also stated that it will ensure the next edition of the plan includes specific guidance to the military services and DLA on linking their plans to DOD's plan. DOD pointed out that the Deputy Under Secretary of Defense for Logistics cannot issue specific budget guidance on which DOD requirements will be funded or not. Although we agree, the intent of our recommendation was not to be interpreted as a budget driven issue; rather, we are trying to alert DOD to one of the principles of effective strategic planning that will be strongly encouraged under GPRA. That is, DOD will need to ensure that lower level units focus their efforts on supporting the goals of the next level and, ultimately, to DOD's overall corporate goals. Without this basic tenet, organizations like DOD, which do not make sufficient progress toward achieving their goals, may neither know why the goals were not met nor what changes are needed to improve performance. DOD's comments are included in appendix I. We reviewed and analyzed DOD's logistics strategic plan to determine whether it was characteristic of generally accepted models that focused on the process of strategic planning. In analyzing DOD's plan, we applied fundamental strategic planning practices identified from our review of literature on this topic, including our prior reports that addressed the implementation of strategic management processes in government agencies. We also discussed the adequacy of DOD's logistics strategic planning efforts with a consultant (a retired high-ranking military officer) who is on our Logistics Advisory Panel. In addition, we reviewed selected services' logistics strategic plans to determine the extent to which their individual goals and objectives matched those contained in DOD's plan. We selected six top-priority strategies contained in the plan to assess how well DOD was carrying out the plan's goals, objectives, and strategies--total asset visibility, CIM, mobility requirements study bottom-up review, battlefield distribution, CALS, and in-transit visibility strategies. Specifically, we spoke to officials responsible for developing the plan and monitoring its implementation. We also reviewed pertinent documents such as implementation plans, charters, status reports, and other related information. We did not independently verify the accuracy of this information. In conducting our review, we held discussions with officials in the Office of the Deputy Under Secretary of Defense for Logistics (Materiel and Distribution Management); the Office of the Under Secretary of Defense for Acquisition and Technology; the Office of the Joint Chiefs of Staff; the Offices of the Air Force and Army Deputy Chiefs of Staff for Logistics, Washington, D.C.; DLA, Fort Belvoir, Virginia; the U.S. Transportation Command, Scott Air Force Base, Illinois; and the Office of the Chief of Naval Operations and the Naval Supply Systems Command, Arlington, Virginia. We conducted our review from September 1995 through July 1996 in accordance with generally accepted auditing standards. We are sending copies of this report to the appropriate congressional committees; the Secretaries of the Air Force, the Army, and the Navy; the Directors of DLA and the Office of Management and Budget; and other interested parties. We will make copies available to others upon request. Please contact me on (202) 512-8412 if you or your staff have any questions concerning this report. The major contributors to this report are listed in appendix II. Frank R. Marsh, Evaluator-in-Charge Sandra D. Epps, 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.	GAO reviewed the Department of Defense's (DOD) logistics strategic plan to identify opportunities for increasing the likelihood of implementing the plan's goals and objectives successfully. GAO found that: (1) DOD's plan gives direction to improvements that are needed to reduce the costs of its logistics system (i.e., reducing logistics cycle times, developing a seamless logistics system, and streamlining the logistics infrastructure) and lays out specific objectives and strategies to produce these improvements; (2) DOD could build on its plan and increase the likelihood of implementing its goals and objectives successfully, as well as be better prepared for implementing the requirements of the Government Performance and Results Act of 1993, if the plan: (a) linked its action plans to resources so that both DOD managers and Congress can make more informed decisions on the value and priority of logistics system improvements; (b) better linked the services' and the Defense Logistics Agency's (DLA) plans to DOD's plan; and (c) identified interim approaches that can be developed and implemented when milestones of a priority strategy, aimed at achieving the plan's overall goals and objectives, have been extended; and (3) DOD's success in bringing these elements together hinges on its top-level managers' continued and visible support of efforts to remove institutional cultural barriers.	4,277	281
Long-term fiscal simulations by GAO, CBO, and others all show that despite some modest improvement in near-term deficits, we face large and growing structural deficits driven primarily by rising health care costs and known demographic trends. In fact, the long-term fiscal challenge is largely a health care challenge. Although Social Security is important because of its size, the real driver is health care spending. It is both large and projected to grow more rapidly in the future. GAO's current long-term simulations show ever-larger deficits resulting in a federal debt burden that ultimately spirals out of control. Figure 1 shows two alternative fiscal paths. The first is "Baseline extended," which extends the CBO's baseline estimates beyond the 10-year projection period, and the second is an alternative based on recent trends and policy preferences. Our alternative scenario assumes action to return to and remain at historical levels of revenue and reflects somewhat higher discretionary spending and more realistic Medicare estimates for physician payments than does the baseline extended scenario. Although the timing of deficits and the resulting debt build up varies depending on the assumptions used, both simulations show that we are on an unsustainable fiscal path. The bottom line is that the nation's longer-term fiscal outlook is daunting under any realistic policy scenario or assumptions. Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security. Our current path also increasingly will constrain our ability to address emerging and unexpected budgetary needs and increase the burdens that will be faced by future generations. As I noted earlier, despite some recent improvements in short-term deficits, the long-term outlook is moving in the wrong direction. Figures 2 and 3 illustrate just how much worse the situation has become. Both figures show the potential fiscal outcome under our "Baseline extended" scenario. Figure 2 shows the fiscal outlook in 2001 and figure 3 shows the outlook now. The contrast is dramatic. Even with the surpluses of 2001, we had a long-term problem, but it was more than 40 years out. Although an economic slowdown and decisions driven by the attacks of 9/11 and the need to respond to natural disasters have contributed to the change in outlook, they do not account for the dramatic worsening in the long-term outlook since 2001. Subsequent tax cuts and the passage of the Medicare prescription drug benefit in 2003 were major factors. Figure 3 illustrates today's cold hard truth: that neither slowing the growth in discretionary spending nor allowing the tax provisions to expire--nor both together--would eliminate the longer-term imbalance. This is even clearer under our alternative scenario based on recent trends and policy preferences (see fig. 4). Growth in the major entitlement programs-- primarily health spending--results in an unsustainable fiscal future regardless of whether one assumes future revenue will be somewhat above historical levels as a share of the economy as in the first simulation (fig. 3) or at historical levels as shown in figure 4. Rapidly rising health care costs are not simply a federal budget problem; they are our nation's number one fiscal challenge. Just last week, GAO released the results of our latest fiscal modeling efforts showing that state and local governments--absent policy changes--will also face large and growing fiscal challenges beginning within the next few years. As is true for the federal budget, growth in health-related spending--Medicaid and health insurance for state and local employees and retirees--is the primary driver of the fiscal challenges facing the state and local governments. In short, the fundamental fiscal challenges of all levels of government are similar and linked. Further, escalating health care costs are also a major competitiveness challenge for American businesses and a growing challenge for many Americans. As such, solutions to address these challenges should be considered in a strategic and integrated manner. The longer-term fiscal challenge we face is not solely a federal one--it is a national one. Figure 5 shows both the federal fiscal path and the fiscal path for the whole of government. There often seems to be an imbalance between the focus of press coverage and public debate and what drives the longer-term outlook. Reporting and debate are often focused on what the Budget Enforcement Act (BEA) called discretionary--the one-third of the budget that goes through the annual appropriation process: Is funding for specific programs being cut or increased? Is "too much" or "too little" being spent in a given area? I would be the last person to say this isn't important. Much of what the American people think of as government is contained in that part of the budget. Further, as I have said before, I believe that reexamining "the base" is something that should be done periodically regardless of fiscal condition--all of us have a stewardship obligation over taxpayer funds. We have programs still in existence today that were designed 20 or more years ago--and the world has changed. However, I would suggest that as constraints on discretionary spending continue to tighten, the need to reexamine existing programs and activities becomes greater. Certainly controlling discretionary spending is important, but--as everyone in this room knows even with the large costs associated with the "Global War on Terrorism" and Iraq--discretionary spending is not the part of the budget that drives the long-term fiscal imbalance. As figure 6 shows, mandatory programmatic spending--that is mandatory spending excluding interest--has grown from 27 percent of the federal budget in 1965--the year Medicare was created--to 42 percent in 1985 to 53 percent last year. Total mandatory spending including net interest--has grown from 34 percent in 1965 to 62 percent last year. Both the CBO baseline estimates and the President's Budget proposal show this spending growing even further. This growth--in particular rising health care spending--will have significant implications not only for the budget, but also for the economy as a whole. Figure 7 shows the total future draw on the economy represented by Social Security, Medicare, and Medicaid. Under the 2007 Trustees' intermediate estimates and CBO's 2005 midrange Medicaid estimates, spending for these entitlement programs combined will grow to over 15 percent of GDP in 2030 from today's 8.9 percent. Taken together, it is clear that Social Security, Medicare, and Medicaid represent an unsustainable burden on the federal budget, our economy, and future generations. Ultimately, the nation will have to decide what level of benefits and spending it wants and how it will pay for these benefits. Although these three programs dominate the long-term outlook, they are not the only federal programs or activities that bind the future. The federal government undertakes a wide range of responsibilities, programs, and activities that may either obligate the government to future spending or create an expectation for such spending. Part of what we owe the future is leaving enough flexibility to meet whatever challenges arise. So beyond dealing with the "big 3," we need to look at other policies that limit that flexibility--not to eliminate all of them but to at least be aware of them and make a conscious decision to reform them in a manner that will be responsible, equitable, and sustainable. GAO has described the range and measurement of such fiscal exposures--from explicit liabilities such as environmental cleanup requirements to the more implicit obligations presented by life-cycle costs of capital acquisition or disaster assistance. Last year the U.S. government's major reported liabilities, social insurance commitments, and other fiscal exposures continued to grow. They now total approximately $50 trillion--about four times the nation's total output (GDP) in fiscal year 2006--up from about $20 trillion, or two times GDP in fiscal year 2000. Absent meaningful reforms, these amounts will continue to grow every second of every minute of every day due to continuing deficits, known demographic trends and compounding interest costs. While it is hard to make sense of what "trillions" means, one way to think of these numbers is that if we wanted to put aside today enough to cover these promises, it would take $170,000 for each and every American, including newborns, or approximately $440,000 per American household. Considering that median household income is about $46,000, the household burden is about 9.5 times median income. Just two weeks ago the Office of Management and Budget released its mid- session budget update--showing further improvement in this year's budget deficit. This "good news," however, did not signal any improvement in the long-term outlook. The problem isn't this year's deficit--or even the deficit in 2012. The problem is that we are on an imprudent and unsustainable path. When I appeared before this Committee in January I noted that I have previously urged a restitution of the statutory budget controls--including meaningful caps on discretionary spending and PAYGO on both the tax and spending sides of the ledger. Given the focus of this hearing, let me elaborate. BEA--of which PAYGO was a part--had a number of strengths its predecessor, Gramm-Rudman-Hollings, lacked. Consistent with good practice in designing incentives, it focused on what Congress and the administration could control--spending and tax decisions--rather than on outcomes driven by external changes. In addition, enforcement was targeted--further encouraging compliance with the discretionary caps and PAYGO rules. There is broad consensus among observers and analysts who focus on the budget that the controls contained in the Budget Enforcement Act constrained spending for much of the 1990s. However, since the BEA was focused on deficit reduction, its effectiveness deteriorated with the achievement of near-term surpluses. Although the BEA statutory PAYGO rules were extended twice, they expired in 2002. Earlier this year, both the Senate and the House adopted rules reinstating PAYGO discipline on both sides of the ledger. Then why should we consider restoration of statutory PAYGO? The obvious answer ties to enforcement and duration: it may be easier to waive a rule than ignore a law, and a law can carry a penalty designed to encourage compliance. I will defer to Director Orszag and some of the technical experts on the next panel as to the details of how any sequester or enforcement mechanism should be designed. However, I will note that it should be unpleasant enough to encourage compliance but not so draconian as to be implausible. The goal of any penalty should be to encourage compliance, not to encourage avoidance or merely impose the penalty. As I have said before, when you are in a hole, the first thing to do is stop digging. Discretionary caps and PAYGO are designed to stop the digging. There are two reasons to impose PAYGO on both the direct spending and the revenue side of the budget. The first is obvious--both affect the bottom line. The second--and perhaps as important--is that applying PAYGO only to spending is likely to lead to more programs being designed as tax preferences. Tax preferences are like a form of back door spending. As a result, they need to be subject to additional transparency and controls as well. We have previously reported on these tax expenditures, which are often aimed at policy goals similar to those of federal spending programs. Revenues forgone through tax expenditures--unless offset by increased taxes or lower spending--increase the unified budget deficit and federal borrowing from the public (or reduce the unified budget surplus available to reduce debt held by the public). Unlike discretionary spending programs, which are subject to periodic reauthorization and annual appropriation, tax expenditures are--like entitlement programs-- permanent law and generally not subject to a recurring legislative process that would ensure systematic annual or periodic review. BEA's statutory PAYGO regime applied to both mandatory spending and revenues--and so limited the ability to create or expand either spending entitlements or tax expenditures unless offsetting funds could be raised. Since tax provisions are not as visible in the budget as spending programs, there is already some incentive to use tax provisions rather than spending programs to accomplish programmatic ends; imposing controls on spending programs but not on tax provisions would only increase this incentive. It would be an unfortunate consequence if the restoration of the PAYGO rule were to lead to an increase in the portion of the budget on automatic pilot and therefore reduce both transparency and control. The PAYGO requirement prevented legislation that lowered revenue, created new mandatory programs, or otherwise increased direct spending from increasing the deficit unless offset by other legislative actions. While PAYGO constrained the creation or legislative expansion of direct spending programs and tax cuts, it accepted the existing provisions of law as given. It was not designed to trigger--and it did not trigger--any examination of "the base." Furthermore, cost increases in existing mandatory programs were exempt from control under PAYGO and could be ignored. However, constraining legislative actions that increase the cost of entitlements, mandatories, and tax expenditures is not enough. Looking ahead, the budget process will need to go beyond limiting expansions. Existing programs cannot be permitted to be on autopilot and grow to an unlimited extent. Since the spending for any given entitlement or other mandatory program is a function of the interaction between eligibility rules and the benefit formula--either or both of which may incorporate exogenous factors such as economic downturns--the way to change the path of spending for any of these programs is to change their rules or formulas. In January of last year, we issued a report on "triggers"--some measure that when reached or exceeded, would prompt a response connected to that program. By identifying significant increases in the spending path of a mandatory program relatively early and acting to constrain it, Congress may avert much larger and potentially disruptive financial challenges and program changes in the future. A similar approach could be applied to those tax expenditures that operate in many ways like mandatory spending programs. Some years ago, Mr. Chairman, you had suggested a kind of "look back" trigger--a requirement that the President and the Congress monitor the path of existing entitlements and make an explicit determination about whether to accept growing costs or to take action to change the path. I know it comes as no surprise to anyone in this room that I believe we need to increase the understanding of and focus on the longer term in our policy and budget debates. When I was here in January I spoke about some ideas I had been discussing with a number of Members of the House and Senate as well as other interested and concerned citizens and groups. Since then--at the request of some Members--I have had those ideas put into legislative language as a basis for discussion. Today I'd like to elaborate a little on some of those ideas. They fall into three broad categories: increased information and reporting by the executive branch-- both in the President's budget proposal and in other statements for the public; more information for the Congress, and an annual GAO report. I will discuss each in turn. A summary of the proposal appears in appendix I. I. Executive Branch Reporting & Information A. Increased Information in the President's Budget Proposals Annual Report on Fiscal Exposures: The transparency of existing commitments would be improved by requiring OMB to report annually on existing fiscal exposures--including a concise list, description and cost information. As I noted before, these exposures range from explicit liabilities to implicit promises embedded in the structure of current programs. This should be provided as supplementary information in the President's budget along with information on the long-term costs of major tax expenditures. As appropriate and possible, showing tax expenditures, related spending programs and related credit programs that address the same policy area would facilitate oversight and reexamination by the Congress. Information over a longer time horizon: (1) The President's budget should include an estimate of the impact of any major spending or tax proposals on these fiscal exposures and on the long-term fiscal outlook; (2) The budget should provide year-by-year data for 10 fiscal years rather than the current 5; and (3) The President's budget should include a statement of his budgetary goals for the next decade. B. Executive Branch Reporting and Information--Summary Annual Report and Statement of Fiscal Sustainability Summary Annual Report: One of the things I am proudest of from my tenure as a public trustee for Social Security and Medicare is the creation of a Summary Report to accompany the annual Trustees report. This summary report presents key information in a way more accessible to the press and lay reader. I believe it has contributed to improved understanding about the condition of these programs. As the Comptroller General I sign the audit report on the Consolidated Financial Statements of the U.S. Government (CFS). Despite the fact that we must disclaim our opinion on the statements I believe they contain important information. The report is, however, too thick and very hard to read. I believe the Department of the Treasury (Treasury) should publish a summary financial report derived from the information in the audited CFS and the Comptroller General's audit report on it within 15 days of the issuance of that audit report. Every four years the Treasury should do more--it should prepare and publish a fiscal sustainability report including information and an assessment of the long-term fiscal sustainability of our current spending and revenue path. A number of other Organization for Economic Co-operation and Development (OECD) countries have begun to do fiscal sustainability reports as a way of looking ahead. Such a report permits the public and policymakers to look at the full range of government commitments rather than focusing only on new proposals. II. Additional Information for the Congress If Congress is to balance short-term claims and long-term costs it must have information about the long-term cost implications of proposals that would result in a significant increase or decrease in revenues or spending. I recognize that estimates over a multi- decade period cannot be as precise as short-term estimates and that some programs are harder to cost out than Social Security. However, information about the path should be made available. For example, do costs double every decade? As the independent auditor of the federal government's Consolidated Financial Statements and an agency of the legislative branch without a day-to-day responsibility in the budget process, I believe GAO is in an excellent position to pull together periodic financial and fiscal information in a summary report similar to the fiscal stewardship report I issued January 31 of this year. If Congress does impose additional transparency requirements on the Executive Branch, then we are in a good position to look over how those requirements were implemented and to suggest what changes, if any, might be made. I think we all know that there is no easy way out of the large and growing longer-term fiscal challenge we face. Economic growth is essential, but we cannot grow our way out of the problem. Based on reasonable assumptions the math does not come close to working. I have said that the first thing to do is stop digging--and the restoration of credible discretionary caps and PAYGO on both the spending and tax side of the ledger can help with that. Important as they are, however, they are not enough. Fundamental reform of existing entitlement programs will be necessary to change the path of those programs. The fact that the long-term outlook is driven primarily by health care costs does not mean that the rest of the budget should be exempt from scrutiny. We have the opportunity to bring our government and its programs in line with 21st century realities. Those who believe we can solve this problem solely by cutting spending or raising taxes are not being realistic. The truth is we will also need to reform entitlement programs, re-prioritize and re-engineer other direct spending programs, and engage in comprehensive tax reform that generates additional revenue as a percent of the economy (compared to current and historical levels) in order to get the job done. I have long believed that the American people can accept difficult decisions as long as they understand why such choices are necessary. They need to be given the facts about the fiscal outlook: what it is, what drives it, and what it will take to address it. As most of you know, I have been investing a good deal of time in the Fiscal Wake-Up Tour (FWUT) led by the Concord Coalition. Scholars from both the Brookings Institution and the Heritage Foundation join with me and key Concord officials in laying out the facts and discussing the possible ways forward. In our experience, having these people with quite different policy views agree on the nature, scale and importance of the issue--and on the need to sit down and work together to develop a multi-dimensional solution to our longer- term fiscal challenge--resonates with the audiences. The specific policy choices made to address this fiscal challenge are the purview of elected officials. The policy debate will reflect differing views of the role of government and differing priorities for our country. What the FWUT can do--and what I will continue to do--is lay out the facts, debunk various myths, discuss possible options and prepare the way for tough choices by elected officials. If the American people understand that there is no magic bullet--if they understand that we cannot grow our way out this problem; eliminating earmarks will not solve the problem; wiping out fraud, waste and abuse will not solve the problem; ending the "Global War on Terrorism", exiting from Iraq, or cutting way back on defense will not solve the problem; and letting the recent tax cuts expire will not solve this problem; then they can engage with you in a discussion about what government should do; how it should do it; and how we should pay for it without unduly mortgaging the future of our country, children, and grandchildren. This is a great nation, probably the greatest in history. We have faced many challenges in the past and we have met them. It is a mistake to underestimate the commitment of the American people to their country, children, and grandchildren; to underestimate their willingness and ability to hear the truth and support the decisions necessary to deal with this challenge. We owe it to our country, children and grandchildren to address our fiscal and other key sustainability challenges. The clock is ticking and time is working against us. The time for action is now. Chairman Spratt, Mr. Ryan, Members of the Committee, let me repeat my appreciation for your commitment and concern in this matter. We at GAO stand ready to assist you in this important effort. My remarks are based largely on previous reports and testimonies, such as Long-Term Budget Outlook: Deficits Matter--Saving Our Future Requires Tough Choices Today (GAO-07-389T) and Budget Process: Better Transparency, Controls, Triggers, and Default Mechanisms Would Help to Address Our Large and Growing Long-term Fiscal Challenge (GAO-06- 761T). We updated these testimonies with the results from our most recent long-term simulations in The Nation's Long-Term Fiscal Outlook: April 2007 Update (GAO-07-983R). Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. For further information on this testimony, please contact Susan J. Irving at (202) 512-9142 or [email protected]. Individuals making key contributions to this testimony include Jay McTigue, Assistant Director; Matthew Mohning, Senior Analyst and Melissa Wolf, Senior Analyst. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.	This testimony relates to the broader question: How should we deal with our nation's long-term fiscal challenge in order to help ensure that our future is better than our past? This testimony will start with our longer-term fiscal challenge. Then it will turn to the process question you present at this hearing: the reimposition of a statutory PAYGO rule(s) as a step toward dealing with this challenge. Finally it will talk about moving beyond caps and PAYGO to some ideas on how improved transparency and process changes can help in the effort to put us on a more prudent and sustainable long-term fiscal path. As widely reported earlier this month, the Administration now expects the deficit for fiscal year 2007 to be $205 billion, down from its February estimate of $244 billion and last year's deficit of $248 billion. However, because these numbers include the Social Security surpluses, they mask what GAO likes to call the "operating deficit" now estimated to be $385 billion for fiscal year 2007. Clearly lower short-term deficits are better than higher short-term deficits. However, our real challenge is not short-term deficits, rather it's the long-term structural deficits and related debt burdens that could swamp our ship of state if we do not get serious soon. Specifically, while our near-term fiscal picture is better, our long-term fiscal outlook is not. Health care costs are still growing faster than the economy and the population is still aging. Indeed, what we call the long-term fiscal challenge is not in the distant future. The first of the baby boomers become eligible for early retirement under Social Security on January 1, 2008--less than 1 year from now-- and for Medicare benefits in 2011--just 3 years later. The budget and economic implications of the baby boom generation's retirement have already become a factor in Congressional Budget Office's (CBO) 10-year baseline projections and will only intensify as the baby boomers age. Simply put, our nation is on an imprudent and unsustainable long-term fiscal path that is getting worse with the passage of time. Herbert Stein once said that something that is not sustainable will stop. That, however, should not give us comfort. Clearly, it is more prudent to change the path than to wait until a crisis occurs. While restraint in the near term and efforts to balance the budget over the next 5 years can be positive, they are not enough. It is also important that we take steps to address our longer-term fiscal imbalance. The real problem is not the nearterm deficit--it is the long-term fiscal outlook. It is important to look beyond year 5 or even year 10. Both the budget and the budget process need more transparency over and focus on the long-term implications of current and proposed spending and tax policies. GAO will suggest a number of things that it believes will help in this area in this testimony. These remarks are based on our previous work on a variety of issues, including reports and testimonies on our nation's long-term fiscal challenges and budget process reform. These efforts were conducted in accordance with generally accepted government auditing standards. Long-term fiscal simulations by GAO, CBO, and others all show that despite some modest improvement in near-term deficits, we face large and growing structural deficits driven primarily by rising health care costs and known demographic trends. In fact, the long-term fiscal challenge is largely a health care challenge. Although Social Security is important because of its size, the real driver is health care spending. It is both large and projected to grow more rapidly in the future. GAO's current long-term simulations show ever-larger deficits resulting in a federal debt burden that ultimately spirals out of control. Although the timing of deficits and the resulting debt build up varies depending on the assumptions used, both simulations show that we are on an unsustainable fiscal path. The bottom line is that the nation's longer-term fiscal outlook is daunting under any realistic policy scenario or assumptions. Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security. Our current path also increasingly will constrain our ability to address emerging and unexpected budgetary needs and increase the burdens that will be faced by future generations.	5,172	935
U.S. national military strategy requires air, land, sea, and special operations forces to be capable of working together as a joint force in military operations. At the direction of the Chairman, the CJCS Exercise Program began in the early 1960s to provide joint training opportunities. According to CJCS policy, the exercise program's primary objective is to achieve joint preparedness. Specifically, joint exercises are to be designed to demonstrate that forces are proficient in wartime and other tasks considered essential by the regional commanders in chief (CINC). CJCS guidance allows the program to satisfy other national security objectives, including overseas presence, coalition building, and support of U.S. allies. However, the guidance requires the CINCs to ensure that the program accomplishes training essential to war-fighting missions first. The guidance also allows the CINCs to train for lesser contingencies, such as peacekeeping and humanitarian operations, while emphasizing training for major contingencies. The Joint Staff's Operational Plans and Interoperability Directorate monitors and coordinates training activities under the CJCS Exercise Program. However, the program is actually implemented by the CINCs, who determine requirements, develop joint training plans, and conduct and evaluate CJCS exercises for their respective areas of responsibility. The military services provide forces to the CINCs and use service operation and maintenance funds to absorb the costs stemming from the forces' participation in the exercises. The Joint Staff allocates funds to cover transportation-related costs among the CINCs. Congress makes an annual appropriation for these transportation-related costs in the DOD-wide operations and maintenance account. The Joint Staff and CINCs coordinate some CJCS exercises with the Department of State and the National Security Council, including those that (1) involve large-scale participation of U.S. and foreign forces, (2) require granting rights or approval by another nation, (3) have particular political significance or are planned to occur in politically sensitive areas, or (4) are likely to receive prominent media attention. The State Department's role in the exercise program is primarily to review exercise plans and consult with the Joint Staff and CINCs about the implications of exercises to be held in politically sensitive regions. CJCS exercises may be simulated, live, or a combination of the two and can range from classroom seminars on a specific topic to the deployment of thousands of forces to train for military operations. Examples of these exercises include sending four senior military officials to a 3-day war game seminar to study the interrelationships during peacekeeping operations among the North Atlantic Treaty Organization, the United Nations, international and nongovernmental organizations, and the media; deploying about 1,350 land forces to a foreign country to conduct combined force tactical military operations, such as infantry tasks, reconnaissance, and combat medical operations; involving about 20,000 air, land, sea, and special operations forces in a training exercise to perform joint tasks, such as maneuvering to position, identifying targets, and providing combat support; and sending 300 Marine Corps and Air Force personnel overseas to construct a vehicle maintenance facility and renovate a community center and medical clinic. Over the past few years, the Joint Chiefs of Staff Chairman, CINCs, and military service commanders have expressed concerns to Congress about the high level of personnel deployments by a downsized force. DOD and Congress then considered the possibility that CJCS exercises were impacting the high DOD-wide deployment rate. On the basis of this and other concerns, the Secretary of Defense directed in May 1997 that the number of CJCS exercise man-days be decreased by 15 percent between fiscal year 1996 and 1998 to reduce the potential impact of the exercise program on deployment rates. Also, Congress, in its conference report for DOD fiscal year 1998 appropriations, called for a reduction in funding for the CJCS Exercise Program--including both DOD-wide and service incremental funds--of about $118.5 million. In addition, the National Defense Authorization Act for Fiscal Year 1998 (P.L. 105-85) directed DOD to report on CJCS exercises conducted from fiscal year 1995 to 1997 and those planned for fiscal years 1998 to 2000. This one-time congressional reporting requirement was to include (1) the percentage of mission-essential tasks performed or scheduled, (2) exercise costs, (3) exercise priority, (4) an assessment of the training value of each exercise, and (5) options to minimize the effect of CJCS exercises on deployments. The Secretary of Defense submitted the required report to Congress on February 16, 1998. The regional CINCs use the CJCS Exercise Program largely to ensure that their forces are trained to conduct missions contained in contingency plans, provide joint training, and project a military presence worldwide to shape the international environment. Some exercises focus on just one of these objectives, whereas others, such as war-fighting training, focus on more than one objective (i.e., contingency plans and joint training). CINC exercise officials stated that deliberate decisions are made to determine the number of exercises and their objectives necessary to meet the commands' regional security needs. Our analysis showed that the five regional CINCs conducted or plan to conduct 1,405 CJCS exercises during the period from fiscal year 1995 to 2002. On average, about 37 percent of these exercises have or will train forces to implement the CINCs' existing contingency plans; about 60 percent are designed to prepare U.S. forces for joint operations; and approximately 44 percent are designed primarily for engagement purposes, such as projecting U.S. military presence abroad or fostering relations with foreign military forces. CINCs develop contingency plans that cover a wide variety of wartime and peacetime operations, such as major theater wars and evacuations. The joint training system focuses on war-fighting or preparing forces to perform the missions contained in these plans. Joint Staff guidance requires that training should emphasize war-fighting missions and focus on major regional contingencies before other less critical training is done. Of the 1,405 CJCS exercises conducted or planned for fiscal years 1995-2002, 521, or about 37 percent, were directly tied to contingency plans. Figure 1 shows the number and percent of exercises that are linked to contingency plans at each command. It also shows the current geographical areas of responsibility for the five commands. The CJCS Exercise Program also provides the CINCs with opportunities to train forces in a joint setting. Such training requires the application of joint doctrine, which contains the fundamental principles that guide the employment of forces of two or more services. Also, joint exercises are either to respond to requirements established by a joint force commander or train joint forces or staffs for missions. Thus, joint training under the CJCS Exercise Program is primarily designed to train forces, commanders, or staff of two or more services using joint doctrine, tactics, techniques, or procedures to employ forces. The percentage of exercises intended to provide joint training at the regional CINCs has increased over the past 3 to 4 years. In 1995, we reported that about 25 percent of CJCS exercises in fiscal years 1994-95 were designed to provide joint training. Our current evaluation of 1,405 exercises conducted during fiscal years 1995-97 and planned to be conducted during fiscal years 1998-2002 shows that 836, or about 60 percent, were or are intended to provide U.S. forces with joint training experience. The percentage varied among the five regional commands, ranging from 39 percent in the U.S. Central Command to 76 percent in the U.S. Pacific Command. Table 1 shows the exercises directed toward joint training. In its February 1998 mandated report to Congress, DOD reported that 66 percent of CJCS exercises were for joint training purposes. Differences between DOD's and our figures can be attributed to methodological differences in the evaluations. For example, DOD used planned exercises for the period 1995-2000, and we used a combination of actual exercises for 1995-97 and planned exercises for 1998-2002. Further, we considered only those exercises that involved the participation of more than one service component as joint; however, DOD officials included certain exercises that did not involve more than one service if they believed that the content of the exercises had some joint training value. The CJCS Exercise Program is also used by regional CINCs to meet other responsibilities that are not directly focused on executing contingency plans or providing joint training. For example, the CINCs may conduct exercises or engagement activities to demonstrate U.S. forces' ability to project military presence within their geographic areas of responsibility. According to military officials, gaining access to critical facilities, maintaining presence, peacekeeping, providing humanitarian relief, and fostering relations with foreign nations' forces are engagement activities that are essential to accomplishing the CINCs' assigned missions. Of the 1,405 CJCS exercises conducted or planned to be conducted during fiscal years 1995-2002, 625, or about 44 percent, were directed toward engagement activities. Some regional CINCs conduct more engagement-related exercises than others. For example, in the U.S. Southern Command, 81 percent of all actual or planned CJCS exercises are for engagement purposes compared with 24 percent in the U.S. Pacific Command. Table 2 illustrates the number of CJCS exercises that each CINC devoted to engagement-type activities. The Joint Staff does not track total costs involved in conducting CJCS exercises; it only compiles actual cost data for strategic lift, port handling, and inland transportation--items covered by a specific congressional appropriation. The Joint Staff, CINC staff, and military services do not have systems to capture all exercise-related costs. Historically, there has been no requirement that total CJCS Exercise Program costs be tracked or reported. However, the Joint Staff estimated that the CJCS Exercise Program would cost about $400 million to $500 million annually during fiscal years 1995-2000. The Joint Staff's estimate was derived from a combination of actual and estimated costs; therefore, we were unable to independently verify the estimate. However, we believe that the costs reported by the Joint Staff may be understated, since certain incremental costs and other related operating costs were not included in its estimate. A variety of costs are directly associated with conducting CJCS exercises. These costs, shown in table 3, include strategic lift, port handling, inland transportation, exercise-related construction, and service incremental. The costs are funded by the DOD-wide and service operation and maintenance accounts except for exercise-related construction, which is funded by the military construction accounts. Although the Joint Staff is responsible for program oversight, it only tracks a portion of the total exercise program costs. The Joint Staff tracks actual cost data for expenditures related to strategic lift, port handling, and inland transportation expenses and reimburses the U.S. Air Mobility Command, the Military Sealift Command, and service components for these costs. It also maintains data on the amount of funding appropriated for exercise-related military construction projects. The costs reported by the Joint Staff for these categories for fiscal years 1995 through 1997 are shown in table 4. The Joint Staff estimated that the incremental cost to conduct the CJCS Exercise Program annually between fiscal year 1995 and 2000 would be between $400 million and $500 million. This cost included actual and projected expenses related to strategic lift, port handling, and inland transportation, as shown in table 4. The remainder of the cost estimate is based on an estimate of exercise-related construction costs and service incremental operations and maintenance costs. The estimate does not include the items funded in the military service accounts, such as flying hours, steaming days, or tank miles. The CINCs do not compile, track, or report on total CJCS exercise costs, although they have access to information on and track to some degree strategic lift, port handling, inland transportation, and exercise-related construction costs. CINC officials told us that maintaining total cost information would be of no value to them because they are not responsible for paying these costs. The Joint Staff does allocate each CINC an annual strategic lift funding level, which is not to be exceeded, to manage CJCS exercises. Consequently, CINC officials said total cost information would have little bearing on their management responsibilities. Because individual military services provide forces for CJCS exercises, they incur and pay for the incremental operations and maintenance costs associated with the forces' participation. These costs, which include consumable supplies, repair parts, and non-aviation fuel, are tracked differently by each service. Depending on the service, costs incurred by units that are preparing to participate in an exercise, equipment maintenance and repair expenses, and costs associated with recovering from participation in the exercises may or may not be tracked. To assist the Joint Staff in developing the exercise program costs for the February 1998 report, the services provided estimated cost data related to such items as consumable supplies, repair parts, per diem, non-aviation fuel, and communications. No commonly accepted process among the service component commands exists to capture CJCS exercise costs; therefore, the services' cost estimates will vary according to what costs they choose to include. The Army, the Navy, and the Marine Corps maintained some cost data on the incremental operations and maintenance costs associated with their participation in CJCS exercises. In fiscal year 1997, for example, these services reported costs of about $54 million, $11 million, and $12 million, respectively. They developed these estimates using various systems and records of funding targets to help the Joint Staff meet its congressional reporting requirement. Navy components do not track operations and maintenance funds for flying hours and steaming days used during CJCS exercises, and Air Force components do not track flying hours used for the exercises. In providing information to the Joint Staff to satisfy DOD's reporting requirement, the Navy and the Air Force estimated incremental operations and maintenance costs, excluding flying hours and steaming days. Service component officials cited two reasons for not accumulating cost data at the level necessary to accurately determine total operations and maintenance costs associated with participation in CJCS exercises. First, such data would not enhance their management capabilities. Second, there was no DOD-wide requirement for them to track and report these costs. The officials said that any measure of the actual operations and maintenance costs consumed by CJCS Exercise Program participation would require individual unit commanders in the field (e.g., tank operators, pilots, mechanics, or explosive ordnance specialists) to maintain such cost data and report it through financial management channels. Service officials did not believe that accumulating such data would be cost beneficial. The services use various methods to track the time individuals or units spend engaged in operations and time deployed away from their home stations because there is no DOD-wide requirement to collect and maintain specific personnel deployment rate data. Service officials stated that they maintain some personnel or unit deployment rate data to track their forces' participation in the exercise program. However, the services do not regularly track the impact of participation in CJCS exercises on overall deployment rates. As a result, officials from the Joint Staff, CINCs, service headquarters, and service components at the five regional commands could not provide complete information on the total number of days consumed by all deployments, including those associated with CJCS exercises. Without this data, the program's impact on personnel deployment rates cannot be precisely determined. The Joint Staff has generally had difficulty measuring personnel deployments among the military services. We reported in April 1996 that it is difficult to determine the actual time that either military personnel or units are deployed. Our report recommended that the Secretary of Defense (1) establish a DOD-wide definition of deployment; (2) state whether each service should have a goal, policy, or regulation stipulating the maximum amount of time units and personnel may be deployed; and (3) define the minimum data on deployments that each service must collect and maintain. DOD agreed to further pursue initiatives--many which were noted in our report--to enhance its ability to manage deployments. Also, in January 1997, DOD forwarded a report to the Chairman, House National Security Committee, on the impact of increased deployments on training, retention, and readiness. As part of that study, the Joint Staff assessed the capabilities of service systems to track personnel deployments. The report noted that, although all the services had systems in place to monitor deployments, each service measured and defined personnel deployment differently. For example, the Army tracks personnel at both the unit and individual level, whereas the Marine Corps and the Navy track personnel only at the unit level. The Air Force tracks personnel by aircraft type and specialty type. The difficulty with measuring either military personnel or unit deployment rates stems in part from the differences in how each military service defines and tracks personnel deployments. The services have different definitions of deployed forces. For example, the Marine Corps considers a servicemember deployed after that person has been away from his or her home station for 10 days, but the Army, the Air Force, and the Navy consider personnel to be deployed after only 1 day away from their home station. Table 5 shows the variation in service measurement systems and definitions that were in place as of March 1998. Military officials stated that systems that address the different personnel deployment rate measurements are evolving. The readiness staff at Air Force, Navy, and Marine Corps headquarters, which monitor data systems, currently do not track the impact of CJCS exercise participation on overall personnel or unit deployment rates. The services are developing systems to enhance their capability to measure overall deployment rates. At the time of our visits, officials at the service components at the regional commands had not been regularly maintaining data on the participation of their personnel in CJCS exercises. Some CINCs have tried to determine this relationship, but their data and methodologies had flaws. For example, the U.S. Pacific Command performed an analysis on the relationship between CJCS participation and personnel deployments. The analysis showed that about 4 percent of the total deployed days spent by service components in fiscal year 1996 were attributable to participation in CJCS exercises. However, the analysis did not include data from all of the units assigned to the command, the components determined deployment days differently, and the information provided by the components was not complete. For example, their personnel tracking systems do not calculate the number of days used by deployments for CJCS exercises. The lack of such information is especially evident at the U.S. Atlantic Command, which has responsibility for training and deploying nearly 80 percent of all U.S. forces. Officials from this command stated that, to assess the impact of CJCS exercises on personnel deployment rates, the command would need an adequate database with visibility into all deployments, operations, exercises, and training events. Command officials stated that they do not have historical personnel deployment data for all of their units; therefore, they could not determine the impact of participation in CJCS exercises on personnel deployment rates. The officials also stated that they do not have information on the extent of unit deployments and therefore do not consider this factor when selecting units for exercises. Although many factors contribute to the pace of deployments, such as routine training, peacekeeping efforts, and major deployments, the military officials we met with believe that personnel deployments created by participation in CJCS exercises have a minimal impact on the overall DOD-wide deployment rate. Nevertheless, the Secretary of Defense directed in the May 1997 Quadrennial Defense Review that CJCS exercise man-days be reduced by 15 percent between fiscal year 1996 and 1998 to reduce the stress on overall DOD-wide personnel deployments caused by these exercises. The officials we met with believe that any reduction in CJCS exercise participation would have virtually no impact on overall DOD-wide deployment problems. Participation in CJCS exercises has a greater impact on the personnel deployment of low-density, high-demand units rather than military units in general, according to these officials. However, their conclusion was based on professional military judgment, since no systems exist to measure the impact of the exercise program on total deployment. In its February 1998 report to Congress, DOD describes various actions underway to reduce personnel deployments incurred as a result of the CJCS Exercise Program. The report cited the Secretary's directive to reduce the man-days devoted to exercise programs and noted that the military services had been asked to pursue further reductions. Actions to meet these mandates are underway, according to the report. DOD officials use the CJCS Exercise Program to accomplish a wide range of objectives. DOD policy directs that the exercises are to prepare forces for their highest priorities--joint wartime operations. DOD policy also allows these exercises to be focused on maintaining relationships with U.S. allies. CINC exercise officials stated that the mix of exercises and their intended focus are the result of deliberate decisions made to meet each command's security needs. Total costs associated with conducting CJCS exercises cannot be determined. DOD and its components are currently unprepared to report accurate and complete cost data because they do not believe tracking such costs would be cost beneficial. The cost data in DOD's February 1998 report to Congress is incomplete because some service participation costs are not included. The reported costs generally represent some of the incremental costs incurred in conducting these exercises. DOD has no method to measure the impact of the CJCS Exercise Program on overall individual and unit deployment rates. Although the Office of the Secretary of Defense questions whether deployment problems exist, concerns expressed by Joint Staff, CINCs, and service component officials have led to actions by both DOD and Congress to reduce overall deployment rates by reducing the CJCS program in terms of funding and the number of exercises. Because DOD does not consistently track information on deployments, the impact of the exercise program on overall deployment rates cannot be precisely determined. Although DOD agreed to consider the recommendations in our April 1996 report to address the problem of managing personnel deployment rates, it has yet to fully implement them. We continue to believe that our prior recommendations to DOD are crucial to its ability to measure the impact that the CJCS Exercise Program has on overall personnel deployment rates. In written comments on a draft of this report, DOD concurred with our findings and made several observations about the CJCS Exercise Program (see app. I). DOD also provided technical comments, which we incorporated where appropriate. DOD said that, even though the primary focus of an exercise may be joint training, contingency operations, or engagement, it is not appropriate to consider the value of this training for just one purpose, since all CJCS exercises provide joint training value. In categorizing exercises according to their purposes, we used established guidance published by the Joint Staff to identify those exercises that provided an opportunity for joint training. We did not assess the value of the training but did include exercises with more than one purpose in all applicable categories. With respect to program costs, DOD noted that the Joint Staff monitors direct costs of the exercise program (e.g., strategic lift and port handling) as well as service incremental costs. DOD acknowledged that the services do not track flying hours, steaming days, and tank miles associated with the exercises because, according to DOD, doing so would not necessarily benefit the agency. As our report points out, without such cost information, DOD cannot determine total program costs. DOD noted that the Joint Staff is now collecting data on the number of man-days spent participating in the CJCS Exercise Program. According to DOD, this data shows that the man-days associated with the exercise program have been reduced and exceeded DOD's 15-percent goal. DOD acknowledged that the services' ability to measure overall personnel and unit deployment rates is still evolving and is not yet robust enough to allow the agency to determine the share attributable to the CJCS Exercise Program. Because the services use various methods to determine deployment rates and do not regularly track the impact of participation in CJCS exercises on these rates, we cannot verify DOD's statement that it has met its man-day reduction goal for the exercise program. To assess the number and type of CJCS exercises conducted or planned for fiscal years 1995 to 2002, we obtained and analyzed quarterly schedules of exercises conducted by the U.S. Atlantic, Central, European, Pacific, and Southern Commands. These exercises represent approximately 88 percent of the total exercises conducted or planned to be conducted during the time period. We did not analyze the remaining exercises, which were conducted by the U.S. Space, Strategic, Transportation, and North American Aerospace Defense Commands and the Joint Staff. To determine the scope of the joint training, we used the Joint Staff's published guidance to determine whether a particular exercise meets the criteria for joint training. We reviewed the training objectives and tasks to be performed for each of the 1,405 CJCS exercises conducted or planned to be conducted during the 8-year period in our review. We provided the Joint Staff and each CINC an opportunity to review our analyses and make any necessary adjustments to account for additional exercises conducted or planned and exercises that were canceled. Any discrepancies between the information the Joint Staff and the CINCs provided about the exercises were reconciled. To identify the CJCS exercises designed primarily to accomplish contingency plans, we relied on the determinations of CINC officials. To identify exercises conducted to address engagement-type activities, we obtained and analyzed each CINCs' joint training plans. We discussed our analyses with officials from the Joint Staff's Exercise and Training Division. We visited each of the five U.S. regional commands and discussed our analyses with CINC officials from each command. We also interviewed officials from service components of the Atlantic, European, and Pacific Commands. These officials generally agreed with our categorization of the exercises. To determine the available cost data for the exercise program, we interviewed officials and analyzed data obtained from the Joint Staff, CINCs, service component commands, and service headquarters. We also interviewed officials and obtained budget data from Headquarters, U.S. Forces Command; Headquarters, Air Combat Command; the Commander in Chief, Atlantic Fleet; the Commander, Marine Forces Atlantic; the Commander in Chief, Pacific Fleet; and Headquarters, Marine Forces Pacific. We also discussed with the Joint Staff the methodology for estimating the costs of the CJCS Exercise Program that were reported to Congress. To assess whether DOD maintains the data needed to estimate the impact of CJCS exercises on overall deployment rates, we interviewed officials and obtained documents from service headquarters; the Atlantic, Central, European, Pacific, and Southern Commands; and service components of the Atlantic, European, and Pacific Commands. We determined the systems the Joint Staff, CINCs, services, and major commands use to track military personnel and unit deployments by contacting the following organizations: the Joint Staff Operational Plans and Interoperability Directorate (J-7); the U.S. Atlantic, Central, European, Pacific, and Southern Commands; the Army Deputy Chief of Staff for Operations; the Air Force Operations Support Center, Training Division; the Office of the Deputy Chief of Naval Operations for Plans, Policy, and Operations; and the Marine Corps Current Operations Branch Exercise Office, Deputy Chief of Staff for Plans, Policies, and Operations. We also contacted major service component commands. Because these organizations were unable to provide data on the amount of time units and personnel deployed for CJCS exercises, service training, and operational deployments, we could not evaluate the impact of the program on personnel or unit deployment rates. Both the lack and inconsistency of the data that is maintained made it difficult to determine the actual time personnel or units are deployed. We conducted our work from September 1997 to July 1998 in accordance with generally accepted government auditing standards. We are sending copies of this report to appropriate congressional committees; the Secretaries of Defense, the Army, the Navy, and the Air Force; the Commandant of the Marine Corps; and the Chairman of the Joint Chiefs of Staff. We will also make copies available to others on request. Please contact me at (202) 512-5140 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix II. Janine Cantin Harry Taylor 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.	Pursuant to a congressional request, GAO reviewed the Chairman, Joint Chiefs of Staff (CJCS), Exercise Program, focusing on the: (1) number and type of CJCS exercises conducted and planned from 1995 to 2002; (2) basis for the Department of Defense's (DOD) estimates of exercise costs for the same time period; and (3) availability of DOD data to estimate the impact of CJCS exercises on deployment rates. GAO noted that: (1) DOD cannot determine the impact of the CJCS Exercise Program on overall deployment rates because DOD does not have a system that accurately and consistently measures overall deployment rates across the services; (2) without such a system, DOD cannot objectively assess the extent to which the program contributes to deployment rate concerns; (3) from fiscal year (FY) 1995 to 2002, 1,405 exercises were or are planned to be conducted as part of the program at the 5 regional commands; (4) the objectives of these exercises are to: (a) ensure that U.S. forces are trained to conduct their highest-priority mission contained in regional command contingency plans; (b) provide joint training for commanders, staff, and forces; and (c) project a military presence worldwide and support commitments to U.S. allies; (5) some exercises focus on just one of these objectives, whereas others focus on more; (6) about 37 percent of the exercises during FY 1995 through 2002 are directly related to executing contingency plans, 60 percent are intended to provide joint training benefits, and about 44 percent are primarily directed toward engagement activities with foreign nations' military forces and U.S. allies; (7) the Joint Staff maintains data on transportation-related expenses but does not monitor and track the complete costs of the program; (8) before the FY 1998 National Defense Authorization Act, DOD was not required to determine total program costs; (9) in DOD's February 1998 mandated report to Congress, the Joint Staff used a combination of actual and estimated costs to estimate that the total program would cost between $400 million and $500 million annually from FY 1995 to 2000; (10) DOD does not maintain the data that would enable it to determine the extent to which military personnel deployments associated with the program contribute to overall DOD-wide personnel or unit deployment rates; (11) the services use various methods to track individual or unit deployments and collect some data on the numbers of personnel or units that participate in CJCS exercises and the length of personnel deployments associated with the exercises; and (12) the services' ability to measure overall personnel or unit deployment rates is still evolving; as a result, the impact of the CJCS Exercise Program on deployment rates remains unknown.	6,228	574
Under MD-715, federal agencies are to identify and eliminate barriers that impede free and open competition in their workplaces. EEOC defines a barrier as an agency policy, principle, or practice that limits or tends to limit employment opportunities for members of a particular gender, race, ethnic background, or disability status. According to EEOC's instructions, many employment barriers are built into the organizational and operational structures of an agency and are embedded in the day-to-day procedures and practices of the agency. In its oversight role under MD- 715, EEOC provides instructions to agencies on how to complete their barrier analyses and offers other informal assistance. Based on agency submissions of MD-715 reports, EEOC provides assessments of agency progress in its Annual Report on the Federal Workforce, feedback letters addressed to individual agencies, and the EEO Program Compliance Assessment (EPCA). At DHS, the Officer for CRCL, through the Deputy Officer for EEO Programs, is responsible for processing complaints of discrimination; establishing and maintaining EEO programs; fulfilling reporting requirements as required by law, regulation, or executive order; and evaluating the effectiveness of EEO programs throughout DHS. Consistent with these responsibilities, the Officer for CRCL, through the Deputy Officer for EEO Programs, is responsible for preparing and submitting DHS's annual MD-715 report. In addition, the Deputy Officer for EEO Programs and the Under Secretary for Management (USM) are also responsible for diversity management at DHS. Under the USM, the Chief Human Capital Officer is responsible for diversity management and has assigned these duties to the Executive Director of Human Resources Management and Services. According to CRCL's Deputy Officer for EEO Programs, CRCL and OCHCO collaborate on a number of EEO and diversity activities through participation in work groups, involvement in major projects, policy and report review, and participation on the Diversity Council and its Diversity Policy and Planning Subcouncil. Figure 1 shows the officials who are primarily responsible for EEO and diversity management at DHS. The DHS Diversity Council is composed of the members of the DHS Management Council, which is chaired by the USM and includes component representatives--generally a component's equivalent of a chief management officer or chief of staff. The Diversity Council charter gives the DHS Management Council the responsibility of meeting as the Diversity Council at least bimontly. CRCL's Deputy Officer for EEO Programs and OCHCO's Executive Director of Human Resources Management and Services chair the Diversity Council's Policy and Planning Subcouncil, which includes at least one member from each DHS component represented on the Management Council. The Diversity Policy and Planning Subcouncil meets every 2 weeks and is to identify, research, and analyze workforce diversity issues, challenges, and opportunities and report and make recommendations to the Diversity Council on DHS diversity strategies and priorities. According to EEOC's MD-715 instructions, barrier identification is a two- part process. First, using a variety of sources, an agency is to identify triggers. Second, the agency is to investigate and pinpoint actual barriers and their causes. According to EEOC officials, this should be an ongoing process. Figure 2 shows the barrier identification steps under MD-715. Our review of DHS's MD-715 reports for each of the fiscal years 2004 through 2007 showed that in 2004 DHS identified 14 triggers, which were present in each subsequent year. According to DHS's MD-715 reports, DHS identified 13 of the 14 triggers based on its analysis of participation rates contained in the workforce data tables. The remaining trigger-- incomplete accessibility studies on all facilities--was identified based on responses to the self-assessment checklist contained in the MD-715 form and comments made at disability awareness training for managers. In addition, in 2008, DHS identified one new trigger based on a joint statement from EEOC, the Department of Justice, and the Department of Labor related to heightened incidents of harassment, discrimination, and violence in the workplace against individuals who are or are perceived to be Arab, Muslim, Middle Eastern, South Asian, or Sikh. Table 1 shows a summary of DHS-identified triggers and the sources of information from which they were identified. To identify triggers, agencies are to prepare and analyze workforce data tables comparing participation rates to designated benchmarks (such as representation in the civilian labor force (CLF) or the agency's total workforce) by gender, race, ethnicity, or disability status in various subsets of their workforces (such as by grade level or major occupations and among new hires, separations, promotions, and career development programs). According to EEOC's MD-715 instructions, participation rates below a designated benchmark for a particular group are triggers. Along with the workforce data tables, according to EEOC's MD-715 instructions, agencies are to regularly consult additional sources of information to identify areas where barriers may operate to exclude certain groups. Other sources of information include, but are not limited to EEO complaints and EEO-related grievances filed; findings of discrimination on EEO complaints; surveys of employees on workplace environment issues; exit interview results; surveys of human resource program staff, managers, EEO program staff, counselors, investigators, and selective placement coordinators; input from agency employee and advocacy groups and union officials; available government reports (i.e., those of EEOC, GAO, OPM, the Merit Systems Protection Board, and the Department of Labor); and local and national news reports. EEOC officials said that these sources may reveal triggers that may not be present in the workforce data tables. Several of the above-listed sources provide direct employee input on employee perceptions of the effect of agency policies and procedures. For example, according to EEOC instructions, employee surveys may reveal information on experiences with, perceptions of, or difficulties with a practice or policy within the agency. Further, EEOC's instructions state that reliance solely on workforce profiles and statistics will not meet the mandate of MD-715. When workforce data and other sources of information indicate that a barrier may exist, agencies are to conduct further inquiry to identify and examine the factors that caused the situation revealed by workforce data or other sources of information. To identify triggers, CRCL stated that it regularly reviews complaint data it must submit annually to EEOC and data collected from reports CRCL is required to submit under various statutes, executive orders, and initiatives, including the Notification and Federal Employee Antidiscrimination and Retaliation Act, Federal Equal Employment Opportunity Recruitment Program, Executive Order 13171 on Hispanic employment in the federal government, Disabled Veterans Affirmative Action Program, White House Initiative on Historically Black Colleges and Universities, and White House Initiative on Tribal Colleges and Universities. According to CRCL officials, in the past, CRCL has also relied upon the DHS online departmental newsletter, periodicals, and news media to identify triggers. We have previously reported that successful organizations empower and involve their employees to gain insights about operations from a frontline perspective, increase their understanding and acceptance of organizational goals and objectives, and improve motivation and morale. Obtaining the input of employees in identifying triggers would provide a frontline perspective on where potential barriers exist. Employee input can come from a number of sources including employee groups, exit interviews, and employee surveys. CRCL said that it does not consider input from employee groups in conducting its MD-715 analysis, but the Diversity Council's Diversity Policy and Planning Subcouncil has recently begun to reach out to form partnerships with employee associations such as the National Association of African-Americans in the Department of Homeland Security. In addition, according to DHS's 2008 MD-715 report, DHS does not currently have a departmentwide exit survey, but according to a senior OCHCO official, OCHCO plans to develop a prototype exit survey with the eventual goal of proposing its use throughout DHS. Although DHS does not have the structures in place to obtain employee input departmentwide from employee groups and exit surveys, DHS could use the FHCS and DHS's internal employee survey to obtain employee input in identifying potential barriers. OPM administers the FHCS biennially in even-numbered years, and DHS administers its own internal survey in off years. Both surveys collect data on employees' perceptions of workforce management, organizational accomplishments, agency goals, leadership, and communication. We have previously reported that disaggregating employee survey data in meaningful ways can help track organizational priorities.According to information from officials in OPM's Division for Strategic Human Resources Policy, which administers and analyzes the FHCS, results by gender, national origin, and race are available at the agency level (i.e., DHS) on each agency's secure site. DHS's internal survey also collects demographic data on race, gender, and national origin of respondents. DHS could analyze responses from the FHCS and its internal employee survey by race, gender, and national origin to determine whether employees of these groups perceive a personnel policy or practice as a possible barrier. For example, one question on the 2008 FHCS asked whether supervisors or team leaders in the employee's work unit support employee development. Fifty-eight percent of DHS respondents agreed and 21 percent disagreed with the statement. The 2007 DHS internal survey asked whether employees receive timely information about employee development programs. Thirty-nine percent of respondents provided a positive response; 35 percent provided a negative response. Although a CRCL staff member reviews the FHCS and DHS's internal survey data as part of an OCHCO employee engagement working group, the staff member does not review DHS responses based on race, gender, and national origin. Responses based on demographic group could indicate whether a particular group perceives a lack of opportunity for employee development and suggest a need to further examine these areas to determine if barriers exist. Without employee input on DHS personnel policies and practices, DHS is missing opportunities to identify potential barriers. Regular employee input could help DHS to identify potential barriers and enhance its efforts to acquire, develop, motivate, and retain talent that reflects all segments of society and our nation's diversity. In fiscal year 2007, DHS conducted its first departmentwide barrier analysis. This effort involved further analysis of the triggers initially identified in 2004 to determine if there were actual barriers and their causes. According to DHS's 2007 MD-715 report, DHS limited its barrier analysis to an examination of policies and management practices and procedures that were in place during fiscal year 2004. Therefore, according to the report, policies, procedures, and practices that were established or used after fiscal year 2004 were outside the scope of this initial barrier analysis. Based on triggers DHS identified in 2004, DHS's departmentwide barrier analysis identified the following four barriers: 1. Overreliance on the Internet to recruit applicants. 2. Overreliance on noncompetitive hiring authorities. 3. Adequacy of responses to Executive Order 13171, Hispanic Employment in the Federal Government; specifically, in several components that there was no evidence of specific recruitment initiatives that were directed at Hispanics. 4. Nondiverse interview panels; specifically, interview panels that did not reflect the diversity of applicants. According to EEOC guidance, barrier elimination is vital to achieving the common goal of making the federal government a model employer. Once an agency identifies a likely factor (or combination of factors) adversely affecting the employment opportunities of a particular group, it must decide how to respond. Barrier elimination is the process by which an agency removes barriers to equal participation at all levels of its workforce. EEOC's instructions provide that in MD-715 reports, agencies are to articulate objectives accompanied by specific action plans and planned activities that the agency will take to eliminate or modify barriers to EEO. Each action item must set a completion date and identify the one high-level agency official who is responsible for ensuring that the action item is completed on time. In addition, according to EEOC's instructions, agencies are to continuously monitor and adjust their action plans to ensure the effectiveness of the plans themselves, both in goal and execution. This will serve to determine the effectiveness of the action plan and objectives. Figure 3 shows the barrier elimination and assessment steps under MD-715. Our analysis of DHS's MD-715 2007 and 2008 reports showed DHS articulated 12 different planned activities to address the identified barriers, including 1 new planned activity in 2008. Of the 12 planned activities, 2 relate to recruitment practices and strategies, specifically implementing a departmentwide recruitment strategy and targeting recruitment where there are low participation rates. Two other planned activities relate to the development of additional guidance, specifically on composition of interview panels and increasing educational opportunities. For each barrier, DHS identifies at least one planned activity--eight in total-- related to collecting and analyzing additional data. According to DHS's 2007 and 2008 MD-715 reports, DHS's primary objective is to capture and analyze the additional data needed to link the barriers to the relevant triggers. In addition, of the 12 different planned activities, 5 involve collaboration between CRCL and OCHCO. One planned activity to address overreliance on the use of the Internet to recruit applicants calls for the development of an applicant flow tool to gather data on applicants, which would enable CRCL and OCHCO to analyze recruitment and hiring results. According to CRCL, its staff collaborate with OCHCO by evaluating and providing feedback on development of the tool. We have previously reported on the benefits of coordination and collaboration between the EEO and the human capital offices within agencies. During our previous work reviewing coordination of federal workplace EEO, an EEOC official commented that a review of barrier analyses in reports submitted under MD-715 showed that the highest-quality analyses had come from agencies where there was more coordination between staff of the human capital and EEO offices. Table 2 shows DHS's planned activities, the identified barriers to which they relate, and the target completion dates. For the planned activities identified in its 2007 MD-715 report, DHS has modified the target date for all but one of them. As reported in the 2008 MD-715 report, the original target completion dates have been delayed anywhere from 12 to 21 months. In addition, since DHS filed its 2008 MD- 715 report, DHS modified one of the target dates it had previously modified in its 2008 report. DHS has not completed any of the planned activities articulated in its 2007 and 2008 MD-715 reports. According to CRCL officials, although it has not completed any planned activities to address identified barriers, DHS has completed some planned activities identified in fiscal years 2007 and 2008 related to improving its EEO program. According to CRCL, DHS modified target dates primarily because of staffing shortages in both CRCL and OCHCO, including the retirement in 2008 of three senior CRCL officials (including the Deputy Officer for EEO Programs) and extended absences of the remaining two staff. In addition, according to senior officials, during fiscal year 2008, OCHCO experienced significant staff shortages and budgetary issues and lost its contract support. According to the Deputy Officer for EEO Programs, fiscal year 2009 is a rebuilding year. CRCL is adding five new positions, in addition to the existing three, to the CRCL unit responsible for preparing and submitting DHS's MD-715 reports and implementing MD-715 planned activities. According to CRCL, once it is fully staffed, it will be able to expand services and operations. DHS has not established interim milestones for the completion of planned activities to address barriers. According to DHS officials, its MD-715 reports and Human Capital Strategic Plan represent the extent of DHS project plans and milestones for completing planned activities. These documents include only the anticipated outcome, not the essential activities needed to achieve the outcome. For example, in DHS's 2007 and 2008 MD-715 reports, CRCL identifies an applicant flow tool to analyze recruitment and hiring results as a planned activity to address the barrier of overreliance on the use of the Internet to recruit applicants. DHS's Human Capital Strategic Plan also identifies an applicant flow tool to analyze recruitment and hiring results as an action to achieve its departmentwide diversity goal. DHS does not articulate interim steps, with milestones, to achieve this outcome in either document. In order to help ensure that agency programs are effectively and efficiently implemented, it is important that agencies implement effective internal control activities. These activities help ensure that management directives are carried out. We have previously reported that it is essential to establish and track implementation goals and establish a timeline to pinpoint performance shortfalls and gaps and suggest midcourse corrections. Further, it is helpful to focus on critical phases and the essential activities that need to be completed by a given date. In addition, we recommended in our 2005 report on DHS's management integration that DHS develop a management integration strategy. Such a strategy would include, among other things, clearly identifying the critical links that must occur among initiatives and setting implementation goals and a timeline to monitor the progress of these initiatives and to ensure that the necessary links occur. Identifying the critical phases of each planned activity necessary to achieve the intended outcome with interim milestones could help DHS ensure that its efforts are moving forward and manage any needed midcourse corrections, while minimizing modifications of target completion dates. According to CRCL and OCHCO officials, DHS is making progress on initiatives relating to (1) outreach and recruitment, (2) employee engagement, and (3) accountability. DHS's Executive Director of Human Resources Management and Services told us that DHS is currently implementing a targeted recruitment strategy based on representation levels, which includes attending career fairs and entering into partnerships with organizations such as the Black Executive Exchange Program. CRCL officials also said that CRCL staff participate on the Corporate Recruitment Council, which meets each month and includes recruiters from each of the components. In addition, according to the Human Capital Strategic Plan diversity goal, DHS plans to establish a diversity advisory network of external stakeholders. According to CRCL, this effort includes specific outreach and partnership activities with such groups as the National Association for the Advancement of Colored People, Blacks in Government, League of United Latin American Citizens, Organization of Chinese Americans, Federal Asian Pacific American Council, Federally Employed Women, National Organization of Black Law Enforcement Executives, and Women in Federal Law Enforcement. DHS has also reported progress on employee engagement efforts. The Executive Director of Human Resources Management and Services also told us that DHS is in the planning stages of forming a department-level employee council comprising representatives from each diversity network at each of DHS's components. In addition, according to DHS's Human Capital Strategic Plan, DHS will incorporate questions into its internal employee survey specifically addressing leadership and diversity. The planned completion for this effort is the first quarter of fiscal year 2010. To address accountability, the Executive Director of Human Resources Management and Services said that DHS added a Diversity Advocate core competency as part of DHS's fiscal year 2008 rating cycle for Senior Executive Service (SES) performance evaluations. Under DHS's SES pay- for-performance appraisal system, ratings on this and other core competencies affect SES bonuses and pay increases. According to DHS's Competency Illustrative Guidance, the standard provides for each senior executive to promote workforce diversity, provide fair and equitable recognition and equal opportunity, and promptly and appropriately address allegations of harassment or discrimination. According to the Executive Director of Human Resources Management and Services, OCHCO is currently developing plans, with the participation of CRCL, to implement a similar competency in 2010 for managers and supervisors, although the specific details on implementation are not yet finalized. According to MD-715 and its implementing guidance, a parent agency is to ensure that its components implement the provisions of MD-715 and make a good faith effort to identify and remove barriers to equality of opportunity in the workplace. Among other requirements, the parent agency is responsible for ensuring that its reporting components--those that are required to submit their own MD-715 reports--complete those reports. The parent agency is also responsible for integrating the components' MD-715 reports into a departmentwide MD-715 report. According to officials from EEOC's Office of Federal Operations, how a department oversees and manages this process is at the discretion of the department. In addition, to ensure management accountability, the agency, according to MD-715, should conduct regular internal audits, at least annually, to assess, among other issues, whether the agency has made a good faith effort to identify and remove barriers to equality of opportunity in the workplace. At DHS, according to the DHS Acting Officer for CRCL and the Deputy Officer for EEO Programs, component EEO directors do not report directly to CRCL but to their respective component heads. While this EEO organizational structure is similar to other cross-cutting lines of business (LOB), other cross-cutting LOBs have indirect reporting relationships, established through management directives, between the component LOB head and the DHS LOB chief for both daily work and annual evaluation. In contrast, the Deputy Officer for EEO Programs stated that he relies on a collaborative relationship with the EEO directors of the components to carry out his responsibilities. According to the Deputy Officer for EEO Programs, component EEO programs have supported department-wide initiatives when asked to join such efforts. On February 4, 2008, the Secretary of Homeland Security delegated authority to the Officer for CRCL to integrate and manage the DHS EEO Program, and currently a management directive interpreting the scope of this authority is awaiting approval. The Deputy Officer for EEO Programs stated that until the management directive is approved and implemented, the actual effect of the delegated authority is unclear. Lacking direct authority, the Deputy Officer stated that he relies on a collaborative relationship with the EEO directors of the components to carry out his responsibilities. According to the Deputy Officer for EEO Programs, one means of collaboration with the components is through the EEO Council, which meets monthly and is chaired by the Deputy Officer for EEO Programs and is composed of the EEO directors from each component. The Deputy Officer for EEO Programs said that he uses the EEO Council to share best practices, enhance cooperation, and enforce accountability. To assist the components in their MD-715 analyses, according to CRCL officials, CRCL prepares the workforce data tables for each of the components required to submit its own MD-715 report. CRCL obtains the data from OCHCO and sends them to a contractor to create the workforce data tables. According to CRCL officials, DHS is pursuing an automated information management system that will allow CRCL to conduct in-house centralized workforce data analysis at the component level. To ensure timely submissions of component MD-715 reports, DHS's CRCL sets internal deadlines by which reporting components are to submit their final MD-715 reports. CRCL instructs the components to follow EEOC guidance in completing their reports. CRCL also gives components the option of submitting a draft report for CRCL to review and provide technical guidance on before the final report is submitted. For those components that have submitted draft reports, CRCL has provided written comments that could be incorporated into the components' final reports. A CRCL official told us that for fiscal year 2009 draft submissions, CRCL will continue this practice and encourage components to submit draft reports. Since DHS was formed in 2003, CRCL has completed a full EEO program evaluation of the Federal Law Enforcement Training Center (FLETC) in fiscal year 2007, which focused on FLETC's EEO Office's operations and activities. In fiscal year 2008, CRCL conducted the audit work on a full program evaluation of the Federal Emergency Management Agency's Equal Rights Office's operations and activities, but to date CRCL has not issued the audit report. In fiscal year 2006, CRCL conducted a partial evaluation of the Transportation Security Administration's Office for Civil Rights, which focused on EEO counseling, complaint tracking, and alternative dispute resolution. In addition, in fiscal year 2009, a contractor issued a report describing the findings of a program review of the U.S. Coast Guard's Office of Civil Rights. The Deputy Officer for EEO Programs told us that CRCL intends to conduct program reviews of the EEO programs at all operational components by 2010, although no schedule for completing these audits has been established. Input from employee groups reflects the perspective of the individuals directly affected by employment policies and procedures and could provide valuable insight into whether those policies and procedures may be barriers to EEO. Because CRCL does not regularly include employee input from available sources, such as the FHCS and DHS's internal employee survey, it is missing opportunities to identify potential barriers to EEO. For barriers DHS has already identified, it is important for DHS to ensure the completion of planned activities through effective internal control activities, including the identification of critical schedules and milestones that need to be completed by a given date. Effective internal controls could help DHS ensure that its efforts are moving forward, manage any needed midcourse corrections, and minimize modifications of target completion dates. Additional staff, which DHS plans to add in 2009, could help DHS implement effective internal control activities. We recommend that the Secretary of Homeland Security take the following two actions: Direct the Officer for CRCL to develop a strategy to regularly include employee input from such sources as the FHCS and DHS's internal survey in identifying potential barriers to EEO. Direct the Officer for CRCL and the CHCO to identify essential activities and establish interim milestones necessary for the completion of all planned activities to address identified barriers to EEO. We provided a draft of this report to the Secretary of Homeland Security for review and comment. In written comments, which are reprinted in appendix I, the Director of DHS's Departmental GAO/OIG Liaison Office agreed with our recommendations. Regarding the first recommendation, the Director agreed that DHS should develop a departmentwide strategy to regularly include employee input from the FHCS and DHS internal employee survey to identify barriers, but noted that DHS component EEO programs already use employee survey data to develop annual action plans to address identified management issues. Regarding the second recommendation, the Director wrote that CRCL has already begun revising its plans to identify specific steps and interim milestones to accomplish the essential activities. DHS also provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Homeland Security and other interested parties. The report also 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) 512-6806 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff who made major contributions to this report are listed in appendix II. In addition to the contact named above, Belva Martin, Acting Director; Amber Edwards; Karin Fangman; Melanie H. Papasian; Tamara F. Stenzel; and Greg Wilmoth made key contributions to this report.	Under MD-715, federal agencies are to identify and eliminate barriers that impede free and open competition in their workplaces. EEOC defines a barrier as an agency policy, principle, or practice that limits or tends to limit employment opportunities for members of a particular gender, race, ethnic background, or disability status. According to EEOC's instructions, many employment barriers are built into the organizational and operational structures of an agency and are embedded in the day-to-day procedures and practices of the agency. In its oversight role under MD-715, EEOC provides instructions to agencies on how to complete their barrier analyses and offers other informal assistance. Based on agency submissions of MD-715 reports, EEOC provides assessments of agency progress in its Annual Report on the Federal Workforce, feedback letters addressed to individual agencies, and the EEO Program Compliance Assessment (EPCA). DHS has generally relied on workforce data and has not regularly included employee input from available sources to identify "triggers," the term EEOC uses for indicators of potential barriers. GAO's analysis of DHS's MD-715 reports showed that DHS generally relied on workforce data to identify 13 of 15 triggers, such as promotion and separation rates. According to EEOC, in addition to workforce data, agencies are to regularly consult a variety of sources, such as exit interviews, employee groups, and employee surveys, to identify triggers. Involving employees helps to incorporate insights about operations from a frontline perspective in determining where potential barriers exist. DHS does not consider employee input from such sources as employee groups, exit interviews, and employee surveys in conducting its MD-715 analysis. Data from the governmentwide employee survey and DHS's internal employee survey are available, but DHS does not use these data to identify triggers. By not considering employee input on DHS personnel policies and practices, DHS is missing opportunities to identify potential barriers. Once a trigger is revealed, agencies are to investigate and pinpoint actual barriers and their causes. In 2007, through its departmentwide barrier analysis, DHS identified four barriers: (1) overreliance on the Internet to recruit applicants, (2) overreliance on noncompetitive hiring authorities, (3) lack of recruitment initiatives that were directed at Hispanics in several components, and (4) nondiverse interview panels. GAO's analysis of DHS's 2007 and 2008 MD-715 reports showed that DHS has articulated planned activities to address identified barriers, has modified nearly all of its original target completion dates by a range of 12 to 21 months, and has not completed any planned activities; although officials reported completing other activities in fiscal year 2007 and 2008 associated with its EEO program. Nearly half of the planned activities involve collaboration between the civil rights and human capital offices. DHS said that it modified the dates because of staffing shortages. In order to ensure that agency programs are effectively and efficiently implemented, it is important for agencies to implement internal control activities, such as establishing and tracking implementation goals with timelines. This allows agencies to pinpoint performance shortfalls and gaps and suggest midcourse corrections. DHS has not developed project plans with milestones beyond what is included in its MD-715 report and its Human Capital Strategic Plan. These documents include only the anticipated outcomes and target completion dates, not the essential activities needed to achieve the outcome. Identifying the critical phases of each planned activity necessary to achieve the intended outcome with interim milestones could help DHS ensure that its efforts are moving forward and manage any needed midcourse corrections, while minimizing modification of target dates. DHS uses a variety of means to oversee and support components, including providing written feedback on draft reports to components that are required to prepare their own MD-715 reports, conducting program audits, and convening a council of EEO directors from each of the components.	5,965	808
BLM, within the Department of the Interior, and the Forest Service, within the Department of Agriculture, are the two primary federal agencies involved with timber sales. In terms of acreage, the Forest Service manages over 192 million acres of national forest system land. In contrast, BLM manages about 261 million acres of public lands, of which about 55 million acres are forests and woodlands. BLM administers two forestry programs: one on public domain lands and one in western Oregon. BLM's public domain forestry management program covers 53 million acres-- about 9 million acres of forests and about 44 million acres of woodlands. Appendix I provides a detailed listing of forest and woodland acreage administered under BLM's public domain forestry management program. BLM's forests and woodlands on public domain lands are primarily in 12 western states. Much of these lands tend to be in small, isolated parcels that are not as productive as BLM's western Oregon lands or the larger forests managed by the Forest Service. BLM manages its public domain lands through a multilevel organization--national office, 12 state offices, and about 130 field offices--that carries out a variety of agency programs and activities including recreation and fish and wildlife protection, in addition to timber. BLM's public domain forestry management program received a small portion of the agency's $1.8 billion annual budget for fiscal year 2002. The Congress appropriated about $6.2 million for the public domain forestry management program in fiscal year 2002. Timber offered for sale on public domain lands includes sawtimber and other wood products. Sales of sawtimber and some other wood products are initiated by soliciting bids from prospective buyers. In addition, BLM offers other wood products to the public through a permit process. BLM manages its public domain forestry management program within a statutory framework consisting of a land management statute and various other environmental laws. The Federal Land Policy and Management Act of 1976 (FLPMA)--the principal law under which BLM manages its public domain forestry management program--requires BLM to manage its public lands under the principles of multiple use and sustained yield. FLPMA gives BLM broad management discretion over how it emphasizes one use, such as offering timber for sale, in relation to another, such as providing recreation. Among other things, multiple use management aims at a combination of balanced and diverse resource uses that take into account the long-term needs of future generations for renewable resources (for example, timber) and nonrenewable resources (for example, minerals). FLPMA states that BLM should consider fish and wildlife; recreation; minerals; range; ecological preservation; timber; watershed; natural scenic, scientific, and historical values; and other resources, as it balances public land uses. Under the principle of sustained yield, BLM seeks to achieve and maintain high output levels of all renewable resources in perpetuity. Under FLPMA, BLM has broad discretion in managing its timber sales. During its land use planning process, BLM identifies areas that are available and have the capacity for planned, sustained-yield harvest of timber or other forest products. BLM timber sales on public domain lands must also comply with the requirements of other environmental laws, including the National Environmental Policy Act, the Endangered Species Act, and the Clean Water Act. For major federal actions that may significantly affect the quality of the human environment, the National Environmental Policy Act requires all federal agencies, including BLM, to analyze the potential environmental effects of a proposed project, such as a timber sale. Regulations implementing the National Environmental Policy Act require agencies to include a discussion of how to mitigate adverse impacts and a discussion of those impacts that cannot be avoided under the federal action. Under the Endangered Species Act, BLM must ensure that its actions are not likely to jeopardize the continued existence of species listed as threatened or endangered or to destroy or adversely modify habitat critical to their survival. Similarly, the requirement to meet standards for water quality under the Clean Water Act may limit the timing, location, and volume of timber sales. BLM's annual volume of timber offered for sale from public domain lands declined 74 percent from 101 million board feet of timber in fiscal year 1990 to 26 million board feet in 2002. Over the same period, the volume of the two components of BLM offerings--sawtimber and other wood products--also declined: sawtimber from 80 million to 14 million board feet (81 percent) and other wood products from 21 million to 11 million board feet (46 percent). See figure 1. Appendix II includes more detailed information on the volume of BLM public domain timber offered for sale from fiscal year 1990 through 2002. Mirroring the overall national decline, each BLM state office experienced declines in the volume of timber offered for sale from fiscal year 1990 through 2002. Eastern Oregon experienced the sharpest decline--from 56 million to 8 million board feet--representing nearly two-thirds of the overall decline. A BLM official explained that eastern Oregon offered an abnormally high volume of timber for sale in fiscal years 1990 and 1991, primarily due to a large salvage logging effort following a mountain pine beetle epidemic. For perspective, from fiscal years 1985 through 1989, eastern Oregon offered an average of 22 million board feet of timber per year. Appendix III shows the volume of timber that each BLM state office offered for sale in 1990 and in 2002 and the amount of decline. As a consequence of the decline in the volume of timber offered for sale during fiscal years 1990 through 2002, the proportion of the volume's two components also changed. As shown in figure 2, sawtimber represented over three-quarters of the total volume in fiscal year 1990, but had decreased to slightly more than one-half of the total volume by fiscal year 2002. In contrast, the proportion of other wood products increased from about one-fifth of the total volume in 1990 to about one-half of the total volume in fiscal year 2002. Beginning in the late 1980s, the program emphasis on BLM public domain lands, like that on most other federal forests, increasingly shifted from timber production to emphasizing forest ecosystem health. This shift in emphasis, required by changing forest conditions and needs, helped cause a reduction in the volume of timber removed from all federal lands, including BLM public domain lands. As a result of this decline in supply volume, some sawmills that formerly processed BLM timber have closed, making it more difficult for BLM to market timber in some areas. In addition, the emphasis on forest ecosystem health has increased some of the costs associated with timber sales preparation, as staff must now prepare more extensive analysis of the effects of the timber harvest on other resources. Faced with generally declining funding levels and fewer foresters to prepare timber sales, and subsequently fewer sales, BLM's volume of timber offered for sale from its public domain lands declined. The 74 percent decline in the volume of timber sale offerings from BLM public domain lands since 1990, according to BLM officials, was primarily due to the shift in program emphasis to forest ecosystem health. We previously reported that this shift in emphasis caused large declines in timber production from all federal forests. BLM's decline mirrored a similar decline in offerings from the 155 national forests. For example, between 1990 and 1997 the volume of timber offered for sale from the national forests managed by the Forest Service declined about 65 percent, from 11 billion to 4 billion board feet. Since the late 1980s, growing concerns over declining ecological conditions on federal lands--such as poor animal habitat and water quality--resulted in federal agencies adopting a new, more scientifically based management approach, referred to then as ecosystem management. BLM officially adopted this approach to implementing its land management responsibilities in 1994 to sustain resource usage in an ecosystem--including timber production--while maintaining, and restoring where damaged, the natural functioning of interdependent communities of plants and animals and their physical environment (soil, water, air). In revising forest management policy for public domain lands, BLM increased its emphasis on managing for forest ecosystem conditions, in addition to providing for sustained yield of its forests and woodlands. This new policy recognized the role that insects, disease, fire, and other disturbance mechanisms, as well as noncommercial plant species, play in ecosystems. The reduction in the volume of timber offered for sale also resulted from environmental statutes and their judicial interpretations arising from lawsuits brought by environmental and recreational organizations. In order to increase protection of wildlife habitat, recreation, and stream quality, the volume of timber offered for sale was reduced for the following reasons: (1) some forest areas where timber sales had been planned could not be used for this purpose; (2) in some areas where trees could be harvested, fewer trees could be removed because of limitations on clear-cutting; and (3) in some cases, BLM would not offer timber for sale where the removal costs were too expensive for buyers. BLM officials cited several instances where an increased emphasis on providing greater protection to forest ecosystem resources from the adverse effects of timber harvesting had resulted in reductions of timber offerings on BLM public domain lands since 1990. For example, an official in the BLM Idaho state office noted that harvesting timber by clear-cutting is no longer performed in many locations. Likewise, concerns about potential harm to the habitat of threatened or endangered species, such as lynx and bull trout, led to a reduced volume of timber offered for sale. In addition, some current harvesting methods cost more and result in less volume, but potentially cause less harm to the species and its habitat. BLM officials told us that in eastern Oregon they offered sales in areas where there were fewer concerns about the harm to habitat in order to reduce the probability of public challenge. Additionally, BLM officials in Idaho and Oregon told us that the need to sometimes use helicopters to remove harvested trees, in order to protect other resources from effects that would result, for example, from constructing roads to access and remove timber, drove up costs and further reduced the amount of timber they could offer for sale. In the 1990s, growing concerns about changes in forest structure and composition, and the long-term threats that these changes posed to forest ecosystem health, further contributed to the declines in the volume of timber offered for sale from federal forests, including from BLM public domain lands. The principal change in forest structure that was of concern was the increasing density of tree stands in forests, especially of smaller trees and brush. Among the changes in forest composition of most concern was a reduction in the diversity of tree species. Both types of change stemmed largely from decades of previously accepted forest management practices, such as the exclusion of naturally occurring periodic fires that removed smaller trees and undergrowth; replacement, after clear-cutting, of mixed native species with a single species; and a failure to carry out planned thinning of forests. Overly dense, less diverse forests can lead to increasingly widespread insect and disease infestations and greatly increase the risk of catastrophic wildfires. Such wildfires can severely damage tree stands, wildlife habitat, water quality, and soils, and threaten human health, lives, property, and infrastructure in nearby communities. According to BLM, the need to reduce forest density and restore composition diversity in forest ecosystems has necessitated a refocusing of federal forest management activities, including timber sale offerings, on the removal of smaller trees and materials that generate less volume than the larger trees more commonly offered for sale in prior years. BLM program management officials stated that the need to restore the structure and composition of forests is currently the primary reason that the timber removed from public domain lands will have to continue to be more heavily weighted towards nonsawtimber and small-diameter trees. In many cases, the materials that need to be removed have little or no commercial value, and thus do not affect the overall volume of timber offered for sale. For example, a BLM official in a Colorado field office told us that any increase in funding would first concentrate on a backlog of areas that were overstocked following harvests several years ago, but were never thinned of small trees that had no commercial value. BLM officials could not quantify the effect of the shift to forest ecosystem health on the overall decline in the volume of timber sale offerings since 1990. They noted, however, that the shift had resulted in timber becoming largely a by-product, rather than a focus, of the public domain forestry management program. The decline in the volume of timber sale offerings from federal forests as a result of the shift in emphasis to forest ecosystem health has resulted in a reduced supply of materials for sawmills in many areas. According to two reports principally authored by The University of Montana's Bureau of Business and Economic Research and the Forest Service, the volume of timber from national forests received by mills in Idaho and Montana declined in the 1990s. For example, in Idaho, the volume declined from about 729 million board feet in 1990 to 301 million board feet in 1995, representing a decline of 59 percent. In Montana, the volume declined from about 318 million board feet in 1993 to 215 million board feet in 1998, representing a decline of 32 percent. According to these reports, the reduced mill capacity in these states was due primarily to the decline in timber availability from national forests. Furthermore, these reports indicated that the decline in timber volume from the national forests was a contributing factor to the closure of at least 30 sawmills in these two states. Other factors mentioned by these reports as contributing to sawmill closures included fluctuations in lumber prices, changes in the volume of exports and imports of lumber, and changes in the structure of the industry. According to BLM officials, the primary reason for sawmill closures was the decline in the supply of timber from the larger, more productive Forest Service lands near BLM lands. However, they noted that purchasers of timber from BLM public domain lands also used these mills. For example, officials in some field offices in Colorado and Idaho said several nearby mills had closed, leading purchasers to transport timber to more distant mills for processing. As a result, the officials noted that the purchasers of timber from these offices have experienced higher transportation costs, thereby reducing the attractiveness of purchasing timber from BLM public domain lands. The officials told us that because of the relatively small volume of timber offered for sale from BLM public domain lands, a return to previous BLM sale offering levels would not result in sufficient supply for the mills to reopen. The shift in emphasis has also contributed to a need for more extensive analysis and the hiring of more resource protection specialists during the time that BLM's funding for its public domain forestry management program was generally declining. Consequently, less volume of timber was offered because it takes longer and costs more to prepare a given volume of timber for sale. According to officials, over the past decade, BLM has hired more resource protection specialists, such as wildlife biologists, botanists, and hydrologists, in order to better analyze the effects of potential timber sales on other resources, such as wildlife habitat. At the same time, many foresters, who are the primary staff involved in identifying and preparing timber sales, have departed the agency either through retirement or other means in recent years and have not been replaced. For example, the number of BLM foresters decreased from 72 to 53 between fiscal year 1991 and fiscal year 2002. We were told that at some field units there are no foresters remaining that have the skills needed to prepare timber sales. Furthermore, using constant 2002 dollars, BLM's appropriations for the public domain forestry management program declined from $8.5 million in fiscal year 1990 to $6.2 million in 2002. Thus, the higher preparation costs and smaller budgets have left BLM less able to prepare timber sales. According to BLM, it has begun recruiting new foresters and has requested an increase of $1 million in funding in fiscal year 2004 for the public domain forestry management program. In addition, BLM officials told us that for the past few years the agency has not had the funding to develop better inventory information about forests and woodlands in order to adequately assess the effects of timber sales on the forest ecosystem. For example, they do not have current information on the condition of forests and woodlands, such as tree density, species composition, and the extent of forests and woodlands affected by insects and disease--information needed to identify potential timber sale offerings. According to the officials, some timber sales cannot be prepared because BLM does not have credible inventory data needed to justify trade-offs between timber harvesting and other concerns, such as impacts on animal species habitat. Agency officials said that the lack of knowledge of its inventory has been a long-standing problem. We provided a draft of this report to the Department of the Interior for review and comment. The department pointed out that the report achieved its three objectives and that we had incorporated information based on informal discussions with staff. The department said that BLM has begun to act on some of the findings in the draft report, including recruiting new foresters, in part to support the National Fire Plan. According to the department, these foresters will help ensure that forest health considerations, such as species composition, stand structure, and insect or disease occurrence, are fully considered, in addition to hazardous fuel reduction. BLM state directors have submitted detailed action plans to meet state-specific needs for renewed emphasis on forests and woodlands management. Furthermore, the department said that the President's fiscal year 2004 budget proposes a $1 million increase in funding for the public domain forests and woodlands management program. The increased funding, according to the department, will be used to improve utilization of small-diameter wood materials, improve forest health, and provide entrepreneurial opportunities in the wood product industry. We included information in the report regarding BLM's recruiting efforts and its request for additional funding. The department also made technical clarifications, which we incorporated as appropriate. The department's comments are reprinted in appendix IV. To determine the legal framework for BLM timber sales on public domain lands, we reviewed laws and regulations governing BLM's timber sales activities. We also reviewed policy documents issued by headquarters and, if available, supplemental guidance issued by state and field locations as it relates to timber sales activities. To determine the trend in the volume of timber that BLM offered for sale from public domain lands, we obtained BLM information on the volumes and composition--sawtimber, firewood, posts, poles, and other wood products--of timber offered for sale by state office for fiscal years 1990 through 2002. We reviewed information contained in BLM's Timber Sale Information System and its annual publication, Public Land Statistics. To determine what factors contributed to the trend in the volume of timber offered for sale from public domain lands from 1990 to 2002, we met with BLM headquarters officials and visited or contacted officials at 9 of the 12 BLM state offices and six field offices--two each in the states of Colorado, Idaho, and Montana. We discussed with these officials how their respective offices established timber sale goals, allocated forestry program funding, and monitored accomplishment of planned timber sales. We also discussed with these officials BLM's management emphasis on improving forest health, and the trends in (1) market conditions for timber and other wood products and (2) BLM funding and staffing. In addition, we reviewed BLM's budget justifications, strategic and annual plans and reports, land use plans, and other materials related to BLM's timber sales activities. To gain further perspective on the market conditions of the timber industry, we interviewed officials and reviewed timber industry research publications from The University of Montana. Finally, to gain a more detailed understanding of timber sales activities on public domain lands, we met with officials in three BLM state offices--Colorado, Idaho, and Montana--and visited several BLM timber sale projects that were ongoing or had been completed recently. We conducted our review from May 2002 through May 2003 in accordance with generally accepted government auditing standards. We will send copies of this report to the Secretary of the Interior; the Director of the Bureau of Land Management; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions, please call me at (202) 512-3841. Key contributors to this report are listed in appendix V. Table 1 shows the number of acres of forests and woodlands and their total for each BLM state office. Table 2 identifies the volume, in board feet, of sawtimber, cords, posts, poles, and other wood products offered for sale from public domain lands from fiscal years 1990 through 2002. Table 3 shows the volume, in board feet, of timber offered for sale in fiscal years 1990 and 2002, and their differences in volume, by BLM state office. The following are GAO comments on the Department of the Interior's letter dated June 5, 2003. 1. We changed the title to be more specific to public domain lands. 2. In accordance with our job objectives, our report addresses the trend in the volume of timber offered for sale from both public domain forests and woodlands. Furthermore, the report notes that woodlands typically have significantly lower productivity than forests. 3. We deleted reference to the federal regulations generally not requiring mitigation of adverse impacts resulting from operations on public domain lands. We added information to clarify that the federal regulations referred to in the draft report were those that implement the National Environmental Policy Act. The department agreed with this clarification. 4. We agree that the change of emphasis has affected the volume of timber offered for sale, which is already clearly articulated in the report. 5. We agree that both the budget and the volume of timber offered for sale have declined significantly. We have included a reference to the budgetary decline in a section heading. 6. We agree that the volume of timber offered for sale from BLM's public domain lands is small compared to offerings from Forest Service or state or private land. As the report indicates, the Forest Service offered 4 billion board feet of timber for sale from national forests in 1997, while BLM offered 35 million board feet--21 million board feet of sawtimber and 14 million board feet of other wood products--from public domain lands. Also, the report points out that about 7 percent of the nation's domestically produced timber and wood products come from federally managed forests, which include BLM and Forest Service forests. Therefore, the remaining 93 percent is from nonfederal lands, which include state and private lands. Barry T. Hill (202) 512-3841 ([email protected]) In addition to the above, Andrew S. Bauck, Linda L. Harmon, Richard P. Johnson, Chester M. Joy, Roy K. Judy, Rosellen McCarthy, Jonathan S. McMurray, Paul E. Staley, and Amy E. Webbink made key contributions to this report.	For several decades, debate over how to balance timber sales with resource protection and recreational use on federally managed lands has been at the heart of controversy surrounding federal land management. The Department of the Interior's Bureau of Land Management (BLM) is one of the federal agencies that manages some of the nation's forests--about 53 million acres--under its public domain forestry management program and offers timber for sale from these lands. With regard to BLM's offerings of timber for sale, congressional requesters asked GAO to determine (1) the statutory framework for BLM timber sales, (2) the trend in BLM timber volume offered for sale, and (3) factors contributing to any observed trends. GAO reviewed laws, regulations, and BLM policy governing BLM timber sales. GAO obtained and reviewed data on the volumes and composition of BLM timber sale offerings from fiscal years 1990 through 2002 and met with agency officials and others to identify factors affecting timber sale offering trends and their importance. A variety of land management and other environmental laws provide the statutory framework for timber sales on BLM public domain land. In particular, the Federal Land Policy and Management Act permits timber sales as one of several uses for BLM public lands. Timber sales also must comply with other environmental laws, such as the National Environmental Policy Act, the Endangered Species Act, and the Clean Water Act. From 1990 to 2002, the volume of timber offered for sale by BLM declined about 74 percent. Declines were experienced for each of the timber's components--sawtimber (trees or logs suitable for conversion into lumber) and other wood products (small logs used to make firewood, posts, and poles). Consequently, in 2002, the proportion of sawtimber in the total volume offered for sale was less than it was in 1990. The principal factor contributing to the decline in timber volume was the governmentwide shift in forestry program emphasis beginning in the late 1980s from timber production to enhancing forest ecosystem health. This shift was based on the need to provide more protection for nontimber resources and to place a greater emphasis on the removal of smaller trees to reduce the risks of insects, fire, and disease. As a result, according to BLM officials, timber became a by-product rather than the focus of BLM's management of its public domain forests.	4,975	499
In 1995, we compared the 4 common years (1996-99) in DOD's 1995 and 1996 FYDPs and reported that DOD projected substantial shifts in funding priorities. Specifically, about $27 billion in planned weapon system modernization programs had been eliminated, reduced, or deferred to 2000 or later. Also, the military personnel, operation and maintenance, and family housing accounts had increased by over $21 billion and were projected to continue to increase to 2001 to support DOD's emphasis on readiness and quality-of-life programs. Moreover, the total DOD program was projected to increase by about $12.6 billion. The Secretary of Defense wants to reform the acquisition process and reduce and streamline infrastructure to help pay the billions of dollars that DOD projects it will need to modernize the force. In our September 1995 report, we said that although DOD anticipated reducing infrastructure to achieve substantial savings, our analysis of the 1996 FYDP showed that savings accrued or expected to accrue from base closures and a smaller force appeared to be offset by increased funding for other infrastructure priorities, such as base operations and management headquarters. In May 1996, we analyzed the infrastructure portion of DOD's 1997 FYDP and reported that infrastructure costs are projected to increase by about $9 billion, from $146 billion in 1997 to $155 billion in 2001. The FYDP includes anticipated future inflation. Therefore, changes in anticipated inflation affect the projected cost of the FYDP. The Secretary of Defense testified in March 1996 that the 1997 FYDP, which covers fiscal years 1997-2001, includes the funds to buy all of the programs in the 1996 FYDP plus billions of dollars in additional programs at less cost overall. According to DOD, the increase in programs at lower projected costs results because inflation estimates were substantially reduced for future DOD purchases, from 3 percent to about 2.2 percent for fiscal years 1997-2001. The executive branch substantially reduced its forecast of the inflation rate for fiscal years 1997 through 2002, resulting in a decline in the estimated costs of DOD's purchases of about $45.7 billion, including about $34.7 billion over the 1997-2001 FYDP period. However, the price measure used in the executive branch's projections had inherent limitations and has since been improved. Using a different price measure, CBO projected a much smaller drop in inflation and estimated that the future cost of DOD's purchases would be reduced by only about $10.3 billion over the 1997-2001 period. The executive branch reduced its inflation forecasts from 3 percent per year for the period 1997-2001 to 2.2 percent per year, or 8/10 of 1 percent.As a result, DOD projected that the cost of defense purchases would decline by $34.7 billion for the 1997-2001 period and an additional $11 billion for 2002. Based on these projected cost reductions, the executive branch reduced DOD's projected budgets for fiscal years 1997-2001 by about $15.2 billion. The executive branch allowed DOD to retain about $19.5 billion of the projected increase in purchasing power. The distribution of this assumed additional purchasing power was $4.3 billion in 1997, $3.9 billion in 1998, $4.6 billion in 1999, $3.8 billion in 2000, and $2.9 billion in 2001. According to DOD, about $6 billion of the $19.5 billion was applied to the military personnel and operation and maintenance accounts for must-pay bills such as for the military retired pay accrual and ongoing contingency operations. The remaining $13 billion was applied primarily to DOD's modernization priorities. Funding was allocated to purchase trucks and other support equipment, accelerate the acquisition of next generation systems, upgrade existing systems, and fund Army base closure costs. A detailed list of these planned purchases is provided in appendix I. For more than a decade, OMB has used projections of the Commerce Department's Bureau of Economic Analysis' (BEA) implicit price deflator for gross domestic product (GDP) based on a "fixed-weighted" methodology to adjust the future costs of defense nonpay purchases other than fuel. According to OMB officials, anecdotal information for recent years suggests that changes in this measure have been an accurate gauge of inflation in DOD purchases. The fixed-weighted methodology was used to prepare the President's fiscal years 1996 and 1997 budgets. Economists within the government and in private organizations generally recognize that the implicit price deflator based on a fixed-weighted methodology has inherent limitations, in part because it is derived from the values of goods and services based on a fixed base year such as 1987. This fixed-weighted methodology has in recent years tended to overstate economic growth and understate inflation as time progressed beyond the base year. Because of the limitations in the fixed-weighted methodology, BEA switched to a new "chain-weighted" inflation methodology, just after the President's fiscal year 1997 budget had been prepared in January 1996. The "chain-weighted" methodology, which is continuously updated by using weights for 2 adjacent years, ensures that differences in relative prices, such as the drop in computer prices, will not distort overall GDP statistics. Economists have maintained that this methodology is superior to the fixed-weighted methodology. According to BEA officials, the improved methodology gives a more accurate measure of inflation because it eliminates the potential for cumulative errors under the old (fixed-weighted) methodology. For the 1997-2001 period, the executive branch projected an annual inflation rate of 2.2 percent as measured by the fixed-weighted methodology and 2.7 percent as measured by the chain-weighted methodology. In discussing the transition from the GDP implicit price deflator based on fixed weights to the chain-weighted GDP price deflator, OMB officials stated that the two differing numerical measures represent the same inflation, in the same economy, at the same time. According to the officials, the difference is "precisely analogous" to measuring the same temperature on Celsius or Fahrenheit scales. The only difference between the two measures is the methodology used. However, as a practical matter, OMB provides DOD a specific numerical index of inflation, and DOD applies this index to estimate future funding requirements. Therefore, the index used has a direct impact on DOD's estimated future funding requirements. For example, our analysis shows that had DOD applied the new chain-weighted inflation assumption of 2.7 percent to develop its 1997-2001 FYDP rather than the fixed-weighted assumption of 2.2 percent, DOD's increased purchasing power would be only about $12.7 billion, not $34.7 billion. OMB officials told us they have not decided what methodology they will use to project inflation for the next FYDP, which will encompass the 1998-2003 defense program. However, in commenting on a draft of this report, DOD said that OMB has indicated its intention to adopt the chain-weighted methodology for budgeting beginning with the fiscal year 1998 submission. In addition, the President's budget for fiscal year 1997 emphasized the limitations of the fixed-weighted methodology and featured the improved chain-weighted methodology in presenting economic assumptions for the future. If OMB uses the improved chain-weighted methodology to provide inflation guidance to DOD, DOD's funding estimates for fiscal years 1998 and beyond could be affected. For example, on a chain-weighted basis, two major private forecasting firms currently project an inflation rate of about 2.5 percent per year over the next 5 years, which is a decline from the 2.7 percent chain-weighted inflation assumption that appears in the fiscal year 1997 budget. If OMB gives DOD an inflation projection of 2.5 percent per year for the 1998-2003 period, a question arises as to whether such a factor will be interpreted as an increase (from the 2.2 percent as measured by the fixed-weighted methodology) or a decrease (from the 2.7 percent as measured using the chain-weighted methodology.) Without further guidance, DOD may increase its estimates of future funding requirements for inflation when inflation is projected to be lower than the earlier forecast. During consideration of the fiscal year 1997 defense budget, the Chairman of the Senate Committee on the Budget requested that CBO estimate the adjustments that should be made to DOD's budget estimates through 2002 that would keep its purchasing power constant given lower inflation rates. CBO chose not to use the implicit price deflator for GDP based on the fixed-weighted methodology that OMB had used to calculate inflation because it had been replaced by the new chain-weighted methodology. Instead, CBO based its inflation forecast on the Consumer Price Index, which measures changes in the average cost of a fixed market basket of consumer goods and services because that measure had not been revised. Neither the executive branch's nor CBO's estimate presumes any ability to forecast prices of goods and services purchased by DOD. Instead, the two estimates calculate the change in a general index of inflation and assume that prices of defense goods and services would change by the same amount. Using the Consumer Price Index, CBO projected a much smaller decrease in inflation between the 2 budget years than the executive branch did. Whereas the executive branch projected an 8/10 of 1 percent drop in inflation, CBO projected that inflation would drop only 2/10 of 1 percent. As a result, CBO projected that DOD's purchasing power would increase by only about $10.3 billion for the 1997-2001 period. This estimate is about $24.4 billion less than DOD's estimated $34.7 billion increase. Further, because the executive branch reduced DOD's estimated 1997-2001 FYDP by about $15.2 billion, CBO's estimate indicates that DOD's real purchasing power was reduced by about $5 billion. In action on the fiscal year 1997 budget resolution, the Senate adjusted defense totals downward to reflect CBO's more conservative estimate. The House did not make any adjustments for lower inflation. The conference agreement on the budget resolution recommended the Senate level for fiscal year 1997 and levels somewhat closer to the House amounts in later years. Our analysis shows that resource allocations in the 1997 FYDP vary considerably from the 1996 FYDP. These resource adjustments result primarily from inflation adjustments and transfers between accounts. Table 1 shows a year-to-year comparison of DOD's 1996 and 1997 FYDPs by primary accounts. The following sections discuss some of the more significant changes in each of the primary accounts. Overall, funding for military personnel accounts increased by $4.7 billion for the 1997-2001 period, although DOD plans to reduce the number of military personnel below the levels reflected in last year's FYDP. The increase primarily reflects (1) higher pay raises for fiscal years 2000 and 2001 than were included in the 1996 FYDP and (2) the transfer of U.S. Transportation Command costs from a revolving fund supported mainly by operation and maintenance accounts to the military personnel accounts. Programs that are expected to receive the largest funding increases are Army divisions ($1.5 billion) and Army force-related training ($1.6 billion). Other programs are projected to be reduced. Some of the largest declines are projected for Army National Guard support forces ($2.6 billion), Army Reserve readiness support ($1.6 billion), and Air Force permanent change-of-station travel ($650 million). The 1997 FYDP shows that DOD plans to lower active duty force levels in fiscal years 1998-2001. The planned smaller force would bring force levels below the permanent end strength levels set forth in the National Defense Authorization Act for fiscal year 1996 (P.L. 104-106). Table 2 shows the minimum force levels in the law and DOD's planned reductions. The Commission on Roles and Missions recommended that DOD perform a quadrennial review to assess DOD's active and reserve force structure, modernization plans, infrastructure, and other elements of the defense program and policies to help determine the defense strategy through 2005. The National Defense Authorization Act for fiscal year 1997 directed the Secretary of Defense to conduct the review in fiscal year 1997. Congress will have an opportunity to examine the assessment and recommendations of the review. The act also requires the Secretary of Defense to include in the annual budget request funding sufficient to maintain its prescribed permanent active end strengths. If DOD is precluded from implementing its planned personnel reductions, it will have to make other compensating adjustments to its overall program. The operation and maintenance accounts are projected to decrease by about $10.1 billion during the 1997-2001 period due to lower inflation rates. In addition, there were a number of funding reallocations among operation and maintenance programs from the 1996 FYDP to the 1997 FYDP. Programs that are projected to receive the largest gains include Army real property services ($3.9 billion), real property services training ($1.1 billion), and Navy administrative management headquarters ($1.5 billion). Programs that are projected to decrease the most include Navy servicewide support ($2.1 billion); defense health programs, including medical centers, station hospitals, and medical clinics in the United States ($2.3 billion); Army National Guard reserve readiness support ($1.4 billion); Army base operations ($4.2 billion); DOD environmental restoration activities ($1.3 billion); and DOD's Washington headquarters services ($1 billion). Projected savings from the latest round of base closures are also less than were anticipated in the 1996 FYDP. The 1996 FYDP projected savings of $4 billion during 1997-2001 from the fourth round of base closures beginning in fiscal year 1996. The 1997 FYDP projects total savings of $0.6 billion, $3.4 billion less than the 1996 FYDP projection. The decrease in savings is primarily due to higher than anticipated base closure-related military construction costs for environmental cleanup activities in fiscal year 1997. Typically, the planned costs to conduct contingency operations have not been included in DOD's budget submission. However, given that forces are deployed in Bosnia and Southwest Asia and these known expenses will continue into fiscal year 1997, DOD included $542 million for the Bosnian operations and $590 million for Southwest Asian operations in the President's fiscal year 1997 budget. The Bosnian estimate was later revised to $725 million, and DOD has informally advised the Senate and House Committees on Appropriations of this increase. Most of these funds are in operation and maintenance accounts. The procurement accounts are projected to decrease by about $26 billion during the 1997-2001 period. About $15.3 billion of the reduction can be attributed to the use of the lower inflation rate. A comparison of the 1996 and 1997 FYDPs indicates that about $10.4 billion of the $26 billion reduction is due to a transfer of intelligence and classified program funding from the procurement accounts to classified research, development, test, and evaluation accounts. According to DOD officials, the programs are more accurately classified as research, development, test, and evaluation than procurement. The comparison also shows that DOD eliminated a $5.4-billion program in the procurement accounts that was called "modernization reserve" in the 1996 FYDP. According to DOD officials, this funding was redistributed among procurement programs. The 1997 FYDP continues the downward adjustments in the procurement accounts, which we first identified in our September 1995 report on the fiscal years 1995 and 1996 FYDPs. We reported that the fiscal year 1995 FYDP, which was the first FYDP to reflect the bottom-up review strategy, reflected relatively high funding levels for procurement of weapon systems and other military equipment. The funding level for procurement was estimated to be $60 billion by fiscal year 1999. Since the 1995 FYDP, DOD has steadily reduced programmed funding levels for procurement in favor of short-term readiness, quality-of-life improvements, research and development, and infrastructure activities. DOD now projects that the procurement account will not contain $60 billion until 2001. Table 3 shows DOD's planned procurement reductions. In addition to the $10-billion transfer of intelligence and classified programs, significant planned decreases in funding and quantities of items include $2 billion for 1 Navy amphibious assault ship (LHD-1) and $1.1 billion for 240 theater high-altitude area defense systems. Funding levels for some programs were increased in the 1997 FYDP over last year's plan. For example, $1.5 billion was added in the 1997 FYDP for 172 Army UH-60 Blackhawk helicopters, and $4 billion for 2 new SSN submarines. The National Defense Authorization Act for fiscal year 1997 authorized the addition of about $6.3 billion more than the President's budget request for procurement. Programs receiving significant increases include the new SSN submarine; DDG-51 destroyer; the E-8B, C-130, V-22, and Kiowa warrior aircraft; and the Ballistic Missile Defense Program. The report also authorized $234 million for F/A-18 C/D fighter jets that was not included in the President's budget. The research, development, test, and evaluation accounts are projected to increase by about $10.9 billion during the 1997-2001 period. Additionally, increased purchasing power in these accounts due to the use of the lower inflation rate is projected at about $6.5 billion. As mentioned earlier, about $10.4 billion was transferred from the procurement accounts. As a result of the transfer in programs and other adjustments, intelligence and classified programs experienced the most growth. Our analysis shows that the largest increase is in advance development activities, which increased about $3 billion per year over 1996 FYDP projections. The National Defense Authorization Act for fiscal year 1997 authorized the addition of about $2.6 billion more than the President's budget for research, development, test, and evaluation. The largest portions of the increase went to missile defense programs. The 1997 FYDP projects that funding for military construction will increase by about $1.5 billion over the 1997-2001 period compared to the 1996 FYDP. One reason for the increase is that the 1996 FYDP projected savings based on interim base closing plans that subsequently changed, and actual closing costs were higher. Specifically, compared to the 1996 FYDP, the 1997 FYDP reflects spending increases in military construction expenditures of about $2.7 billion. The increase also reflects the transfer of some environmental restoration funds to the military construction account for cleanup at specific bases scheduled for closing. DOD considers family housing a priority. Nonetheless, when compared to the 1996 FYDP, the 1997 FYDP shows that the family housing accounts will decrease by about $1.8 billion. Improvements and other new construction are projected to decrease by about $1.3 billion during 1997-2001. Current family housing plans include improvements to 4,100 housing units, construction or replacement of 2,300 units and 13 support facilities, and the provision of $20 million for private sector housing ventures. We received comments on this report from OMB and DOD. DOD generally agreed with our report and offered some points of clarification, which we have incorporated where appropriate. OMB indicated that the change in inflation is important in forecasting the cost of the FYDP, not the level of inflation. Our review indicated, however, the level of inflation was also important because DOD makes its cost projections based on OMB guidance that specifies a level of inflation, not the rate of change. OMB and DOD comments are published in their entirety as appendixes II and III, respectively. To evaluate the major program adjustments in DOD's fiscal year 1997 FYDP, we interviewed officials in the Office of Under Secretary of Defense (Comptroller); the Office of Program Analysis and Evaluation; the Army, Navy, and Air Force budget offices; CBO; OMB; and BEA. We examined a variety of DOD planning and budget documents, including the 1996 and 1997 FYDPs and associated annexes. We also reviewed the President's fiscal year 1997 budget submission; our prior reports; and pertinent reports by CBO, the Congressional Research Service, and others. To determine the implications of program changes and underlying planning assumptions, we discussed the changes with DOD, CBO, OMB, and BEA officials. To verify the estimated increased purchasing power in major DOD accounts due to revised estimates of future inflation, we calculated the annual estimated costs for each 1996 FYDP account using inflation indexes used by DOD from the National Defense Budget Estimates for fiscal years 1996 and 1997. The increased purchasing power was the difference between these calculated costs estimates and the reported 1996 FYDP account costs. Our work was conducted from April through November 1996 in accordance with generally accepted government auditing standards. We are providing copies of this report to other appropriate Senate and House Committees; the Secretaries of Defense, the Air Force, the Army, and the Navy; and the Director, Office of Management and Budget. We will also provide copies to others upon request. If you have any questions concerning this report, please call me on (202) 512-3504. Major contributors to this report are listed in appendix IV. The following are GAO's comments on the Office of Management and Budget's (OMB) letter dated November 8, 1996. 1. We agree with OMB that estimates of the Future Years Defense Program (FYDP) in any given year include anticipated future inflation and that changes in anticipated inflation affect the projected cost of the FYDP. We have made this more explicit in our report. However, the levels of forecasted inflation are also important to project future costs. As we explain in this report, the Department of Defense (DOD) projects costs based on OMB guidance that specifies an annual level of inflation for the FYDP period, not the changes in forecasted inflation. 2. The report was amended to reflect this comment. 3. As explained in comment 1, DOD projects costs based on the forecasted inflation rates it receives from OMB. Therefore, we believe the forecasted inflation rates have a direct impact on DOD's estimated future funding requirements. 4. Our example is meant to show how application of a specific inflation rate to the FYDP can affect assumed purchasing power. As we explained previously, we believe the projected costs of the FYDP are affected not only by the change in inflation rates but also by the level of inflation. OMB asserts that under its forecast, the two inflation measures declined by the same amount. However, the Analytical Perspectives of the Budget for Fiscal Year 1997 shows a smaller decrease in inflation under the chain-weighted methodology--5/10 of 1 percent compared to 8/10 of 1 percent under the fixed-weighted methodology. Therefore, use of the changes in either methodology consistently would not have yielded the same change in the price of the FYDP. 5. The sentence was deleted from the final report. Defense Infrastructure: Costs Projected to Increase Between 1997 and 2001 (GAO/NSIAD-96-174, May 31, 1996). Defense Infrastructure: Budget Estimates for 1996-2001 Offer Little Savings for Modernization (GAO/NSIAD-96-131, Apr. 4, 1996). Future Years Defense Program: 1996 Program Is Considerably Different From the 1995 Program (GAO/NSIAD-95-213, Sept. 15, 1995). DOD Budget: Selected Categories of Planned Funding for Fiscal Years 1995-99 (GAO/NSIAD-95-92, Feb. 17, 1995). Future Years Defense Program: Optimistic Estimates Lead to Billions in Overprogramming (GAO/NSIAD-94-210, July 29, 1994). DOD Budget: Future Years Defense Program Needs Details Based on Comprehensive Review (GAO/NSIAD-93-250, Aug. 20, 1993). Transition Series: National Security Issues (GAO/OCG-93-9TR, Dec. 1992). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. 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.	Pursuant to a congressional request, GAO compared the Department of Defense's (DOD) fiscal year (FY) 1997 Future Years Defense Program (FYDP) with the FYDP for FY 1996, focusing on the: (1) impact of the reduction in the inflation rate on DOD's 1997 FDYP; (2) major program adjustments from the 1996 FDYP to the 1997 FDYP; and (3) implications of these changes for the future. GAO found that: (1) as a result of projecting significantly lower inflation rates, DOD calculated that its future purchases of goods and services in its 1997 FYDP would cost about $34.7 billion less than planned in its 1996 FYDP; (2) according to DOD, the assumed increased purchasing power that resulted from using the lower inflation rates: (a) allowed DOD to include about $19.5 billion in additional programs in FY 1997-2001 than it had projected in the 1996 FYDP; and (b) permitted the executive branch to reduce DOD's projected funding over the 1997-2001 period by about $15.2 billion; (3) the price measure the executive branch used in its inflation projections for future purchases in the 1997 FYDP had inherent limitations and has since been improved; (4) if the executive branch decides to use the improved price measure for its 1998 budget, DOD may need to adjust its program as a result of that transition; (5) Office of Management and Budget officials told GAO they have not decided what price measure they will use to forecast inflation for the 1998 FYDP; (6) using projected inflation rates based on a different price measure from that used by the executive branch, the Congressional Budget Office estimated that the future cost of DOD's purchases through 2001 would decline by only about $10.3 billion, or $24.4 billion less than DOD's estimate; (7) resource allocations in the 1997 FYDP vary considerably from the 1996 FYDP as a result of the lower inflation projections, program transfers, and program changes; (8) the projected savings from the latest round of base closures and realignments changed considerably from the 1996 FYDP to the 1997 FYDP; (9) in the 1996 FYDP, DOD estimated savings of $4 billion from base closures; however, the 1997 FYDP projects savings of only $0.6 billion because: (a) the 1996 FYDP projected savings based on interim base closing plans that subsequently changed; and (b) military construction costs related to environmental cleanup of closed bases are projected to be $2.5 billion higher than anticipated in the 1996 FYDP; (10) a comparison of the 1996 and 1997 FYDPs also shows that DOD plans to reduce active duty force levels; (11) the smaller force planned for FY 1998-2001 would bring force levels below the minimum numbers established by law; and (12) if DOD is precluded from carrying out its plan to achieve a smaller force, it will have to make other adjustments to its program.	5,258	619
When veterans obtain care from non-VA providers, the non-VA providers submit claims to VA for payment. See table 1 for a description of the types of non-VA medical care claims processed by VA. Preauthorizing non-VA medical care involves a multistep process conducted by the VA facility that regularly serves a veteran. The preauthorization process is initiated by a VA provider who submits a request for non-VA medical care to the VA facility's non-VA medical care unit, which is an administrative department within each VA facility that processes VA providers' non-VA medical care requests and verifies that non-VA medical care is necessary. Once approved by the VA facility's Chief of Staff or his or her designee, the veteran is notified of the approval and can choose any non-VA provider willing to accept VA payment at predetermined rates. (See fig. 1.) For claims that are emergent in nature and therefore would not have gone through the traditional VA preauthorization process, VA is authorized to pay claims for emergency care from non-VA providers under certain conditions, which vary depending on whether the care was related to the veteran's service-connected disability. If a non-VA emergency care claim is related to a veteran's service- connected disability, the following criteria must be met in order for the services to be paid for by VA. First, the non-VA emergency care must have been rendered to treat one of the following: (a) a veteran's service-connected disability; (b) a condition that is associated with and aggravating the veteran's service-connected disability; (c) any condition for a veteran who has been rated by VA as permanently and totally disabled due to a service-connected disability; or (d) any condition for a veteran participating in a vocational rehabilitation program who needs care to participate in a course of training. Second, the non-VA emergency care must also meet all of these the claim must be filed within 2 years of the date the care or services were rendered; the services were rendered in a medical emergency, as determined using the prudent layperson standard; a VA or other federal facility was not feasibly available to provide the needed care, and an attempt to use either would not have been considered reasonable; and the services were needed before the veteran was stable enough to be transferred to a VA or other federal facility and before the VA or other federal facility agreed to accept the transfer. If a claim for non-VA emergency care is not related to a veteran's service- connected disability, there are different criteria that must be met in order for the services to be paid for by VA. The Millennium Act, which was enacted in 1999, provides a safety net for veterans when they do not have other insurance and need emergency care that is not related to a service-connected disability. Specifically, all of the following criteria must be met for VA to cover Millennium Act claims: The claim is not payable under the payment authority for emergency care related to service-connected disabilities. The claim must be filed within 90 days of the latest of the following: the date of discharge, date of death, or date that the veteran exhausted, without success, action to obtain payment or reimbursement from a third party. The veteran must be enrolled in the VA health care system and have received treatment from a VA clinician within 24 months of the emergency care episode. The veteran must be financially liable to the non-VA provider of emergency care. The veteran can have no entitlement to care under a health plan contract (such as Medicare or a private health insurance plan). The veteran can have no other contractual or legal recourse against a third party that would in whole extinguish his or her liability to the non- VA provider. The services must be rendered in a hospital emergency department or a similar facility providing emergency care to the public. The services must be rendered in a medical emergency as determined using the prudent layperson standard. A VA or other federal facility was not feasibly available to provide the needed care, and an attempt to use either would not have been considered reasonable by a prudent layperson. The services were rendered before the veteran was stable enough to be transferred to a VA or other federal facility and before the VA or other federal facility agreed to accept the transfer. Regardless of whether a veteran's non-VA medical care was preauthorized or the result of an emergency, the steps for processing payments to non-VA providers are the same. Specifically, the non-VA provider submits a claim to either a Veterans Integrated Service Network (VISN) or a VA facility for payment following the veteran's treatment. In some VISNs, claims processing activities are centralized in a VISN-level department that is responsible for reviewing claims from non-VA providers, obtaining copies of medical records for veterans' non-VA medical care, and approving payment to non-VA providers. In other VISNs, these claims-processing activities are decentralized and are the responsibility of individual VA facilities. After VA facility or VISN officials review the claims for accuracy, non-VA providers are reimbursed by VA. (See fig. 2.) To process all claims for non-VA medical care, VA facilities use software called the Fee Basis Claims System (FBCS). FBCS is primarily a system that helps VA facilities administer payments to non-VA providers, as opposed to a system that automatically applies relevant criteria and determines whether claims are eligible for payment. As a result, VA relies on staff in the VISNs and VA facilities that process claims, such as administrative clerks and clinicians (typically nurses), to make decisions about which payment authority applies to the claim and which claims meet the criteria for VA payment. If VA denies payment for a claim for non-VA medical care, the Department must provide written notice to the veteran and the claimant (usually, the non-VA provider) regarding the reason for the denial and inform them of their rights to request a reconsideration or to formally appeal the denial. If a veteran or non-VA provider has questions about a denied claim, claims should be reconsidered by a supervisor at the same VISN or VA facility that denied the claim. If the denial decision is upheld, the veteran or non-VA provider has the right to file an appeal through the Board of Veterans' Appeals. Critical data limitations related to the wait times veterans face in obtaining care from non-VA providers and the cost-effectiveness of such services limit VA's efforts to oversee the Non-VA Medical Care Program in an effective manner. Most notably, VA does not collect data on how long veterans must wait to be seen by non-VA providers. We previously reported that the amount of time veterans wait for appointments in VA facilities influenced VA's utilization of non-VA medical care. For example, in our May 2013 report, VA officials from all six facilities we reviewed reported that they routinely referred veterans to non-VA providers to help ensure that veterans receive timely care and their facilities meet performance goals for wait times for VA facility-based care.from one of these VA facilities explained that veterans needing treatment in several specialties--including audiology, cardiology, and ophthalmology--were referred to non-VA providers for this reason. In fiscal year 2012, VA performance goals for wait times for care in VA facilities called for veterans' primary care appointments to be completed within 7 days of their desired appointment date and veterans' specialty care appointments to be scheduled within 14 days of their desired appointment date. However, since VA did not track wait times for non-VA providers, little was known about how often veterans' wait times for non- VA medical care appointments exceeded VA facility-based appointment wait time goals. Officials from one VA facility we reviewed explained that non-VA providers in their community also faced capacity limitations and may not be able to schedule appointments for veterans any sooner than the VA facility. Limitations in the way VA collects non-VA medical care data also did not allow the Department to analyze the cost-effectiveness of non-VA medical care provided to veterans. In our May 2013 report, we found that VA lacked a data system to group medical care delivered by non-VA providers by episode of care--a combined total of all care provided to a veteran during a single office visit or inpatient stay. For example, during an office visit to an orthopedic surgeon for a joint replacement evaluation, an X-ray for the affected joint may be ordered, the veteran may be given a blood test, and the veteran may receive a physical evaluation from the orthopedic surgeon. The non-VA provider would submit a claim to VA for the office visit, and separate claims would be submitted by the radiologist that X-rayed the affected joint and the lab that performed the veteran's blood test. However, VA's non-VA medical care data system was not able to link the charges for these three treatments together. We found that this left VA without data for comparing the total non-VA medical care costs for various types of services with the VA facility-based alternative. Without cost-effectiveness data, VA is unable to efficiently compare VA and non-VA options for delivering care in areas with high utilization and spending for non-VA medical care. Two VA facilities we reviewed had undertaken such assessments, despite the limitations of current data. Officials at one facility reported that they expanded their operating room capacity to reduce their reliance on non-VA surgical services, saving an estimated $18 million annually in non-VA medical care costs. Similarly, officials from the second facility reported that they were able to reduce their reliance on non-VA medical care by hiring additional VA staff and purchasing additional equipment to perform pulmonary function tests, an effort that reduced related non-VA medical care costs by about $112,000 between fiscal years 2010 and 2012. The lack of non-VA medical care data available on an episode of care basis also prevents VA from efficiently assessing the appropriateness of non-VA provider reimbursement. Specifically, VA officials cannot conduct retrospective reviews of VA facilities' claims to determine if the appropriate rate was applied for the care provided by non-VA providers. To help VA address these concerns, we made two recommendations in our May 2013 report that directed VA to (1) analyze the amount of time veterans wait to see non-VA providers and apply the same wait time goals to non-VA medical care that have been used to assess VA facility- based wait times, and (2) establish a mechanism for analyzing the episode of care costs for non-VA medical care. VA concurred with these recommendations. In June 2014, we discussed VA's progress in implementing these recommendations with VA officials. These officials indicated that the Department anticipated being able to track some wait time information for veterans seen by non-VA providers that VA contracts with under its new Patient Centered Community Care (PCCC) initiative in the near term. However, wait time information for all non-VA medical care will not be readily available until VA completes a redesign of its claims processing system, which is expected to occur in fiscal year 2016. With respect to establishing a mechanism to analyze the episode of care costs for non-VA medical care, VA officials explained that they are in the process of fully implementing this recommendation by (1) improving existing data systems to systematically audit claims that include billing codes typically included in bundled payments while the claims are in a pre-payment status and to require VA facilities to review these claims prior to payment, and by (2) making improvements to its Non-VA Medical Care Program data that would allow all non-VA medical care data to be analyzed on an episode of care basis. However, VA officials did not provide a time frame for when all non-VA medical care would be routinely analyzed by episode of care. In March 2014, we reported that four VA facilities we visited had patterns of noncompliance with VA claims processing requirements, which led to the inappropriate denial of some Millennium Act emergency care claims and the failure to notify some veterans that their claims had been denied. We also found that VA's existing oversight mechanisms for non- VA medical care claims processing were not sufficiently focused on whether VA facilities were inappropriately approving or denying claims. For our March 2014 report, we examined a sample of 128 Millennium Act emergency care claims that the four VA facilities we visited had denied in fiscal year 2012 and found 66 instances of noncompliance with VA policy requirements. We determined that about 20 percent of the claims we examined had been denied inappropriately, and almost 65 percent of the claims we examined lacked documentation showing that the veteran was notified that their claim was denied. As a result of our review, these four VA facilities reconsidered and paid 25 claims that they had inappropriately denied. We found that there are no automated processes for determining whether a claim for non-VA medical care meets criteria for payment or ensuring that veterans are notified when a claim is denied; instead these processes rely on the judgment of VA staff reviewing each claim and adherence to VA policies. There are a number of steps in the claims review process that were susceptible to errors that could lead to inappropriate denials of non-VA medical care claims. For example, we found nine instances where VA staff incorrectly determined that non-VA medical care was not preauthorized when, in fact, a VA clinician had referred the veteran to the non-VA provider.that VA must notify veterans in writing about denied claims and their appeal rights. However, we found that one facility we visited could not produce documentation of veteran notification for any of the 30 denied claims we reviewed. We concluded that when veterans are not informed that their claims for non-VA medical care have been denied, and VA has inappropriately denied the claims, then veterans could become financially liable for care that VA should have covered. Under such circumstances, veterans' credit ratings may be negatively affected, and they may face personal financial hardships if they are unable to pay the bills they receive from non-VA providers. In addition, VA policy states These findings from our March 2014 report raise concerns about compliance with claims processing requirements at other VA facilities nationwide. To help VA address these concerns, we made six recommendations aimed at improving VA's processing of non-VA medical care claims, specifically Millennium Act emergency care claims. These recommendations directed the Department to establish or clarify its policies or take other actions to improve VA facilities' compliance with existing policy requirements. VA concurred with these six recommendations. Based on discussions with VA officials in June 2014 to obtain information about the status of their planned actions for implementing these recommendations, we believe that VA is making progress on the implementation of three of the six recommendations. However, VA needs to take additional steps to revise its policies on claims processing roles and responsibilities in order to address our remaining three recommendations. One of VA's primary methods for monitoring its facilities' compliance with applicable requirements for processing non-VA medical care claims is field assistance visits. In fiscal year 2013, VA conducted these visits at 30 out of 140 VA facilities that processed non-VA medical care claims. These 30 facilities were selected for review by VA based on their claims processing timeliness. However, we reported in March 2014 that the criteria VA used to select facilities for review may not direct VA to the facilities most in need of a field assistance visit because VA does not take into account the accuracy of claims processing activity. Moreover, we found that the checklist VA uses for its field assistance visits does not examine all practices that could lead VA facilities to inappropriately deny claims. Further, VA does not hold facilities accountable for correcting deficiencies identified during these visits, and it does not validate facilities' self-reported corrections to address field assistance visit deficiencies. According to VA officials, these visits are meant to be consultative in nature and assist facilities in improving their non-VA medical care claims processing. However, we found weaknesses in VA's reliance on facilities' self-reported actions when we reviewed the Department's fiscal year 2012 and 2013 field assistance visit data and found unresolved problems in fiscal year 2013 that originated in fiscal year 2012. Further, VA implemented automated processes for auditing approved non-VA medical care claims to ensure that VA facilities apply the correct payment rates and no duplicate versions of the claims were previously paid. However, VA has no systematic process for auditing claims to ensure that they were appropriately approved or denied. VA officials stated that they recommend, but do not require, that managers of non-VA medical care claims processing units at VA facilities audit samples of processed claims--including both approved and denied claims--to determine whether staff processed claims appropriately. However, we found that VA does not know how many facilities conduct such audits, and none of the four VA facilities we visited reported conducting such audits. In our March 2014 report, we concluded that ensuring VA facilities correct deficiencies identified during field assistance visits and conduct systematic audits of the accuracy of claims processing decisions would provide necessary transparency and stability to the Non-VA Medical Care Program. To help VA address these issues, we made three recommendations aimed at revising the scope of the field assistance visits, ensuring deficiencies identified during these visits are corrected, and instituting systematic audits of the appropriateness of claims processing decisions. VA concurred with these recommendations and detailed its plans to address them. In June 2014, VA officials detailed the Department's progress implementing these recommendations. However, we do not believe the Department's actions have sufficiently addressed these recommendations. To fully implement these three recommendations, VA needs to ensure field assistance visits include a review of a sample of processed claims in order to determine whether staff are complying with applicable requirements for claims processing and needs to establish systematic audits of claims processing decisions, among other things. In March 2014, we found that despite VA's communication efforts with veterans and non-VA providers, knowledge gaps exist for veterans about eligibility for Millennium Act emergency care, and communication weaknesses exist between VA and non-VA providers. In March 2014, we reported that veterans may still be unaware of the criteria that must be met in order for VA to pay claims for non-VA medical care; specifically, Millennium Act emergency care. VA primarily educates veterans about their eligibility for non-VA medical care through patient orientation sessions and written materials, such as the Veteran Health Benefits Handbook. However, VA patient benefits and enrollment officials at two of the four VA facilities we visited said that patient orientation sessions were generally not well-attended. Also, written materials we reviewed did not always provide a complete listing of all criteria that must be met for Millennium Act emergency care claims to be covered, which may create confusion about whether veterans should seek treatment from a VA facility or a non-VA provider in the event of an emergency. VA officials said that the primary intent of the written materials was to communicate the importance of promptly seeking care and to discourage veterans from delaying care by bypassing non-VA providers in the event of an emergency. However, some VA officials acknowledged that they were aware of specific recent cases where veterans delayed or avoided seeking treatment at non-VA providers to go to a VA facility instead. For example, one VA official explained that a veteran experiencing chest pains drove over 100 miles to a VA facility rather than going to the nearest emergency department; two VA officials said the wife of a veteran who had gunshot wounds drove him to a VA facility about 30 miles away, bypassing a number of non-VA emergency departments; and another VA official explained that a veteran experiencing chest pains died during a weekend as he waited to seek care until the local VA community-based outpatient clinic opened on Monday. Alternatively, we found that without knowledge of specific criteria for VA payment of non-VA medical care, specifically Millennium Act emergency care, veterans may seek treatment in situations where the Department cannot pay. For example, veterans may seek care at a non-VA provider for conditions they believe require immediate attention--such as one for which they have not been able to obtain timely treatment from a VA facility. However, VA staff reviewing the claim may decide that the condition does not meet the prudent layperson standard for emergency care and deny payment. Veterans that are admitted as inpatients to non- VA providers also may not be aware that they should be transferred to VA facilities once their conditions have stabilized and a VA facility has notified the non-VA provider that a bed is available for their care at the VA facility. To help VA address concerns about veterans' lack of knowledge of non- VA medical care--specifically, Millennium Act emergency care--we recommended in March 2014 that VA take steps to better understand gaps in veterans' knowledge regarding eligibility for non-VA coverage by surveying them about their health care benefits knowledge and using information from those surveys to tailor the Department's veteran education efforts. While VA concurred with this recommendation, in June 2014 VA officials indicated that the Department has decided not to pursue veteran surveys but instead will promote veteran education by appearing at conferences and town halls with veterans service organizations and updating the information on its public website. We remain concerned that, without surveying veterans directly, VA will not be able to identify specific veteran knowledge gaps regarding coverage of non-VA medical care or determine ways to better target VA's veteran education efforts. For our March 2014 report, all four non-VA providers we visited cited problems in their non-VA medical care claims processing communication with VA regarding the following issues: Points-of-contact not designated. Two of the four non-VA providers said they did not have a specific point-of-contact at their VA facilities who could answer concerns and issues about claims they had submitted, which led to problems resolving their issues in a timely manner. Delays in claims processing. Billing officials at one non-VA provider described lengthy delays in the processing of their claims, which in some cases went on for years. Lack of responsiveness when trying to transfer veterans and failure to document discussions about potential transfers. Officials at one non-VA provider said they had experienced challenges connecting with the inpatient admissions staff at their local VA facility, making it difficult for them to transfer veterans to the VA facility after the veterans were stabilized. According to this provider, the VA facility did not consistently answer calls during business hours or weekends. Officials from a non-VA provider also described cases where they had attempted to transfer stable veterans to the VA facility, but the VA facility informed them that there were no beds available. Later, the VA facility denied these claims because VA could find no record of this contact with the non-VA provider or authorizations for continued care. VA officials said they have attempted to improve communications with non-VA providers. Specifically, they have established a website and electronic newsletter for non-VA providers in order to disseminate information about non-VA medical care requirements. In addition, VA mailed letters to all non-VA providers that had submitted claims during the previous 2 years to inform them of these online resources. However, none of the four non-VA providers included in our March 2014 review recalled receiving the letter that VA mailed. Two non-VA providers were familiar with the website, but one commented that it lacked some necessary information and was not useful. None of these four non-VA providers were aware of VA's electronic newsletter, and VA officials acknowledged that a very small percentage of the non-VA providers who submit claims to VA had signed up for it. While these communications have not always reached their intended audience, VA is continuing its efforts to improve communications with non-VA providers. Specifically, VA has been conducting satisfaction surveys to continue monitoring its communications with non-VA providers and has been holding training sessions for VA staff on improving outreach with non-VA providers. Chairman Miller, Ranking Member Michaud, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have. If you or your staffs have any questions about this statement, 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 statement. GAO staff who made key contributions to this statement include Marcia A. Mann, Assistant Director; Emily Beller; Cathleen Hamann; Katherine Nicole Laubacher; Alexis C. MacDonald; and Jennifer Whitworth. 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.	Due to serious and longstanding problems with the timely scheduling of veterans' appointments in VA facilities, VA recently announced that it will allow additional veterans to be treated through its Non-VA Medical Care Program. This testimony is based on two GAO reports and addresses the extent to which (1) VA collects reliable information on wait times and cost-effectiveness of the Non-VA Medical Care Program; (2) VA facilities comply with Millennium Act claims processing requirements and VA oversees claims processing activities; and (3) VA educates veterans about eligibility for Millennium Act emergency care and communicates with non-VA providers. For both reports, GAO reviewed relevant requirements and visited 10 VA facilities. For its report on the oversight and management of the Non-VA Medical Care Program, GAO reviewed non-VA medical care spending and utilization data from fiscal year 2008 through fiscal year 2012. For its report on the Millennium Act emergency care benefit, GAO reviewed 128 denied Millennium Act claims to determine the accuracy of processing decisions. GAO made numerous recommendations to VA in the two prior reports related to improving (1) data on wait times and cost-effectiveness for non-VA medical care; (2) compliance with claims processing requirements; and (3) veterans' knowledge of non-VA medical care eligibility. VA agreed with these recommendations but has yet to fully implement them. GAO's May 2013 report on the oversight and management of the Non-VA Medical Care Program found that the Department of Veterans Affairs (VA) does not collect data on wait times veterans face in obtaining care from non-VA providers. The lack of data on wait times limits VA's efforts to effectively oversee the Non-VA Medical Care Program because it is not possible for VA to determine if veterans who receive care from non-VA providers are receiving that care sooner than they would in VA facilities. In addition, GAO found that VA cannot assess the cost-effectiveness of non-VA medical care because it cannot analyze data on all services and charges for an episode of care, which is a combined total of all care provided to a veteran during a single office visit or inpatient stay. As a result, VA cannot determine whether delivering care through non-VA providers is more cost-effective than augmenting its own capacity in areas with high utilization of non-VA medical care. GAO's March 2014 report found patterns of noncompliance with applicable requirements for processing emergency care claims covered under the Veterans Millennium Health Care and Benefits Act (Millennium Act) at each of the four VA facilities visited. This led to the inappropriate denial of some claims and the failure to notify veterans that their claims had been denied at these facilities. The Millennium Act authorizes VA to cover emergency care for conditions not related to veterans' service-connected disabilities when veterans who have no other health plan coverage receive care at non-VA providers and meet other specified criteria. Specifically, GAO determined that about 20 percent of the 128 claims it reviewed had been denied inappropriately, and almost 65 percent of the reviewed claims lacked documentation showing that the veterans were informed their claims were denied and explained their appeal rights. As a result of GAO's review, the VA facilities reconsidered and paid 25 claims that they initially had inappropriately denied. GAO also found that there is significant risk that these patterns of noncompliance will continue because VA's existing oversight mechanisms do not focus on whether VA facilities appropriately approve or deny non-VA medical care claims or fail to notify veterans that their claims have been denied. GAO also reported in March 2014 that gaps exist in veterans' knowledge about eligibility criteria for Millennium Act emergency care, and communication weaknesses exist between VA and non-VA providers. Specifically, GAO found that veterans' lack of understanding about their emergency care benefits under the Millennium Act presents risks for potentially negative effects on veterans' health because they may forgo treatment at non-VA providers, and on veterans' finances because they may assume VA will pay for care in situations that do not meet VA criteria. Despite VA's efforts to improve communications, some non-VA providers reported instances in which VA facilities' claims processing staff were unresponsive to their questions about submitted claims.	5,265	861
Challenges in global political affairs have placed increasing demands on the way the United States uses space capabilities to achieve national security objectives. DOD's space network is expected to play an increasingly important role in military operations. Yet in each major conflict over the past decade, senior military commanders have reported shortfalls in tactical space capabilities, such as those intended to provide communications and imagery data to the warfighter. To provide short-term tactical capabilities as well as identify and implement long-term solutions to developing low-cost satellites, DOD initiated the ORS concept. The ORS concept aims to quickly deliver low-cost, short-term tactical capabilities to address unmet needs of the warfighter. Unlike traditional large satellite programs, the ORS concept is intended to address only a small number of unmet tactical needs--one or two--with each delivery of capabilities. It is not designed to replace current satellite capabilities or major space programs in development. Rather, the ORS concept has long-term goals of reducing the cost of space development by fostering low cost launch methods as well as common design and interface methods. The ORS concept is based on three tiers, as shown in figure 1, that are distinguished by the means to achieve the effects as well as the length of time required to deliver ORS capabilities. According to DOD, the timelines may not be possible at the outset, but will remain an important goal as the ORS program matures. The Joint ORS Office plans to focus on fielding Tier 2 and 3 space capabilities and when directed, support the achievement of Tier 1 response times in coordination with other members of the warfighter and national security space communities. ORS solutions can be derived from ORS activities from more than one tier. The Joint ORS Office has intentionally been limited in size, and therefore it will rely on existing space organizations for specific ORS support and execution activities. Capabilities developed under the ORS concept will be complementary to other fielded space capabilities. With a focus on augmenting, reconstituting, and filling unanticipated gaps in U.S. space capabilities, ORS aims to provide a critical capability for the United States to maintain the asymmetric advantage it has derived from its space-based capabilities over potential adversaries. DOD has taken several steps to develop the ORS concept to meet warfighter needs; however, the concept is still in the early stages of its development and not commonly understood by all members of the warfighter and national security space communities. DOD has developed a process for converting warfighter needs into formal requirements and identifying potential ORS solutions. In April 2008, DOD issued an Implementation Plan and continues to draft instructions and guidance to further clarify ORS and how it can meet warfighter needs. In spite of this progress, common understanding of the ORS concept is lacking because DOD has not clearly defined key elements of the ORS concept and has not effectively communicated the concept to key stakeholders. DOD has made some progress in developing the ORS concept. Since the Joint ORS Office was established in May 2007, it has developed a process that converts warfighter needs into formal requirements and potential ORS solutions. DOD also issued an Implementation Plan in April 2008 and continues to develop further ORS guidance. DOD has established a process that converts a warfighter need into formal requirements and identifies potential ORS solutions for those requirements. As shown in figure 2, the ORS Requirements and Solutions Generation process begins when a Joint Force Commander or other user submits a capability need to U.S. Strategic Command. During the requirements development phase and the solutions development phase, teams are assembled from across the warfighter and national security space communities by the designated lead for the respective phases. At this time, the Joint ORS Office has asked Air Force Space Command to facilitate the requirements development phase and has asked the Air Force Space and Missile Systems Center to facilitate the solutions development phase. The solutions development phase can begin before the formal Capability Requirements Document is delivered. The Joint Force Commander or other user who submitted the need has multiple opportunities to provide input throughout the ORS Requirements and Solutions Generation process to ensure that the solutions being considered will actually fit the need. At the time of this report, one warfighter need has completed the ORS Requirements and Solutions Generation process and two other warfighter needs are in process. The need that has completed the process was a request to augment global ultra-high-frequency communications. The Joint ORS Office received the need from U.S. Strategic Command on September 14, 2007, and the initial solutions were presented to the Commander of U.S. Strategic Command on October 17, 2007. The second need is a classified space situational awareness need. Possible solutions for the second need have also been presented to the Commander of U.S. Strategic Command and the DOD Executive Agent for Space for approval. According to the Deputy Director of the Joint ORS Office, after completing the process, there was some question whether a space-based capability was the best way to meet the need. He said that the DOD Executive Agent for Space has asked for more information and the potential solutions are now in senior leadership review. A third need for an ISR capability has begun the ORS Requirements and Solutions Generation process. As of the end of May 2008, this need has completed the requirements development phase of the ORS Requirements and Solutions Generation process. In July 2007, the Deputy Secretary of Defense tasked the DOD Executive Agent for Space to develop by October 15, 2007, an ORS Implementation Plan to guide ORS activities. The DOD Executive Agent for Space did not meet this deadline, but the plan was issued April 28, 2008. The ORS Implementation Plan identifies the DOD processes and staffing resources required to meet ORS needs, and outlines the elements necessary to implement the ORS concept as well as serving as the initial charter for the Joint ORS Office. Additionally, the Deputy Secretary of Defense required the military departments to assign personnel to fully staff the Joint ORS Office no later than August 1, 2008, and to establish dedicated funding for ORS beginning in fiscal year 2010. In addition to issuing the implementation plan, three ORS guidance documents are currently being drafted, but no timeline has been established for their completion. First, U.S. Strategic Command is drafting an update to its Initial ORS Concept of Operations that is intended to make the initial concept of operations shorter and more concise, to clarify the services' roles and responsibilities, and to provide more information on ORS capabilities, including who will be able to operate them. Second, DOD is drafting an instruction to assign responsibilities and to prescribe procedures for Joint Force Commanders to submit urgent operational needs for a possible ORS solution. Third, U.S. Strategic Command is drafting an instruction that is designed to assign responsibilities for ORS within U.S. Strategic Command and its supporting Joint Functional Component Commands. According to U.S. Strategic Command officials, this instruction will implement and expand upon the guidance found in the DOD instruction mentioned above. U.S. Strategic Command's instruction will also detail the procedures the command will use to prioritize warfighter needs. According to a U.S. Strategic Command document, factors that will be taken into consideration for prioritization include: (1) the operational relevance of the need, (2) the degree of urgency of the need and how soon the need must be satisfied, (3) whether the need has a potential space solution, (4) the technical feasibility of the need, (5) whether ORS resources can address the need, and (6) whether ORS is the best choice of all possible means to address the need. Most ORS efforts are in their initial phases and thus it is too early to judge their success. According to the ORS Implementation Plan, the Joint ORS Office will accomplish its objectives over time in a "crawl, walk, and run," approach. At this time, the ORS concept is still in the "crawl" phase which means that the warfighter is getting involved with the ORS concept and the focus of ORS efforts is on demonstrating building blocks for later efforts, conducting experiments, and determining what can be accomplished with current assets. "Walking" would be characterized as the evolution of the ORS concept into a warfighter-driven concept with selected capabilities tied to gaps and integrated within the existing architecture. The ORS Implementation Plan states that this phase would not begin until approximately 2010. A "run" would involve a full range of space effects delivered when and where needed and is expected to begin in approximately 2015. The former Deputy Commander of U.S. Strategic Command told us that he expects the current tactical satellites to propel the ORS concept to somewhere between a walk and a run. Key stakeholders do not share a common understanding of the ORS concept for two primary reasons--the ORS concept is not clearly defined in its initial guidance documents and DOD has not adequately communicated the concept to key stakeholders. As a result, stakeholders throughout the warfighter and national security space communities do not share a common understanding of the ORS concept. DOD has not documented a clear definition of the ORS concept and as a result key stakeholders in the warfighter and national security space communities do not share a common understanding of the concept. Our prior work examining successful organizational transformations shows the necessity to communicate clearly defined goals and specific objectives to key stakeholders. Initial ORS planning documents--the Plan for ORS and the Initial Concept of Operations--are broad and lack the specificity needed to guide the ORS concept, according to some members of the warfighter and national security space communities. For example, the associate director of the National Security Space Office said that the Plan for ORS addressed the eight areas required by the National Defense Authorization Act for Fiscal Year 2007 in only a broad sense. Moreover, an official from one combatant command said that the Initial Concept of Operations was not well-defined, and officials from another combatant command told us that the concept of operations was really more of a vision statement. We found several examples of a lack of clarity within these initial documents. First, the Initial ORS Concept of Operations states that ORS is focused on the timely satisfaction of the urgent needs of the Joint Force Commanders, but it does not adequately define what constitutes "urgent." Additionally, the approach presented in the April 2007 Plan for ORS for enhancing the responsiveness of space systems is to implement ORS to develop more affordable, small systems that can be deployed in operationally relevant time frames, but does not clarify what is meant by "operationally relevant time frames." According to the Plan for ORS and the Initial Concept of Operations, some ORS solutions could take up to 1 year to execute. Officials in the Office of the Undersecretary of Defense for Policy questioned whether these time frames could really meet an urgent need. Additionally, officials from one combatant command told us that a time frame of 1 year to get a need met would not be considered responsive enough for them unless a satellite was already in orbit so that they could task it directly. Based on these examples, key stakeholders are not operating under a common understanding regarding the time frames for ORS. Moreover, key stakeholders in the intelligence community have said that they are not sure which operational needs or urgent needs the ORS concept is to satisfy. Additionally, at the time of our review, other guidance documents needed to clarify the ORS concept had not yet been developed. The August 2007 memorandum from the DOD Executive Agent for Space directed the Joint ORS Office to develop an ORS Strategy, an ORS Road Map, and an ORS Program Plan in addition to the ORS Implementation Plan. The Deputy Director of the ORS Office said that they decided to complete the ORS Implementation Plan before writing the other documents so that it could guide the development of the other required documents. Now that the ORS Implementation Plan has been released, he said that they will need to get more guidance from the DOD Executive Agent for Space regarding what specific information should be included in the remaining documents. DOD has not effectively communicated with key stakeholders or engaged them regarding the ORS concept. Our prior work examining successful organizational transformations shows the need to adopt a communication strategy that provides a common framework for conducting consistent and coordinated outreach within and outside its organization often and early and seeks to genuinely engage all stakeholders in the organization's transformation. However, DOD did not initially involve the geographic combatant commands in the development of the ORS concept. For example, officials from one geographic combatant command told us that they did not have any input into the development of the Initial Concept of Operations for ORS and were not involved in any of the ORS working groups. These officials were concerned that failing to involve the geographic combatant commands in the ORS concept development would lead to new capabilities that drive warfighter requirements instead of warfighter requirements determining how to develop ORS capabilities. Additionally, officials from a functional combatant command told us that key ORS meetings took place in August 2007 but they were not invited to participate and neither were the geographic combatant commands. These officials were concerned that failing to invite these combatant commands to the meetings might result in the development of requirements that really do not benefit the warfighter. The first extensive outreach to the combatant commands was in preparation for the November 2007 ORS Senior Warfighters Forum, which took place 6 months after the standup of the Joint ORS Office. A senior space planner, who is the lead for ORS for one combatant command, told us that during preparatory briefings for the ORS Senior Warfighters Forum, participants were told that the purpose of the forum would be to learn what space capabilities the combatant commands needed that ORS might be able to address. However, after a couple of briefings, he learned that the purpose of the ORS Senior Warfighters Forum had shifted to that of educating the combatant commands on the ORS process and how to get an ORS capability. The senior space planner explained that rather than asking the warfighter what they need, the focus was now on placing their needs into a process that had already been developed. This same combatant command official told us that no clear answers were provided to questions asked at the ORS Senior Warfighters Forum regarding the submission of warfighter needs or how these needs would be prioritized and, as of the end of February 2008, they had received no updates from U.S. Strategic Command on any of the issues discussed at the forum. Similarly, an intelligence agency official told us that no consensus was reached during the forum and very little concrete information was relayed regarding how ORS will be used in the future. Officials from various commands called for better communication strategies to enhance their understanding of the ORS concept. Various geographic combatant command officials we spoke with generally said that U.S. Strategic Command should increase its ORS outreach activities (e.g., visits, briefings, and education) to reach more staff throughout the commands and services. The Chief of Staff at the U.S. Strategic Command Joint Functional Component Command for Space acknowledged that outreach activities need to be completed with the combatant commands so that they can better understand how future ORS capabilities can benefit their area of operation. Officials from U.S. Strategic Command acknowledged that they had not done a good job of educating the combatant commands on the ORS concept in its early days. However, the Deputy Director of the ORS Office told us that one of the responsibilities of one of the division chiefs who arrived in March 2008 at the Joint ORS Office will be to reach out to the combatant commands and engage the warfighter on the ORS concept. Additionally, DOD has not communicated well with the intelligence community regarding the ORS concept. Officials from the National Security Agency said that they are very concerned about the lack of consultation that has been done with the intelligence community regarding the ORS concept. Officials from the National Geospatial-Intelligence Agency also said that they believe that communication with the intelligence community regarding the ORS concept has been insufficient. However, both agencies acknowledged that communication between DOD and the intelligence community has improved since they started working together on tactical satellites, but their concerns regarding communication remain. While the U.S. Strategic Command and the Joint ORS Office have taken some steps to promote the ORS concept such as the November 2007 ORS Senior Warfighters Forum, directing one of the Joint ORS Office division chiefs to reach out to the combatant commands, and engaging the intelligence community on the tactical satellites, they have not developed a consistent and comprehensive outreach strategy. The lack of a clearly defined ORS concept and effective outreach to the stakeholders has affected the acceptance and understanding of the ORS concept throughout the warfighter and national security space communities. Without a complete and clearly articulated concept that is well communicated with key stakeholders, DOD could encounter difficulties in fully implementing the ORS concept and may miss opportunities to meet warfighter needs. DOD has recognized the need to integrate the ORS concept into the warfighter and national security space communities' processes and architecture, but it has not yet determined specific steps for achieving integration. DOD does not plan to begin integrating the ORS concept in accordance with the 1999 DOD Space Policy until between 2010 and 2015. However, integrating space systems is a complex activity that involves many entities inside DOD and the intelligence community and may take more time to accomplish than expected. Therefore, taking incremental steps as the ORS concept matures may help the Joint ORS Office to achieve timely integration and help assure that warfighter requirements will be met. Senior ORS officials have told us that the ORS concept is still too new to begin its integration, but combatant command and intelligence community officials are concerned about how the ORS concept will be integrated into their existing processes for submitting warfighter needs and processing ISR data. According to the 1999 DOD Space Policy, an integrated national security space architecture that addresses defense and intelligence missions shall be developed to the maximum extent feasible in order to eliminate programs operating in isolation of one another and minimize unnecessary duplication of missions and functions and to achieve efficiencies. This policy also directs the Secretaries of the Military Departments and Combatant Commanders to integrate space capabilities and applications into their plans, strategies, and operations. In order to be consistent with DOD Space Policy, new processes or systems developed under the ORS concept should be integrated into all facets of DOD's strategy, doctrine, education, training, exercises and operations. DOD has acknowledged that the ORS concept needs to be integrated and one of the goals in the ORS Implementation Plan is to integrate the ORS concept into the existing space architecture between 2010 and 2015. Given the complex environment of the warfighter and national security space communities, changes that affect one organization can have an effect on integrating national security space systems, and may take longer than anticipated. We previously reported that DOD is often presented with different and sometimes competing organizational cultures and funding arrangements, and separate requirements processes among the agencies involved in the defense and national space communities. This complex environment has prevented DOD from reaching some of its past integration goals. For example, in 2005, changes at the National Reconnaissance Office resulted in the removal of National Reconnaissance Office personnel and funding from the National Security Space Office, and restricted the National Security Space Office's access to a classified information-sharing network, thereby inhibiting efforts to further integrate defense and national space activities--including ISR activities--that had been recommended by the Space Commission. If the Joint ORS Office does not successfully integrate the ORS concept into the existing space architecture within established time frames, this may result in a lack of coordination among various members of the warfighter and national security space communities. Officials from the Joint ORS Office and U.S. Strategic Command acknowledged that they have not yet determined how any future ORS processes and systems will be integrated into existing national security space processes and systems, because the concept is still too new for them to determine the best way to achieve integration. Furthermore, the ORS Implementation Plan states that the Joint ORS Office will be working with the military departments and appropriate agencies to prepare for a smooth transition of systems when they are developed and acquired by the Joint ORS Office. However, the Joint ORS Office does not yet have any new space capabilities to be transitioned. Senior ORS officials told us that they cannot develop a comprehensive plan for the integration of ORS processes into existing DOD and intelligence community processes and architecture until they know more about the nature of ORS capabilities that they will be able to develop. Moreover, U.S. Strategic Command officials said that integration of new systems will have to take place on a case-by-case basis depending on the type of capability that is developed. They also said that it is conceivable that in certain situations, integrating some ORS solutions might not be the most cost-effective and efficient way to provide an urgent capability to a warfighter. For example, some of the architecture for addressing ISR needs requires high levels of data classification. If a warfighter had a need that could be met at a lower classification level than a particular ISR system would allow, it might be faster and less expensive to not integrate that particular ORS capability in order to preserve a lower classification of the data obtained and avoid the expense and complications associated with processing data with higher classifications. For these reasons, DOD has not laid out any specific steps toward the longer-term goal of integrating the ORS concept into the existing space architecture, which has raised some concern within the warfighter and national security space communities about the possible creation of unnecessary duplicative processes. For example, combatant command officials told us that they are already burdened by multiple processes for submitting their warfighter requirements. They emphasized that any processes developed for submitting ORS requirements should be integrated into existing requirements submission processes so as not to require a new process for them to learn to use and manage. However, the Deputy Director of the ORS Office said that the process of submitting ORS requirements currently under development is a separate and parallel process to existing methods of submitting warfighter needs and he does not yet know how it will be integrated. He explained that the ORS concept has only been tested with two warfighter needs so it is too soon for them to determine how particular ORS processes--such as the requirements submission process--will be integrated into existing warfighter requirements processes. U.S. Strategic Command officials told us that in the future, they envision receiving ORS requirements from multiple existing processes already in place, but time is needed to allow the concept to mature and develop before integration can be fully addressed. Intelligence community officials also raised concerns about the importance of using their current processes and architecture so as not to create unnecessary duplicative processes to get data to the warfighter. Furthermore, officials from the National Geospatial-Intelligence Agency told us that their analysts cannot keep up with the data being collected from existing space assets, and they do not know who will process information from any new assets that might be developed under ORS. DOD officials have acknowledged the need to integrate ORS into the existing ISR enterprise; however, accomplishing this goal will be especially challenging. We recently reported that DOD's existing roadmap for integrating current ISR capabilities does not provide DOD with a long- term comprehensive vision of the desired end state of the ISR enterprise. We also reported that DOD has not been able to ensure that ISR capabilities developed through existing processes are really the best solutions to minimize inefficiency and redundancy. Therefore, it will be difficult for the Joint ORS Office to reduce inefficiency by integrating its processes and systems into the current ISR enterprise, which already faces numerous integration challenges. The Deputy Director of the Joint ORS Office said that the office has not yet determined how data collected by any new ORS solutions developed for ISR needs will be integrated into existing intelligence community back-end processes for analyzing and distributing data collected from space assets. Integrating the ORS concept will involve many agencies across the warfighter and national security space communities and may take more time than anticipated. If the integration of the ORS concept is not adequately planned, DOD may not meet its time frames for integrating the ORS concept. If the ORS concept is not integrated into the existing space architecture as integration issues arise, the ORS concept could create duplicative efforts resulting in wasted resources and inhibiting the ORS concept's ability to fully meet warfighter needs. While DOD has taken a number of steps to advance the ORS concept and to develop a process for providing ORS capabilities to the warfighter, its ability to implement the concept will be limited until it more clearly defines key aspects of the ORS concept and increases its outreach and communication activities. Without a complete and clearly articulated concept that is well communicated and practiced among key stakeholders, DOD could encounter difficulties in fully implementing the ORS concept and building the relationships necessary to ensure ORS's success. Furthermore, even though it may be too early to develop a comprehensive plan for integrating ORS processes and systems into the existing national security space architecture, DOD can identify the steps necessary to achieve integration as the concept matures. Integrating the ORS concept will be very challenging, especially as it pertains to ISR activities that will have to be coordinated among many agencies across DOD and intelligence community agencies. Identifying the incremental steps toward integration could help DOD meet its time frames for integrating the ORS concept, prevent the ORS concept from creating duplicative efforts, ensure that the ORS concept meets warfighter needs, and ensure its future satellites are adequately supported. We recommend the DOD Executive Agent for Space take the following three actions: Direct the Joint ORS Office, in consultation with U.S. Strategic Command, to define ORS key terms including what qualifies as an urgent need, how timely satisfaction of a need is evaluated, and what Joint Force Commander needs the ORS concept is trying to satisfy. Direct the Joint ORS Office, in consultation with U.S. Strategic Command, to establish an ongoing communications and outreach approach for ORS to help guide DOD's efforts to promote, educate, and foster acceptance among the combatant commands, military services, intelligence community, and other DOD organizations. In consultation with the Undersecretary of Defense for Acquisition, Technology, and Logistics and the Undersecretary of Defense for Intelligence, and in cooperation with the military services, identify the steps necessary to ensure the integration of the ORS concept into existing DOD and intelligence community processes and architecture as the Joint ORS Office continues its long-term planning of the ORS concept. In written comments on a draft of this report, DOD partially concurred with our recommendations. DOD's comments are reprinted in appendix II. The National Reconnaissance Office also provided technical comments, which we incorporated as appropriate. DOD partially concurred with our recommendation to define ORS key terms including what qualifies as an urgent need, how timely satisfaction of a need is evaluated, and what Joint Force Commander needs the ORS concept is trying to satisfy. In its comments, DOD stated that it codified the definition of ORS on July 9, 2007, and U.S. Strategic Command developed an Initial Concept of Operations containing additional terms intended to further define and clarify ORS activities. However, our work showed that the warfighter and intelligence community believe that key ORS terms need to be better defined and clearer. As we stated in our report, the initial guidance documents--such as the Plan for ORS and the Initial Concept of Operations--are considered broad by users and lack the specificity needed to guide the ORS concept. Based on our work, this has led to a lack of a common understanding of the concept among the warfighter and national security space communities. DOD also stated that responsibility for providing overarching definitions and policy guidance will remain with the Office of the Under Secretary of Defense for Policy, and U.S. Strategic Command will continue to validate ORS requirements and provide additional clarification, definition, and direction to the ORS Office as the capability matures. However, our recommendation focuses on the need for better-defined and clear ORS terms. Therefore, we continue to believe that DOD should take additional steps now to define and clarify ORS and provide more definition of key terms. DOD partially concurred with our recommendation to establish an ongoing communications and outreach approach for ORS to help guide DOD's efforts to promote, educate, and foster acceptance among the combatant commands, military services, intelligence community, and other DOD organizations. In its comments, DOD stated that communicating a clear, concise message was vitally important to the success of ORS and it is currently conducting outreach efforts in numerous forums. We acknowledged DOD's efforts to promote the ORS concept in our report; however, despite these efforts, confusion regarding the ORS concept persists. As stated in our report, the lack of a clear definition combined with the lack of a consistent and comprehensive outreach strategy has affected the acceptance and understanding of the ORS concept throughout the warfighter and national security space communities. DOD's comments also stated that the burden of outreach should not be placed solely upon the ORS Office and that all ORS stakeholders will continue to play an active role in promoting and fostering acceptance of the ORS concept. Apart from who is designated to develop and implement it, our work showed that a comprehensive communication and outreach approach or strategy that reflects agreed- upon definitions and direction for the ORS concept is needed or DOD could encounter difficulties in fully implementing the ORS concept and may miss opportunities to meet warfighter needs. DOD partially concurred with our recommendation to identify the steps necessary to ensure the integration of the ORS concept into existing DOD and intelligence community processes and architecture as the Joint ORS Office continues its long-term planning of the ORS concept. In its comments, DOD stated that integration of ORS capabilities into current processes and architecture will depend upon the value provided by the current processes and architectures and that integration into existing systems will be considered by the ORS Office as a matter of course. DOD also stated that personnel assigned to the ORS Office from across DOD and the intelligence community bring knowledge and experience that will help to identify ways to selectively integrate ORS capabilities into current systems, when appropriate, in order to streamline delivery of products to the customers. However, based on our work, if integration of the ORS concept is not timely and adequately planned, DOD may not meet its time frames for integrating the ORS concept into the existing space architecture between 2010 and 2015. Moreover, if the ORS concept is not developed and integrated well in advance of launching future satellites, the ORS concept could create duplicative efforts resulting in wasted resources and inhibiting the ORS concept's ability to fully meet warfighter needs. Therefore, we believe our recommendation to take a more proactive approach to integrating the ORS concept, once better defined and communicated with the warfighter and national security space community, continues to have merit. We are sending copies of this report to the Secretaries of Defense, the Army, the Navy, and the Air Force. Copies will be made available to others upon request. In addition, this report will be available at no charge on our Web site at http://www.gao.gov/. If you or your staff have any questions about this report, please contact me at (202) 512-5431 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. To determine whether the Operationally Responsive Space (ORS) concept is being developed to support warfighter needs and the extent to which DOD has a plan that integrates ORS into existing DOD and intelligence community processes and architecture, we reviewed and analyzed ORS planning documents, the ORS concept of operations, and ORS processes for meeting warfighter needs. We also reviewed relevant legislation, policies, and prior GAO reports. We interviewed officials at the U.S. Strategic Command including the Joint Force Component Command for Intelligence, Surveillance and Reconnaissance and the Joint Force Component Command for Space as well as officials from the Joint ORS Office to discuss the progress of developing the ORS concept, the initial ORS planning documents, outreach regarding the ORS concept, and plans to integrate the ORS concept into the existing space architecture. We also interviewed officials at Air Force Space Command and the Air Force Space and Missile Systems Center to discuss the new process developed for converting warfighter needs into formal requirements and potential ORS solutions. In addition, we interviewed officials from the U.S. Central Command, U.S. European Command, U.S. Pacific Command, U.S. Southern Command, and U.S. Special Operations Command regarding warfighter involvement in the creation of the ORS concept, the ability of the ORS concept to meet warfighter needs, the degree of outreach received regarding the ORS concept, and the integration of the ORS concept into current processes for submitting warfighter needs. To discuss issues regarding ORS capabilities that may address warfighter ISR needs and the integration of these capabilities into current intelligence community processes and systems, we interviewed officials from the Office of the Director of National Intelligence, the National Geospatial- Intelligence Agency, the National Reconnaissance Office, and the National Security Agency. Furthermore, we interviewed officials from the Office of the Undersecretary of Defense for Policy, the Office of the Undersecretary of Defense for Intelligence, and the National Security Space Office to discuss policy issues related to ORS. Finally, we interviewed officials from U.S. Air Force Headquarters, U.S. Army Space Branch, the Air Force Research Lab, and the Naval Research Lab to discuss service involvement with the ORS concept and the tactical satellite experiments. In addition to the contact named above, Lorelei St James, Assistant Director; Grace Coleman; Jane Ervin; Amy Higgins; Enemencio Sanchez; Kimberly Seay; Jay Spaan; Matthew Tabbert; Karen Thornton; and Amy Ward-Meier made key contributions to this report.	The Department of Defense's (DOD) operational dependence on space has placed new and increasing demands on current space systems to meet commanders' needs. DOD's Operationally Responsive Space (ORS) concept is designed to more rapidly satisfy commanders' needs for information and intelligence during ongoing operations. Given the potential for ORS to change how DOD acquires and fields space capabilities to support the warfighter, this report discusses to what extent DOD (1) is developing ORS to support warfighter requirements and (2) has a plan that integrates ORS into existing DOD and intelligence community processes and architecture. GAO reviewed and analyzed ORS planning documents, the ORS concept of operations, and processes for meeting warfighter needs and also interviewed defense and intelligence community officials who are involved with the ORS concept. DOD is making some progress in developing the ORS concept, but whether it will meet warfighter requirements is unclear, principally because the concept is in the early stages of development and not commonly understood by all members of the warfighter and national security space communities. Our prior work examining successful organizational transformations shows the need to communicate to stakeholders often and early and to clearly define specific objectives. Since the Joint ORS Office was established in May 2007, it has developed a process for converting warfighter needs into formal requirements and identifying potential ORS solutions. Moreover, DOD issued the ORS Implementation Plan in April 2008 and is also developing new ORS guidance documents. However, GAO found disparity in stakeholder understanding of the ORS concept within the warfighter and national security space communities. This disparity exists because DOD has not clearly defined key elements of the ORS concept and has not effectively communicated the concept with key stakeholders. For example, initial ORS planning documents are broad and lack the specificity needed to guide the ORS concept, according to some members of the warfighter and national security space communities. Moreover, officials from the intelligence community were concerned about DOD's lack of consultation and communication with them regarding the ORS concept. Without having a well-defined and commonly understood concept, DOD's ability to fully meet warfighter needs may be hampered. DOD has acknowledged the need to integrate ORS into existing DOD and intelligence community processes and architecture, but it has not fully addressed how it will achieve this integration. The 1999 DOD Space Policy states that an integrated national security space architecture that addresses defense and intelligence missions shall be developed to the maximum extent feasible in order to minimize unnecessary duplication of missions. DOD plans to begin integrating any new ORS processes or systems that are developed for ORS sometime between 2010 and 2015. However, integrating national security space systems can be a complex activity, involving many entities within DOD and the intelligence community. GAO previously reported that DOD's existing intelligence, surveillance, and reconnaissance (ISR) processes activities already face significant integration challenges, and adding new ORS systems into the existing ISR enterprise will increase the challenges of an already complex and challenging environment. Given the concept's immaturity, members of the national security space community have raised concerns about how the ORS concept will be integrated with existing DOD and intelligence processes and architecture, and voiced concerns about being burdened by an additional new requirements process specific to ORS. Nonetheless, as GAO described earlier, DOD is developing a process unique to ORS for submitting ORS warfighter requirements. The complexity of the national security space environment calls for DOD to begin to adequately plan integration of the ORS concept now to help ensure that DOD avoids the risk of duplicative efforts and wasted resources.	7,393	777
With the growth in the nation's highway and aviation systems in the previous decades, intercity passenger rail service lost its competitive edge. Highways have enabled cars to be competitive with conventional passenger trains (those operating up to 90 miles per hour), while airplanes can carry passengers over longer distances at higher speeds than can trains. The Rail Passenger Service Act of 1970 created Amtrak to provide intercity passenger rail service because existing railroads found such service unprofitable. Like other major national intercity passenger rail systems in the world, Amtrak has received substantial government support--nearly $24 billion for capital and operating needs through fiscal year 2001. Amtrak operates a 22,000-mile passenger rail system, primarily over tracks owned by freight railroads. (See fig. 1.) Amtrak owns 650 miles of track, primarily in the Northeast Corridor, which runs between Boston and Washington, D.C. About 70 percent of Amtrak's service is provided by conventional trains; the remainder is provided by high-speed trains. It offers high-speed service (up to 150 miles per hour) on the Northeast Corridor. About 22 million passengers in 45 states rode Amtrak's trains in 2000 (about 60,000 passengers each day), a small share of the commercial intercity travel market. In comparison, in 1999, domestic airlines carried about 1.6 million passengers per day, and intercity buses carried about 983,000 people per day (latest data available). Proponents see high-speed rail systems (with speeds over 90 miles per hour) as a promising means for making trains more competitive with these other modes of transportation. They see introduction of high-speed rail in various areas of the country as a cost-effective means of increasing transportation capacity (the ability to carry more travelers) and relieving air and highway congestion, among other things. The Federal Railroad Administration defines high-speed rail transportation as intercity passenger service that is time-competitive with airplanes or automobiles on a door-to-door basis for trips ranging from about 100 to 500 miles. The agency chose a market-based definition, rather than a speed-based definition, because it recognizes that opportunities for successful high- speed rail projects differ markedly among different pairs of cities. High-speed trains can operate on tracks owned by freight railroads that have been upgraded to accommodate higher speeds or on dedicated rights of way. The greater the passenger train's speed, the more likely it is to require a dedicated right-of-way for both safety and operating reasons. Ten corridors (not including Amtrak's Northeast Corridor) have been designated as high-speed rail corridors either through legislation or by the Department of Transportation. (See fig. 2.) Designated corridors may be eligible for federal funds through several Department of Transportation programs. According to the Department, the designation also serves as a catalyst for sustained state, local, and public interest in corridor development. The 10 federally designated corridors are generally in various early stages of planning. Amtrak's Northeast Corridor is in operation and supports high-speed service up to 150 miles per hour. Amtrak's future is uncertain, in part, because it has made limited progress toward achieving operational self-sufficiency, as required by the Amtrak Reform and Accountability Act of 1997. The act prohibits Amtrak from using federal funds for operating expenses, except for an amount equal to excess Railroad Retirement Tax Act payments, after 2002. If the Amtrak Reform Council (an independent council established by the act) finds that Amtrak will not achieve operational self-sufficiency, the act requires that the railroad submit to the Congress a liquidation plan and the Council submit to the Congress a plan for a restructured national intercity passenger rail system. Amtrak has made little progress in reducing its need for federal operating assistance--i.e., closing its "budget gap"--in order to reach operational self-sufficiency. In fiscal year 2000, Amtrak closed its budget gap by only $5 million, achieving very little of its planned $114 million reduction. Results for the first 8 months of fiscal year 2001 (October 2000 through May 2001) are not encouraging: Amtrak's revenues increased by about $83 million (6 percent) over the same period in 2000, but its cash expenses increased by about $120 million (7 percent). Overall, in the last 6 years (fiscal years 1995 through 2000), Amtrak has reduced its budget gap by only $83 million. By the end of 2002, about 17 months from now, Amtrak will need to achieve about $281 million in additional financial improvements to reach operational self-sufficiency. Although Amtrak has undertaken a number of actions to reach and sustain operational self- sufficiency by the end of 2002, we believe that it is unlikely that it will be able to do so. Intercity passenger rail systems, like other intercity transportation systems, are expensive. The level of federal financial assistance that would be required to maintain and expand the nation's intercity passenger rail network far exceeds the amounts that have been provided in recent years. In February, Amtrak's capital and finance plans called for $30 billion (in constant 2000 dollars) in federal capital support from 2001 through 2020 (an average of $1.5 billion each year, with $955 million in fiscal year 2002) to upgrade its operations and to invest as seed money in high-speed rail corridors. The proposed amount is nearly $10 billion more than the $20.4 billion (in 2000 dollars) that Amtrak has received in federal operating and capital support over the past 20 years (1982 through 2001). The amount is also nearly three times the annual amount that the Congress provided Amtrak in recent years (e.g., $571 million for 2000 and $521 million for 2001 that could be used for both capital and operating expenses). Additionally, fully developing high-speed rail corridors would require substantial amounts of federal capital assistance. Overall cost figures are unknown because corridor initiatives are in various stages of planning. However, the capital costs to fully develop the federally designated high- speed rail corridors and the Northeast Corridor could be $50 billion to $70 billion over 20 years, according to a preliminary Amtrak estimate. The federal government could be expected to provide much of these funds. However, estimates of the costs and the financial viability of high-speed rail systems can be subject to much uncertainty, especially when they are in the early stages of planning. Some of the federal funding (as much as $12 billion) for high-speed rail projects could be provided if the High-Speed Rail Investment Act of 2001 (H.R. 2329) is enacted. (A similar bill, S. 250, was introduced in the Senate.) Amtrak views the bill as an important first step in providing seed money and helping build partnerships with states, localities, and freight railroads critical to the development of high-speed passenger rail in the United States. According to Amtrak and Federal Railroad Administration officials, several federally designated corridors could be ready for infrastructure investment in the next year or so. We agree that the bill offers the potential to facilitate the development of high-speed rail systems outside the Northeast Corridor. However, issues remain to be addressed if corridors are to realize the benefits that proponents see for them, including how to complete projects where costs grow beyond the bond funds made available for them. Further, in applying the bill's public benefit criteria, the Secretary and others will have to address issues raised by a project that, by itself, is insufficient to provide high-speed rail service on a corridor (or a portion of the corridor). In these situations, one approach could be to require applicants for bond funding to demonstrate that other resources could reasonably be expected to be available to initiate such service or that the project would result in a "useful asset" even if no other funding is provided. There is growing interest in and enthusiasm for intercity passenger rail by states, particularly for high-speed rail systems. Proponents see opportunities for increasing ridership--such as a quadrupling of riders on corridors other than the Northeast Corridor (from 10 million to 40 million passengers annually) by 2020. Proponents see a number of public benefits--such as reduced congestion, improved air quality, increased travel capacity, and greater travel choices--from further developing and expanding such systems. According to the Federal Railroad Administration, 34 states are participating in the development of high- speed rail corridors and these states have invested more than $1 billion for improvements of local rail lines for this purpose. As the Congress moves forward to define the role of intercity passenger rail in our nation's transportation framework, it needs realistic appraisals of the level, nature, and distribution of public benefits that can be expected to accrue. A public benefit cited to support the expansion of high-speed passenger rail service is its potential to help relieve congestion in air travel and on our nation's highways. Such service might have some impact on congestion if it were targeted to areas where roads are at or near their design capacity, for example. As more traffic uses these roads, travel time increases sharply and the delays are felt by all travelers. Expectations for the extent to which intercity passenger rail can reduce congestion must be realistic. For example, in 1995, we reported that each passenger train along the busy Los Angeles-San Diego corridor kept about 129 cars off the highway (about 2,240 cars each day)--a small number relative to the total volume. Intercity passenger rail cannot be expected to ease congestion at airports when long distance travel is involved because rail travel is not time- competitive with air travel. For example, the scheduled travel time for the approximately 700-mile distance between Washington, D.C., and Chicago is about 2 hours for air and about 18 hours for conventional Amtrak passenger trains. High-speed rail proponents believe that one potential for high-speed rail is to replace shorter intercity air service, thus freeing up airport capacity for longer-distance travel. High-speed rail may work best for relatively short trips (of several hundred miles or less) where it connects densely populated cities with substantial travel between the cities. Amtrak's Metroliner service, which travels up to 125 miles per hour between New York City and Washington, D.C., is an example. The Metroliner is one of only two Amtrak routes that made an operating profit in 2000. Notably, the Federal Railroad Administration is supporting the development of high-speed rail corridors that are competitive in travel time with air and highway travel. Another advantage cited for intercity passenger rail is that it is energy- efficient, thus improving air quality. For example, the Congressional Research Service reported that Amtrak is much more energy-efficient than air travel. However, it also found that Amtrak is much less energy- efficient than intercity bus transportation and about equal in energy efficiency as automobiles for trips longer than 75 miles. Our 1995 analysis of the Los Angeles-San Diego corridor found that the increase in emissions from added automobiles, intercity buses, and aircraft would be very small if existing diesel-powered trains were discontinued. Another cited advantage is that an investment in intercity passenger rail can do more to increase transportation capacity than a similar expenditure in another mode. For example, Amtrak recently suggested that a dollar invested in intercity rail can increase capacity 5 to 10 times more than a dollar invested in new highways, depending on location. However, a 1999 study of the costs of providing high-speed rail, highway, and air service in a particular corridor reached different conclusions. This study found that the investment costs (per passenger-kilometer traveled) of providing highway and high-speed rail service between San Francisco and Los Angeles were about the same, but both were substantially higher than the cost of providing air service for the same route. When considering increasing transportation capacity, federal, state, and other decisionmakers will need to understand the extent to which travelers are using existing capacity and are likely to use the increased capacity in various modes. If new capacity is underutilized (e.g., because it is not cost competitive or convenient), then the expected benefit will not be fully realized. Another benefit ascribed to expanding intercity passenger rail is increasing travel choices--as an alternative to air, automobile, or bus travel. For example, the Federal Railroad Administration estimates that the development of the designated high-speed rail corridors could ultimately give about 150 million Americans (representing slightly over half of the nation's current population) access to one of these rail networks. Yet travel choice entails more than physical access. To offer travel choice, rail must be competitive with other travel modes: it must take travelers where they want to go; be available at convenient times of the day; be competitive in terms of price and travel time; and meet travelers' expectations for safety, reliability, and comfort. For example, travelers may view a rail system more favorably if it offers multiple trips-- rather than one or two round trips--each day and if it arrives and departs at convenient hours. The Congress is facing critical decisions about the future of Amtrak and intercity passenger rail because operating a national intercity passenger rail system as currently structured without substantial federal operating support is very unlikely. Thus, the goal of a national system much like Amtrak's current system and the goal of operational self-sufficiency appear to be incompatible. In fact, Amtrak was created because other railroads were unable to profitably provide passenger service. In addition, Amtrak needs more capital funding than has been historically provided in order to operate a safe, reliable system that can attract and retain customers. Developing high-speed rail systems is also costly, requiring additional tens of billions of dollars. If intercity passenger rail is to have a future in the nation's transportation system, the Congress needs to be provided with realistic assessments of the expected public benefits and resulting costs of these investments as compared with investments in other modes of transportation. Such analyses would provide sound bases for congressional action in defining the national goals that will be pursued, the extent that Amtrak and other intercity passenger rail systems can contribute to meeting these goals, state and federal roles, and whether federal and state funds would likely be available to sustain such systems over the long term. Mr. Chairman, this concludes our testimony. We would be pleased to answer any questions you or Members of the Subcommittee might have.	Congress faces critical decisions about the future of the National Railroad Passenger Corporation (Amtrak) and intercity passenger rail. In GAO's view, the goal of a national system, much like Amtrak's current system, and the goal of operational self-sufficiency appear to be incompatible. In fact, Amtrak was created because other railroads were unable to profitably provide passenger service. In addition, Amtrak needs more capital funding than has been historically provided in order to operate a safe, reliable system that can attract and retain customers. Developing a high-speed rail system is also costly, requiring additional tens of billions of dollars. If intercity passenger rail is to have a future in the nation's transportation system, Congress needs realistic assessments of the expected public benefits and the resulting costs of these investments as compared with investments in other modes of transportation. Such analyses would provide sound bases for congressional action in defining the national goals that will be pursued, the extent that Amtrak and other intercity passenger rail systems can contribute to meeting these goals, and whether federal and state money would be available to sustain such systems over the long term.	3,116	254
We reported that even though DCPS changed parts of its enrollment process in school year 1996-97 to address prior criticisms, the process remained flawed. Some of the changes, such as the use of an enrollment card to verify attendance, increased complexity and work effort but did little to improve the count's credibility. Because DCPS counts enrollment by counting enrollment records--not actual students--accurate records are critical for an accurate count. Errors, including multiple enrollment records for a single student, remained in SIS, but DCPS had only limited mechanisms for correcting these errors. For example, although Management Information Services personnel maintained SIS, they had no authority to correct errors. In addition, DCPS' enrollment procedures allowed multiple records to be entered into SIS for a single student, and its student transfer process may have allowed a single student to be enrolled in at least two schools simultaneously. Furthermore, DCPS' practice of allowing principals to enroll unlimited out-of-boundary students increased the possibility of multiple enrollment records for one student. Nevertheless, DCPS did not routinely check for duplicate records. In addition, DCPS' official enrollment count included categories of students usually excluded from enrollment counts in other districts when the counts are used for funding purposes. For example, DCPS included in its enrollment count students identified as tuition-paying nonresidents of the District of Columbia and students above and below the mandatory age for public education in the District of Columbia, including Head Start participants, prekindergarten students (age 4), preschool students (age 0 to 3), and some senior high and special education students aged 20 and older. In contrast, the three states that we visited reported that they exclude from enrollment counts used for funding purposes any student who is above or below mandatory school age or who is fully funded from other sources. Furthermore, even though the District of Columbia Auditor has suggested that students unable to document their residency be excluded from the official enrollment count, whether they pay tuition or not, DCPS included these students in its enrollment count for school year 1996-97. During school year 1996-97, District of Columbia schools had some attractive features. Elementary schools in the District had free all-day prekindergarten and kindergarten, and some elementary schools had before- and after-school programs at low cost. For example, one school we visited had before- and after-school care for $25 per week. This program extended the school day's hours to accommodate working parents--the program began at 7 a.m. and ended at 6 p.m. In addition, several high schools had highly regarded academic and artistic programs; and some high schools had athletic programs that reportedly attracted scouts from highly rated colleges. Furthermore, students could participate in competitive athletic programs until age 19 in the District, compared with age 18 in some nearby jurisdictions. Problems persisted, however, in the critical area of residency verification. In school year 1996-97, schools did not always verify student residency as required by DCPS' own procedures. Proofs of residency, when actually obtained, often fell short of DCPS' standards. Moreover, central office staff did not consistently track failures to verify residency. Finally, school staff and parents rarely suffered sanctions for failure to comply with the residency verification requirements. In addition, the pupil accounting system failed to adequately track students. SIS allowed more than one school to count a single student when the student transferred from one school to another. Furthermore, schools did not always follow attendance rules, and SIS lacked the capability to track implementation of the rules. Finally, some attendance rules, if implemented, could have allowed counting of nonattending students. Other school districts report that they use several approaches to control errors, such as the ones we identified, and to improve the accuracy of their enrollment counts. These include using centralized enrollment and pupil accounting centers and a variety of automated SIS edits and procedures designed to prevent or disallow pupil accounting errors before they occur. the enrollment count. The Authority decided, however, that the inadequacies that led to the restructuring of the public school system would make auditing the school year 1996-97 count counterproductive. In short, the Reform Act's audit requirement was not met. Because the enrollment count will become the basis for funding DCPS and is even now an important factor in developing DCPS' budget and allocating its resources, we recommended in our report that the Congress consider directing DCPS to report separately in its annual reporting of the enrollment count those students fully funded from other sources, such as Head Start participants and tuition-paying nonresidents; above and below the mandatory age for compulsory public education, such as those in prekindergarten or those aged 20 and above; and for whom District residency cannot be confirmed. We also recommended that the DCPS Chief Executive Officer/ Superintendent do the following: Clarify, document, and enforce the responsibilities and sanctions for employees involved in the enrollment count process. Clarity, document, and enforce the residency verification requirements for students and their parents. Institute internal controls in the student information database, including database management practices and automatic procedures and edits to control database errors. Comply with the reporting requirement of the District of Columbia School Reform Act of 1995. We further recommended that the District of Columbia Financial Responsibility and Management Assistance Authority comply with the auditing requirements of the District of Columbia School Reform Act of 1995. checks and balances, no aggressive central monitoring, and few routine reports were in place. In addition, he said that virtually no administrative sanctions were applied, indicating that the submitted reports were hardly reviewed. The Authority shared DCPS' view that many findings and recommendations in our report will help to correct what it characterized as a flawed student enrollment count process. Its comments did, however, express concerns about certain aspects of our report. The Authority was concerned that we did not discuss the effects of the Authority's overhaul of DCPS in November 1996. It also commented that our report did not note that the flawed student count was one of the issues prompting the Authority to change the governance structure and management of DCPS. In the report, we explained that we did not review the Authority's overhaul of DCPS or the events and concerns leading to the overhaul. DCPS has made some changes in response to our recommendations. For example, it dropped the enrollment card. DCPS now relies upon other, more readily collected information, such as a child's grades or work, as proof that a child has been attending. DCPS has also strengthened some mechanisms for correcting SIS errors, such as multiple enrollment records for a single student. Staff reported that central office staff now conduct monthly duplicate record checks. These staff then work with the schools to resolve errors. In addition, central office staff now have the authority to correct SIS errors directly. Schools are also now required to prepare monthly enrollment reports, signed by the principal, throughout the school year. Central office staff review and track these reports. In addition, SIS can now track consecutive days of absence for students, which helps track the implementation of attendance rules. Finally, all principals are now required to enter into SIS the residency status of all continuing as well as new DCPS students. DCPS officials believe SIS' residency verification status field also serves as a safeguard against including both duplicate records and inactive students in the enrollment count. who live outside school attendance boundaries. School data entry staff may still manually override SIS safeguards against creating multiple records. In addition, SIS still lacks adequate safeguards to ensure that it accurately tracks students when they transfer from one school to another. SIS' new residency verification status field will not prevent the creation or maintenance of duplicate records. For example, a student might enroll in one school, filling out all necessary forms required by that school, including the residency verification form, and decide a few days later to switch to another school. Rather than officially transferring, the student might simply go to this second school and re-register, submitting another residency verification form as part of the routine registration paperwork. If the second school's data entry staff choose to manually override SIS safeguards, duplicate records could be created. Even if a student did not submit a residency verification form at the second school, the data entry staff could simply code the SIS residency field to show that no form had been returned, creating duplicate records. Regarding the critical area of residency verification, all principals must now issue and collect from all students a completed and signed residency verification form (as well as enter residency verification status information into SIS as discussed). Principals are also encouraged to obtain proofs of residency and attach these to the forms. DCPS considers the form alone, however, the only required proof of residency for the 1997-98 count. The school district encouraged but not did not require such supporting proofs to accompany this form. A signed form without proofs of residency is insufficient to prove residency in our opinion. Such proofs are necessary to establish that residency requirements have been met. Until DCPS students are required to provide substantial proofs of residency, doubts about this issue will remain. of residency.) Furthermore, DCPS staff told us that the school district has not yet monitored and audited the schools' residency records but plans to do so shortly. DCPS has proposed modifications to the Board of Education's rules governing residency to strengthen these rules. The proposed modifications would strengthen the residency rules in several ways by stating that at least three proofs of residency "must" be submitted, rather than "may be" submitted, as current rules state; specifying and limiting documents acceptable as proofs; eliminating membership in a church or other local organization operating in the District of Columbia as an acceptable proof; and strengthening penalties for students who do not comply. DCPS staff told us that these proposed changes are now under consideration by the Authority. Regarding our recommendation that the Congress consider directing DCPS to report separately the enrollment counts of certain groups of students, the Congress has not yet required that DCPS do this. DCPS continues to include these groups in its enrollment count. For school year 1997-98, DCPS reports an official count of 77,111 students. This number includes 5,156 preschool and prekindergarten students who are below mandatory school age in the District of Columbia. Some of these students are Head Start participants and are paid for by Head Start; nevertheless, DCPS counts Head Start participants as part of its elementary school population. The count also includes 18 tuition-paying nonresident students attending DCPS. In addition, DCPS staff told us that although the count excludes adult education students, they did not know whether it includes other students above the mandatory school age. Finally, as noted earlier, the count includes students who have not completed residency verification. In addition to talking to DCPS staff, we talked to staff at the Authority about whether the Authority has provided for an independent audit of the 1997-98 enrollment count. Staff said that the Authority is in the process of providing for an audit but has not yet awarded a contract. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions 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.	Pursuant to a congressional request, GAO discussed its recent report on the enrollment count process that District of Columbia Public Schools (DCPS) used in school year 1996-97. GAO noted that: (1) in spite of some changes in DCPS' enrollment count process in response to criticisms, the 1996-97 count process remained flawed in several respects; (2) for example, the Student Information System (SIS) continued to have errors, such as multiple enrollment records for a single student and weaknesses in the system's ability to track students; (3) in addition, verification of student residency remained problematic; (4) although DCPS made some changes in its enrollment count process for the 1997-98 school year in response to GAO's recommendations and plans to make more, the larger systemic issues appear to remain mostly uncorrected; (5) consequently, fundamental weaknesses still remain in the enrollment count process, making it vulnerable to inaccuracy and weakening its credibility; (6) for example, DCPS staff report that although an important internal control--duplicate record checks--has been implemented for SIS, additional internal controls are still lacking; (7) several DCPS enrollment and pupil accounting procedures continue to increase the possibility of multiple enrollment records for a single student; (8) GAO is concerned that duplicate record checks alone may not be sufficient to protect the integrity of SIS, given the many possiblities for error; (9) furthermore, the enrollment count may still include nonresident students; (10) more than half of DCPS' students have either failed to provide the residency verification forms or have provided no proofs of residency to accompany their forms; (11) GAO questions the appropriateness of including students who have failed to prove residency in the official count, particularly students who have not even provided the basic form; (12) in addition, because DCPS has not yet monitored and audited residency verification at the school level, additional problems may exist that are not yet apparent; (13) proposed new rules governing residency will help DCPS deal with residency issues; (14) until these issues are fully addressed and resolved, however, the accuracy and credibility of the enrollment count will remain questionable; (15) in GAO's more recent discussions with DCPS officials, they acknowledge that more needs to be done to improve the enrollment count process, particularly in the areas of further strengthening DCPS' automated internal controls and addressing the nonresident issue; and (16) they have expressed concern, however, that GAO has failed to recognize fully the improvements DCPS made in the enrollment count process for school year 1997-98.	2,594	546
A U.S. passport is not only a travel document but also an official verification of the bearer's origin, identity, and nationality. Each day, Americans submit them as identification to board international flights, obtain drivers' licenses, cross the border from the United States into Canada and Mexico, apply for loans, and verify their employability. To acquire a U.S. passport for the first time, an applicant must provide evidence of citizenship, or non-citizen nationality, such as a certificate of birth in the United States or a naturalization certificate, and a valid government-issued identification document that includes a photograph or physical description of the holder (most commonly a state-issued driver's license or identity card). Most passport applications are submitted by mail or in-person at one of almost 9,400 passport application acceptance facilities nationwide. The passport acceptance agents at these facilities are responsible for, among other things, verifying whether an applicant's identification document matches the applicant. Then, through adjudication, passport examiners determine whether State should issue each applicant a passport. Adjudication requires the examiner to scrutinize identification and citizenship documents presented by applicants to verify their identity and U.S. citizenship or non-citizen nationality. Since 2005, we have issued several reports on fraud vulnerabilities within the passport issuance process and the subsequent actions taken by State to prevent individuals from fraudulently securing passports. For example, we reported that identity theft was among the most common means used to commit passport fraud. In March 2009, we reported that our covert testing of State's passport issuance process demonstrated how malicious individuals might use identity theft to obtain genuine U.S. passports. Through our work, we have identified two major areas of vulnerability in State's passport issuance process. Passport acceptance agents and passport examiners have accepted counterfeit or fraudulently acquired genuine documents as proof of identification and citizenship. We reported in March 2009 that State issued four genuine U.S. passports to GAO investigators, even though the applications that we submitted contained bogus information and were supported by counterfeit drivers' licenses and birth certificates. The sheer variety of documents that are eligible to prove citizenship and identity also complicate State's verification efforts. State's limited access to information from other federal and state agencies hampers its ability to ensure that supporting documents belong to the bearer. In 2005 we reported that the information State used from SSA to corroborate SSNs was limited and outdated. Although State and SSA had signed a memorandum in April 2004 giving State access to SSA's main database, the memorandum had not been implemented. Moreover, the memorandum did not include access to SSA's death records, though State officials said they were exploring the possibility of obtaining these records. Yet, in one case from our covert testing in 2009, we obtained a U.S. passport using the SSN of a man who died in 1965. In response to our prior findings, State officials said that the lack of an automated check against SSA death records was a long-standing vulnerability, but noted that Passport Services had recently purchased a subscription to the Death Master File, which included weekly updates of deaths recorded by SSA. State also indicated that federal agencies limit its access to records due to privacy concerns and the fact that State is not a law enforcement agency. For example, it could not conduct real-time authentication of the birth certificates presented by passport applicants. The agency added that these documents present an exceptional challenge to fraud detection efforts, due to the thousands of different acceptable formats that the documents can be presented in. It further indicated that there are also difficulties with verifying the authenticity of drivers' licenses. State's passport issuance process continues to be vulnerable to fraud, as the agency issued five of the seven passports GAO attempted to fraudulently obtain. Despite multiple indicators of fraud and identity theft in each application, State identified only two as fraudulent during its adjudication process and mailed five genuine U.S. passports to undercover GAO mailboxes. GAO successfully obtained three of these passports, but State had two others recovered from the mail before they were delivered. According to State officials, the agency discovered--after its adjudication process--that the two passports were part of GAO testing when they were linked to one of the passport applications it initially denied. State officials told us that they used facial recognition technology --which it could have also used during the adjudication process--to identify our two remaining applications. According to State, one of our applications was denied in April 2010 during processing at the National Processing Center in New Hampshire by an examiner who was suspicious that the application in totality was likely an "imposter." The examiner sent the file to a fraud manager in Florida who subsequently determined that the Florida birth certificate was counterfeit. State detected the second fraudulent application after the SSN used was flagged as recently issued by SSA. This application was then sent to the same fraud manager in Florida who processed the first application, since they both contained Florida birth certificates. State officials indicated that they then uncovered GAO's undercover tests by crosschecking the fraudulent Florida birth certificate with the state's Bureau of Vital Statistics. After State discovered our undercover test, the agency used methods and resources not typically utilized to detect fraud during the normal passport adjudication process to identify our remaining tests. For example, according to State officials, they subsequently identified the two remaining GAO applications by using facial recognition technology to search for the photos of the applicants, who were our undercover investigators. State could have used the very same technology to detect fraud in the three applications for passports that we received, because all three passports contained the photo of the same GAO investigator. One of the passports that were recovered after issuance also included the photo of the same investigator. Our most recent tests show that State does not consistently use data verification and counterfeit detection techniques in its passport issuance process. Of the five passports issued, State failed to crosscheck the bogus citizenship and identity documents in the applications against the same databases that it later used to detect our other fraudulent applications. In addition, despite using facial recognition technology to identify the photos of our undercover investigators and to stop the subsequent delivery of two passports, State did not use the technology to detect fraud in the three applications for passports that we received, which all contained a passport photo of the same investigator. Table 1 and the text that follows provide more detail about each of our tests. State issued a genuine passport even though the application contained multiple indicators that should have raised suspicion of fraud, either independently or in aggregate. First, this application included both a counterfeit Florida birth certificate and West Virginia driver's license, both using the same fictitious name that was on the application. If State had confirmed the legitimacy of these documents, it would have easily discovered that they were bogus and thus, not representative of the true identity of the bearer. Second, we utilized an SSN that was recently issued to us by the SSA. If State had authenticated the SSN, it would have detected the fact that its issue date did not closely coincide with the date of birth and age of the U.S. citizen represented in the application. Specifically, the applicant listed was a 62-year-old man born in 1948 while the SSN was issued by SSA in 2009. Finally, State did not question discrepancies between our addresses which included a permanent home address located in West Virginia and a mailing address in Seattle, Washington. According to State, these were fraud indicators that should have been questioned prior to the issuance of the passport. State denied this passport after identifying certain discrepancies and indicators of identity theft and fraud that we included in the application. According to State, this fraudulent application was first detected when the applicant's identity information did not match SSA's records. The application was then submitted to an examiner, who determined that our Florida birth certificate was fraudulent after checking it against Florida Bureau of Vital Statistics records. State also identified physical properties of the document that were inconsistent with an original. In addition, State checked our bogus West Virginia driver's license against the National Law Enforcement Telecommunications System (NLETS), which showed that the license did not belong to the bearer. State issued a genuine passport even though the application contained multiple indicators and discrepancies that should have raised red flags for identity theft and fraud. Our investigator went to the U.S. Department of State Passport Office in Washington, D.C., which provides expedited passport services to applicants scheduled to travel out of the country within 14 days from the date of application. The State employee made a line-by-line examination of the application to make sure that the information coincided with what was provided to him, on the bogus Florida birth certificate and District of Columbia driver's license. Both documents contained the same fictitious name that was used on the application. However, if State had crosschecked the information from these two bogus documents against the same records that it did in the previous case, it could have discovered that neither were representative of the bearer. Further, if State officials had checked the SSN in the application, State would have concluded that it was recently issued and did not coincide with the date of birth represented in the application. In addition, our application indicated that our applicant's height was 5' 10" while his bogus driver's license showed a height of 6'. According to State, these were fraud indicators that should have been questioned prior to the issuance of the passport. The following day, our investigator returned to the same location and was issued a genuine U.S. passport. State again issued a genuine passport even though the application contained multiple indicators and discrepancies that should have raised red flags for identity theft and fraud. This application also included a counterfeit Florida birth certificate and West Virginia driver's license, both in the same fictitious name that was used on the application. If State had adequately corroborated the information from these two bogus documents against the same records that it did in case number two, it could have discovered that the documents were counterfeit and not representative of the bearer. In addition, if State had adequately verified the SSN in the application, it would have found that the recent issue date did not coincide with the age or date of birth represented in the application. State also did not identify about a 10 year age difference between the applicant's passport photo and the photo in his driver's license. Finally, the application included suspicious addresses and contact information--a California mailing address, a permanent and driver's license address from West Virginia and telephone number from the District of Columbia. According to State, these were fraud indicators that should have been questioned prior to the issuance of the passport. State identified the fraud indicators and discrepancies that we included in this test and did not issue a passport. In addition, the agency identified this application as a GAO undercover test. First, State identified a major discrepancy with the SSN in our application. When our investigator spoke with a State employee about the status of his application, he was told that the birth year in his application did not match SSA records. In our investigator's fabricated explanation, he explained that he was recently a victim of identity theft and had a new SSN issued. Second, the agency determined that our Florida birth certificate was fraudulent after its check against Florida Bureau of Vital Statistics records indicated that the document was counterfeit. State also identified physical properties of the document that were inconsistent with an original. Finally, State questioned why the application was filed in Illinois yet listed a mailing, permanent, and driver's license address from West Virginia. State issued a passport for this application even though it contained multiple indicators of fraud. However, after discovering our testing through our fifth application, it subjected this application to further review and recovered the passport from the USPS before it was delivered. Before the application was discovered as a part of a GAO test, State never identified any of the fraud indicators that we included in the application. Officials stated that facial recognition technology allowed them to discover that the photograph in this application was the same used in previous applications. State then checked our bogus West Virginia driver's license against NLETS, which showed that the license belonged to a person other than the bearer. State officials never questioned why the application was filed in Georgia yet listed a mailing, permanent, and driver's license address from West Virginia and phone number from the District of Columbia. State also failed to identify the misspelling of the city in our West Virginia license and discrepancies with the zip code information on our passport application. According to State, these were fraud indicators that should have been questioned prior to the issuance of the passport. As with our sixth test, State issued a passport for this application but prevented its delivery after using facial recognition technology to link the photo to one used in previous applications--again, after discovering our undercover testing. Only after discovering our testing did State check our bogus West Virginia driver's license against NLETS, which showed that the license belonged to a person other than the bearer. If State had checked this license prior to issuing a passport, it would have discovered discrepancies regarding information on the license including the misspelling of the city. Further, State never questioned why the application was filed in New York yet listed a Maryland mailing address and a permanent and driver's license address from West Virginia, prior to issuing the passport that it later revoked. According to State, these were fraud indicators that should have been questioned prior to the issuance of the passport. In conclusion, Mr. Chairman, the integrity of the U.S. passport is an essential component of State's efforts to help protect U.S. citizens from those who would harm the United States. Over the past several years, we have reported that State has failed to effectively address the vulnerabilities in the passport issuance process. Our recent tests show that there was improvement in State's adjudication process because State was able to identify 2 of our 7 passport applications as fraudulent and halted the issuance of those passports. However, our testing also confirmed that State continues to have significant vulnerabilities and systemic issues in its passport issuance process. We look forward to continuing to work with this Subcommittee and State to improve passport fraud prevention controls. Mr. Chairman and Members of the Subcommittee, this concludes my statement. I would be pleased to answer any questions that you may have at this time. For further information regarding this testimony, please contact Greg Kutz at (202) 512-6722 or [email protected]. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony are Andy O'Connell, Assistant Director; John Cooney, Assistant Director; Matthew Valenta, Assistant Director; Lerone Reid, Analyst-In- Charge; Jason Kelly; Robert Heilman; James Murphy; and Timothy Walker. 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.	A U.S. passport is one of the most sought after travel documents in the world, allowing its holder entrance into the United States and many other countries. People attempting to obtain a U.S. passport illegally often seek to use the guise of a U.S. citizen to conceal their involvement with more serious crimes, such as terrorism, drug trafficking, money laundering, or murder. In March 2009, GAO reported on weaknesses in State's passport issuance process that could allow a terrorist or criminal to fraudulently acquire a genuine U.S. passport. Specifically, GAO easily obtained four genuine passports from State using counterfeit documents. In April 2009, GAO suggested that State take 5 corrective actions based on these undercover tests and State acknowledged those corrective actions. GAO was asked to perform additional proactive testing of State's passport issuance process to determine if it continues to be vulnerable to fraud. To do this work, GAO applied for seven U.S. passports using counterfeit or fraudulently obtained documents, such as driver's licenses and birth certificates, to simulate scenarios based on identity theft. GAO created documents for seven fictitious or deceased individuals using off-the-shelf, commercially available hardware, software, and materials. Undercover investigators applied for passports at six U.S. Postal Service locations and one State-run passport office. State's passport issuance process continues to be vulnerable to fraud, as the agency issued five of the seven passports GAO attempted to fraudulently obtain. While there were multiple indicators of fraud and identity theft in each application, State identified only two as fraudulent during its adjudication process and mailed five genuine U.S. passports to undercover GAO mailboxes. GAO successfully obtained three of these passports, but State had the remaining two recovered from the mail before they were delivered. According to State officials, the agency discovered--after its adjudication process--that the two passports were part of GAO testing when they were linked to one of the passport applications it initially denied. State officials told GAO that they used facial recognition technology--which they could have also used during the adjudication process--to identify the two remaining applications. GAO's tests show that State does not consistently use data verification and counterfeit detection techniques in its passport issuance process. Of the five passports it issued, State did not recognize discrepancies and suspicious indicators within each application. Some examples include: passport photos of the same investigator on multiple applications; a 62 year-old applicant using a Social Security number issued in 2009; passport and driver's license photos showing about a 10 year age difference; and the use of a California mailing address, a West Virginia permanent address and driver's license address, and a Washington, D.C. phone number in the same application. These were fraud indicators that should have been identified and questioned by State. State also failed to crosscheck the bogus citizenship and identity documents in the applications against the same databases that it later used to detect GAO's other fraudulent applications. State used facial recognition technology to identify the photos of GAO undercover investigators and to stop the subsequent delivery of two passports but not to detect fraud in the three applications that GAO received, which all contained a passport photo of the same investigator.	3,342	722
DOD issued a directive signed by the Deputy Secretary of Defense that provides DOD's antiterrorism policy and assigns responsibilities to DOD organizations for implementing antiterrorism initiatives. This directive places responsibility for developing antiterrorism policy and guidance with the Office of the Assistant Secretary of Defense for Special Operations and Low-Intensity Conflict. In this capacity, the Assistant Secretary of Defense issued an instruction that established 31 antiterrorism standards that DOD organizations, including the services, are required to implement.8, These standards address antiterrorism planning, training requirements, physical security measures, and related issues. The office also issued a handbook containing additional detailed guidance on antiterrorism policies and practices, including guidance on assessment methodology. The Joint Staff has also issued an installation- planning template to help installations prepare their antiterrorism plans.Additionally, each of the services has issued regulations, orders and instructions to implement the DOD guidance and establish its own specific policies and standards. DOD and the services have recently revised some of these key guidance documents, and others are now under revision. DOD Instruction 2000.16, DOD Antiterrorism Standards, June 14, 2001. The services assign responsibility for protecting installations from terrorist attacks to installation commanders, who identify and prioritize antiterrorism requirements. Installation commanders are to compose a prioritized list of antiterrorism requirements from annual assessments of threat, vulnerability, and the criticality of assets, which they submit to their respective major commands. The major commands merge the antiterrorism requirements from all of their installations, prioritize them, and forward their integrated list to the service's headquarters. Similarly, the services merge and prioritize the antiterrorism requirements of their major commands, and the consolidated list is then used as a basis for funding decisions. The required assessments of threat, vulnerability, and criticality of assets form the foundation of each installation's antiterrorism plan and support a risk management approach to resource allocation. These three assessments are designed to assess (1) the threats to the installation, (2) the installation's vulnerabilities, and (3) the installation's critical assets. The threat assessment identifies and evaluates potential threats on the basis of such factors as the threats' capabilities, intentions, and past activities. This assessment represents a systematic approach to identify potential threats before they materialize. However, this assessment might not adequately capture some emerging threats, even in cases where the assessment is frequently updated. The risk management approach therefore uses vulnerability and asset criticality assessments as additional inputs to the risk management decision-making process. A vulnerability assessment identifies weaknesses that may be exploited by identified threats and suggests options that address those weaknesses. For example, a vulnerability assessment might reveal weaknesses in an installation's access control system, its antiterrorism awareness training, or how mission-critical assets such as fuel storage sites and communications centers are protected. Teams of multidisciplinary experts skilled in such areas as structural engineering, physical security, and installation preparedness conduct these assessments. A criticality assessment evaluates and prioritizes assets and functions to identify which assets and missions are relatively more important to protect from attack. For example, important communications facilities, utilities, or major weapons systems might be identified as critical to the execution of U.S. military war plans, and therefore receive additional protection. Criticality assessments provide information in order to prioritize resources while at the same time, reducing the potential application of resources on lower-priority assets. The critical elements of a results-oriented management framework are not being used by the services to guide their antiterrorism efforts. In results-based management, program effectiveness is measured in terms of outcomes or impact rather than outputs (i.e., activities and processes). Results-oriented principles and elements, which we have derived from the Government Performance and Results Act, are presented in table 1. Benefits from a results-based management approach depend upon the combined use of all eight of the critical elements that appear in the table. These elements, when combined with effective leadership can provide a management framework to guide major programs and activities. The critical elements of a results-oriented management framework were largely absent in the antiterrorism efforts of three services' headquarters and at six of the eight commands we examined. Specifically, the services have not published and disseminated unambiguous results-based, strategic and performance goals for their antiterrorism efforts. Some service antiterrorism officials did articulate broadly stated goals--such as protecting personnel and material assets against terrorist attack, and defeating terrorism--but these goals have not been endorsed and disseminated by service headquarters as servicewide goals nor have the services described how these goals will be achieved or how they intend to evaluate results in terms of the goals. The Air Force, however, has taken some steps toward a results-based management framework. For example, it has published long-term goals and established service-level working groups to evaluate the effectiveness of its antiterrorism program and identify the actions needed to address or revise any unmet goals. Although the Air Force has taken these positive steps, Air Force officials acknowledge that the elements may not have been effectively articulated servicewide so that installations can understand the "big picture" and how all elements fit together. In fact, officials we contacted from Air Combat Command and Air National Guard were not aware of the service-level goals or performance-planning elements. At the command level, a results-oriented management framework was largely absent in the antiterrorism efforts of six of the eight major commands we reviewed. For example, the Air Combat Command did not have overarching antiterrorism goals for its 15 bases, although command officials said that they planned to develop them. Also, the Army National Guard has not issued antiterrorism goals for its 3,900 armories and 211 installations and has no plan to do so. Two of the commands--the Army's Forces Command and the Navy's Atlantic Fleet--adopted aspects of a results-oriented framework, and officials said that they did so on their own initiative and without direction from their parent service. The Army Forces Command management framework contained most of the critical management elements, such as quarterly reviews, long-term and annual goals, clear performance measures, and identification of resource requirements. Army Forces Command officials said that the results-based management approach enables its senior officers to monitor the command's progress toward its short- and long-term goals and make necessary adjustments to the strategy and resource allocation to accomplish these goals. Forces Command officials attributed their management approach's success, in large part, to the involvement of senior command officials and their endorsement of this management approach. According to Army headquarters antiterrorism officials, the Forces Command management framework has been an effective approach and may be useful as a model for other major commands. The Navy's Atlantic Fleet Command also articulated long-term goals and strategies to accomplish its antiterrorism goals. For example, the fleet developed a plan of action to address security deficiencies that were identified through assessments by establishing a database to track deficiencies and identify trends. The fleet also linked resource requirements to accomplish these steps and developed metrics to measure results. According to the Atlantic Fleet officials we spoke with, however, these strategies are not currently being used by the fleet to shape its antiterrorism efforts because they are waiting for the Navy to issue servicewide antiterrorism goals. Atlantic Fleet officials stated they wanted to avoid having separate and different strategic plans for each command. The services and their major commands cite two primary reasons for not employing a results-based management framework to guide and implement their antiterrorism efforts. First, the services do not want to adopt goals and strategies that might prove inconsistent with DOD's forthcoming, Department-wide antiterrorism strategy. As discussed earlier, the Department was in the process of developing an antiterrorism strategy, but suspended its efforts after the attacks on the World Trade Center and the Pentagon because of the pressing needs of the war on terrorism. DOD officials have indicated that they have reinitiated their efforts to develop a strategy but have not set a target date for their completion. The second reason cited by service officials for not employing a results-oriented management framework was that strategic planning and performance planning called for by the Results Act applies to agencies and not to specific efforts such as antiterrorism. We agree that the services and major commands are not required by the Results Act to prepare strategic plans and performance plans specific to their antiterrorism efforts. Nonetheless, the Results Act offers a model for developing an effective management framework to improve the likelihood of successfully implementing initiatives and assessing results. Without a results-based management approach to prioritize, integrate, and evaluate their efforts, it will be difficult for the services and their major commands to systematically plan and implement antiterrorism programs or assess their progress in reducing the likelihood and impact of terrorist attacks. It is crucial that the services identify and support those efforts that are most likely to achieve long-term antiterrorism goals because funding is not sufficient to eliminate or mitigate all identified vulnerabilities. The services and commands we reviewed are generally following prescribed guidance and regulations to use the DOD risk management approach in developing their installation antiterrorism requirements, but a significant weakness exists with the oversight of this process. Specifically, the services are not required to evaluate the thoroughness of all installations' annual risk management assessments or whether installations used required methodologies to perform these assessments. As previously discussed, under DOD's antiterrorism approach, three assessments (threat, vulnerability, and criticality) provide the installation commanders with the information necessary to manage the risk of a terrorist attack, and develop an antiterrorism program for the installation. It also provides guidance for completing these assessments;and it requires the military Departments, through the services, to oversee the antiterrorism efforts at their installations. In their oversight role, the military Departments, through the services, are required to ensure that installation antiterrorism efforts adhere to the antiterrorism standards established by DOD. To implement DOD's required risk management approach, the services have issued supplements to DOD's guidance requiring installations to conduct the three risk management assessments and indicating how these assessments should be performed. The supplemental guidance of three of the services--the Army, Air Force, and the Marine Corps--requires service-specific methodologies to be used for the assessments. The commands, to which the services have delegated some oversight responsibility for installations' antiterrorism efforts, generally verified that installations completed annual threat, vulnerability, and asset criticality assessments. Command officials indicated that they verify whether installations' annual risk assessments have been completed in one of two ways: (1) through the request for and receipt of copies of the written assessments or (2) through verbal verification from the installation commanders. The Navy, however, does not require that annual vulnerability assessments be documented and does not verify that these assessments are completed. To provide oversight of the risk management process, DOD's antiterrorism standards require a higher headquarters review of subordinate installations' antiterrorism programs once every 3 years for installations that meet specific criteria. These reviews are conducted by teams of specialists skilled in various disciplines (such as engineering, intelligence, and security) from the Joint Staff, service headquarters, or major command. The reviews assess, among other things, an installation's antiterrorism plans, physical security, vulnerabilities and solutions for enhanced protection, and incident response measures. These reviews, however, do not routinely evaluate the methodology used to develop the annual installation assessments. Moreover, there is no requirement to review the antiterrorism programs of installations that do not meet DOD's criteria for higher headquarters assessments. Because the results of assessments form the foundation of installation antiterrorism plans, which drive servicewide requirements, it is critical that assessments be performed consistently across each service to ensure that assessment results are comparable. According to DOD officials, installations' risk assessments were not evaluated for two reasons. First, DOD does not specifically require the services and their commands to evaluate installation assessments. Second, several command officials indicated that evaluating assessment methodologies would provide little or no added value to the process. The Air Force and the Navy have initiatives under way that will place a greater emphasis and importance on the results of the installations' risk management efforts. Both services are using to varying degrees an automated risk management program that should improve visibility over installation assessments and the resulting antiterrorism requirements. This program--the Vulnerability Assessment Management Program--will enable service and command officials to track assessment results and prioritize corrective actions servicewide. The program will contain information about installations' antiterrorism requirements and the threat, vulnerability, and asset criticality assessments that support these requirements. It is also designed to allow service officials to conduct trend analyses, identify common vulnerabilities, and track corrective actions. Service officials stated that this program will also enable them to evaluate the risk assessment methodologies used at each installation, but it is unclear how this will be accomplished. If installations' risk assessments are not periodically evaluated to ensure that assessments are complete and that a consistent or compatible methodology has been applied, then commands have no assurance that their installations' antiterrorism requirements are comparable or based on the application of risk management principles. Consequently, when the services and commands consolidate their antiterrorism requirements (through the process of merging and reprioritizing the requirements of their multiple installations), the result may not accurately reflect the services' most pressing needs. For example, if a standard methodology is not consistently applied, then vulnerabilities may not be identified and critical facilities may be overlooked. Or in the case of the Navy, the lack of assessment documentation further limits the command's ability to perform its oversight responsibility. DOD has reported that $32.1 billion has been allocated or requested for combating terrorism activities from fiscal year 1999 through fiscal year 2003; however, these reported amounts may not present a clear picture of total combating terrorism costs. Each year, DOD is required to provide Congress with a report on the funds allocated to combat terrorism activities. DOD's reported annual combating terrorism allocations have risen from $4.5 billion in fiscal year 1999 to $10 billion in the fiscal year 2003 budget request. Significant uncertainty exists, however, regarding the accuracy of these reported amounts because over half are associated with personnel who may or may not be engaged in combating terrorism activities full-time. The National Defense Authorization Act for Fiscal Year 2000 requires DOD to provide Congress with an annual consolidated budget justification display that includes all of its combating terrorism activities and programs and the associated funding. In response, DOD has submitted a separate budget report for fiscal years 2001, 2002, and 2003 that portrays its allocation of funds within the four categories of combating terrorism: antiterrorism/force protection, counterterrorism, consequence management, and intelligence support. The most recent budget report, submitted to Congress in March 2002, includes the following: the combating terrorism program descriptions and budget request estimates for fiscal year 2003, the estimated budget for fiscal year 2002, and the actual obligations for fiscal year 2001. It also reflects the funding provided by the Defense Emergency Response Fund for fiscal years 2001 and 2002. If Congress passes the fiscal year 2003 budget request as submitted, annual funding to combat terrorism will increase 122 percent from fiscal year 1999 through fiscal year 2003--rising from $4.5 billion (actual obligations) to $10 billion (budget request), including the Defense Emergency Response Fund request for fiscal year 2003. (See fig. 1.) In total, DOD reports that $32.1 billion has been allocated for combating terrorism activities during this 5-year period. The dollar amounts shown in figure 1 do not include funding for the current global war on terrorism, such as military operations in Afghanistan, because these activities are not intended to be included. Although not clearly identified in DOD's budget reports, our analysis estimates that $19.4 billion (60 percent) of the $32.1 billion combating terrorism funding is for military ($14.1 billion) and civilian personnel and personnel-related operating costs ($5.3 billion); however, this estimate may be overstated. (See fig. 2.) In accordance with DOD's Financial Management Regulation, the Department's combating terrorism costs include funding for personnel in designated specialties that have combating terrorism missions, such as military police, civilian police, and security guards. The military services' accounting systems do not track the time that individuals in these specialties spend on activities related to combating terrorism; therefore, the total personnel costs are reported even if the individuals spend only a portion of their time performing combating terrorism activities. The actual proportion of time these personnel spend between combating terrorism and unrelated activities (such as counter drug investigations) varies, although all of these personnel are available to perform combating terrorism duties when needed. The $19.4 billion of estimated combating terrorism personnel costs shown in figure 2 consists of military personnel costs of $14.1 billion and estimated operation and maintenance civilian personnel costs of $5.3 billion. Other components of the total $32 billion shown include $4.3 billion from the Defense Emergency Response Fund and $8.4 billion in other appropriations, including procurement, research and development, and military construction. Officials in the Office of the Assistant Secretary of Defense for Special Operations and Low-Intensity Conflict recognize that improvements could be made in the budget report for next year and plan to consider ways to restructure its contents to include more summary information. Funding for antiterrorism requirements has increased since fiscal year 1999, but it is widely recognized that vulnerabilities at military installations will continue to outpace available funding. It is therefore essential that funds be spent efficiently and effectively if the services are to achieve the highest level of protection possible for military personnel, equipment, and critical facilities and operations. Our analysis indicates that the military services generally are not applying a results-oriented management framework to guide their antiterrorism efforts, in part, because DOD does not yet have a Department-wide antiterrorism strategy. Without a results- oriented management framework to implement antiterrorism efforts and monitor results, the services, military commanders, and Congress will not be able to determine if past and future resources--which have been significantly increased--are achieving their desired results in the most efficient and effective manner. The services and commands we reviewed are adhering to prescribed policies and procedures and taking significant steps to improve their capability to use a risk management approach. We identified a significant weakness in the services' current risk management approach, however, which limits their ability to ensure that these methodologies are consistently used. As a result, there is limited assurance that assessment results--which ultimately drive funding allocations--have been achieved through a consistent assessment process prescribed by DOD guidance. This creates the potential that limited resources could be misapplied and important opportunities to improve an installation's force protection posture could be overlooked. The Department's annual combating terrorism report to Congress provides a detailed description of DOD funds allocated for combating terrorism activities, but that report should be viewed with caution because over half of the reported amounts are estimates that do not reflect actual activities dedicated to combating terrorism. Consequently, as Congress considers DOD's budget requests and oversees DOD's combating terrorism activities, it may not have a clear picture of total costs incurred by DOD for this purpose. Because of the magnitude of the funds being allocated for, and the importance of antiterrorism efforts within, DOD, we recommend that simultaneous steps be taken within the Department to improve the management framework guiding these efforts. Accordingly, to establish a foundation for the services' antiterrorism efforts, we recommend that the Secretary of Defense (1) direct the Assistant Secretary of Defense for Special Operations and Low-Intensity Conflict to accelerate and set a target date to issue a Department-wide antiterrorism strategy that will underpin each service's efforts, and (2) work with each service to ensure that its management framework is consistent with this Department-wide strategy. To improve the effectiveness of the services' antiterrorism efforts, we recommend that the Secretary of Defense direct the Secretaries of the Army, Navy, and Air Force to adopt and effectively communicate a results-oriented management framework, consistent with DOD's overall antiterrorism strategy, to guide each service's antiterrorism efforts. This framework should include the following: approaches to achieve the goals, and key factors that might significantly affect achieving the goals. An implementation approach that provides performance goals that are objective, quantifiable, and measurable; resources to achieve the goals; performance indicators to measure outputs; an evaluation plan to compare program results with established goals; and actions needed to address any unmet goals. To improve their risk management approach for identifying antiterrorism requirements, we recommend that the Secretary of Defense direct the Secretaries of the Army, Navy, and Air Force to require installation commanders to document all threat, vulnerability, and asset criticality assessments and periodic higher headquarters evaluations of the methodologies used by installations to conduct their threat, vulnerability, and asset criticality assessments. Such an evaluation may be incorporated into the existing service-level review process; however, for those installations that are not covered by this process, the services should develop an alternative approach. To clarify the annual consolidated budget justification display for combating terrorism reported to Congress, we recommend that the Secretary of Defense highlight the military and civilian personnel funding included in the report and clearly indicate that these total personnel funds are reported even though the individuals may spend only a portion of their time performing combating terrorism activities. DOD agreed with all of our recommendations and stated that it is accelerating the development of an antiterrorism strategy and working with the military services to ensure that a consistent approach is followed across the Department. In commenting on this report, DOD said that it would publish an antiterrorism strategic plan by January 2003 that articulates strategic goals, objectives, and an approach to achieve them. Moreover, DOD will require each service to develop its own antiterrorism strategic plan that complements and supports the Department's plan. DOD also agreed to improve its risk management process for establishing antiterrorism requirements. In its comments, DOD said that it is revising guidance to validate the methodologies their installations use to perform threat, vulnerability, and asset criticality assessments and the thoroughness of these three assessments as part of regularly scheduled antiterrorism program reviews. DOD agreed with our recommendation to clarify how personnel costs that appear in the Department's annual combating terrorism funding report to Congress were calculated. In its fiscal year 2004 combating terrorism funding report to Congress, DOD plans to highlight the personnel costs and the methodology used to determine them. DOD officials also provided technical comments that we have incorporated as appropriate. DOD's written comments are reprinted in their entirety in appendix II. 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 interested congressional committees. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff has any questions about this report, please contact me at (202) 512-6020. Key contributors to this report are listed in appendix III. The scope of our study was limited to the antiterrorism preparedness of Department of Defense (DOD) installations in the continental United States. To perform our review, we contacted the antiterrorism offices for each of the four military services, as well as two commands within each service. We selected an active-duty command from each service that was responsible for a large number of installations and that had a key role in providing personnel and weapons systems for military operations. Additionally, we selected a reserve command from each service because they typically have smaller-sized installations than do active-duty commands; consequently, a large number of them do not receive service- level reviews of their antiterrorism efforts. To determine whether the services use a results-oriented management framework to guide their antiterrorism efforts, we met with Office of the Secretary of Defense and service headquarters and command antiterrorism officials, and reviewed their strategic-planning documents for evidence of the critical elements of a strategic plan and performance plan--as embodied in the Government Performance and Results Act of 1993. We also reviewed service- and command-specific documents, such as campaign plans, operating orders, and briefing slides, which describe and communicate the management structure of the services and commands antiterrorism programs. We interviewed officials and gathered relevant documentation for our review primarily from the following DOD organizations located in the Washington, D.C., area: Assistant Secretary of Defense for Special Operations and Low-Intensity Conflict. Headquarters, Department of the Army, Force Protection and Law Enforcement Division, Antiterrorism Branch. Headquarters, Department of the Navy, Interagency Support and Antiterrorism/ Force Protection Division. Headquarters, Department of the Air Force, Force Protection Branch, Directorate of Security Forces. Headquarters, U.S. Marine Corps, Homeland Defense Branch, Security Division. We also spoke with officials from the following commands, who provided data on the number of domestic installations within their respective commands. Army Forces Command, Atlanta, Georgia (number of installations = 11). Navy Atlantic Fleet, Norfolk, Virginia (number of installations = 18). Air Combat Command, Hampton, Virginia (number of installations = 16). Marine Forces Atlantic, Norfolk, Virginia (number of installations = 7). Army National Guard, Arlington, Virginia (number of installations = 165). Naval Reserve Force, New Orleans, Louisiana (number of installations = 116). Air National Guard, Arlington, Virginia (number of installations = 69). Marine Force Reserve, New Orleans, Louisiana (number of installations = 42). To determine the extent to which the military services use risk management analysis to develop antiterrorism requirements, we obtained relevant documents and interviewed antiterrorism officials from the organizations and commands previously listed as well as the following organizations: Joint Staff Directorate for Combating Terrorism Programs and Requirements, Washington, D.C. Air Force Security Forces Center, Lackland Air Force Base, San Antonio, Texas. We reviewed DOD as well as Joint Staff-, service-, and command-specific regulations, orders, pamphlets, manuals, and other antiterrorism guidance to determine whether organizations were required to perform the three assessments (of threat, vulnerability, and asset criticality) that comprise risk management to identify and prioritize antiterrorism requirements. We also reviewed these documents for procedures and directions on how these assessments are to be performed. We spoke with headquarters and command officials about their involvement in overseeing how installations identify antiterrorism requirements and about their process for merging, reprioritizing, and funding these installation requirements. Additionally, we spoke with Air Force and Navy headquarters officials as well as officials from the Air Force Security Forces Center about the utility of the Vulnerability Assessment Management Program for prioritizing and tracking installation antiterrorism requirements servicewide. To identify funding trends and determine if DOD accurately and completely reports its combating terrorism funding to Congress, we obtained and analyzed the three annual combating terrorism activities budget reports that cover fiscal years 1999 through 2003. We did not independently verify the information contained in the funding reports, although we did examine the methodology and assumptions that were used to develop the information. We discussed how the budget report is reviewed and consolidated with officials from the DOD Comptroller's Office, the Office for Special Operations and Low-Intensity Conflict, and the Program Analysis and Evaluation Directorate. To determine if the military services' funding information is accurate and complete, we interviewed budget officials responsible for compiling the information for each service. To estimate the combating terrorism personnel funding that appears in figure 2, we analyzed 5 fiscal years of funding from the previously mentioned combating terrorism budget reports. The $14.1 billion of military personnel presented in the figure represents appropriations for military personnel for combating terrorism. We estimated civilian personnel funding by combining the four antiterrorism activities that contain most of the operation and maintenance funds for personnel: physical security management and planning, security forces and technicians, law enforcement, and security and investigative matters. DOD's budget report does not distinguish civilian personnel funds from the other funds contained in these activities; therefore, our estimate of civilian personnel funds includes the nonpersonnel funds as well. However, we believe that the estimate is appropriate on the basis of our analysis of DOD's budget report and discussions with DOD officials. We could not determine the civilian personnel funds embedded in other operation and maintenance activities and in research and development activities and, therefore, did not include them in our estimate of personnel funding. We conducted our review from February through August 2002 in accordance with generally accepted government auditing standards. In addition to those named above, Alan Byroade, J. Paul Newton, Marc Schwartz, Corinna Wengryn, R. K. Wild, Susan Woodward, and Richard Yeh made key contributions to this report. Combating Terrorism: Department of State Programs to Combat Terrorism Abroad. GAO-02-1021. Washington, D.C.: September 6, 2002. Port Security: Nation Faces Formidable Challenges in Making New Initiatives Successful. GAO-02-993T. Washington, D.C.: August 5, 2002. Combating Terrorism: Preliminary Observations on Weaknesses in Force Protection for DOD Deployments Through Domestic Seaports. GAO-02-955TNI. Washington, D.C.: July 23, 2002. Combating Terrorism: Critical Components of a National Strategy to Enhance State and Local Preparedness. GAO-02-548T. Washington, D.C.: March 25, 2002. Combating Terrorism: Key Aspects of a National Strategy to Enhance State and Local Preparedness. GAO-02-473T. Washington, D.C.: March 1, 2002. Homeland Security: Challenges and Strategies in Addressing Short- and Long-Term National Needs. GAO-02-160T. Washington, D.C.: November 7, 2001. Homeland Security: A Risk Management Approach Can Guide Preparedness Efforts. GAO-02-208T. Washington, D.C.: October 31, 2001. Combating Terrorism: Considerations for Investing Resources in Chemical and Biological Preparedness. GAO-01-162T. Washington, D.C.: October 17, 2001. Homeland Security: Key Elements of a Risk Management Approach. GAO-02-150T. Washington, D.C.: October 12, 2001. Homeland Security: A Framework for Addressing the Nation's Issues. GAO-01-1158T. Washington, D.C.: September 21, 2001. Combating Terrorism: Selected Challenges and Related Recommendations. GAO-01-822. Washington, D.C.: September 20, 2001. Combating Terrorism: Actions Needed to Improve DOD's Antiterrorism Program Implementation and Management. GAO-01-909. Washington, D.C.: September 19, 2001. Combating Terrorism: Comments on Counterterrorism Leadership and National Strategy. GAO-01-556T. Washington, D.C.: March 27, 2001. Combating Terrorism: Linking Threats to Strategies and Resources. GAO/T-NSIAD-00-218. Washington, D.C.: July 26, 2000. Combating Terrorism: Action Taken but Considerable Risks Remain for Forces Overseas. GAO/NSIAD-00-181. Washington, D.C.: July 19, 2000). Chemical and Biological Defense: Program Planning and Evaluation Should Follow Results Act Framework. GAO/T-NSIAD-00-180. Washington, D.C.: May 24, 2000. Chemical and Biological Defense: Observations on Actions Taken to Protect Military Forces. GAO/T-NSIAD-00-49. Washington, D.C.: October 20, 1999. Critical Infrastructure Protection: Comprehensive Strategy Can Draw on Year 2000 Experiences. GAO/AIMD-00-1. Washington, D.C.: October 1, 1999. Combating Terrorism: Need for Comprehensive Threat and Risk Assessments of Chemical and Biological Attacks. GAO/NSIAD-99-163. Washington, D.C.: September 7, 1999. Combating Terrorism: Opportunities to Improve Domestic Preparedness Program Focus and Efficiency. GAO/NSIAD-99-3. Washington, D.C.: November 12, 1998. Combating Terrorism: Threat and Risk Assessments Can Help Prioritize and Target Program Investments. GAO/NSIAD-98-74. Washington, D.C.: April 9, 1998. Combating Terrorism: Efforts to Protect U.S. Forces in Turkey and the Middle East. GAO/T-NSIAD-98-44. Washington, D.C.: October 28, 1997. Combating Terrorism: Status of DOD Efforts to Protect Its Forces Overseas. GAO/NSIAD-97-207. Washington, D.C.: July 21, 1997.	After the September 11, 2001, terrorist attacks, domestic military installations increased their antiterrorism measures to their highest levels. These measures were reduced in the weeks following the attacks, but because of the persistent nature of the threat, the antiterrorism posture at domestic installations remains at a higher than normal level more than 1 year later. The Department of Defense's (DOD) budget request for fiscal year 2003 includes more than $10 billion for combating terrorism activities, which includes a substantial increase in funding for antiterrorism measures to safeguard personnel and strategic issues. The service headquarters GAO reviewed did not use a comprehensive results-oriented management framework to guide their antiterrorism efforts. According to service officials, a comprehensive results-oriented management framework for antiterrorism efforts is not consistently used across all services and commands because DOD does not require it, and service officials indicated that they were reluctant to develop such an approach before the forthcoming DOD-wide antiterrorism strategy was issued. Although the Department has recently restarted its efforts toward developing this strategy, it has not set a specific time frame for its completion. The services and commands are following prescribed guidance and regulations to conduct risk management analyses to support their antiterrorism requirements, but significant weaknesses exist with the current approach. The commands do not always require documentation of the assessments, and they do not periodically evaluate the assessment methodology used at each installation to determine the thoroughness of the analyses or the consistency with required assessment methodology. DOD has reported that $32.1 billion has been allocated or requested for combating terrorism activities from fiscal year 1999 through fiscal year 2003; however, these reported amounts may not present a clear picture of total combating terrorism costs. GAO's analysis indicates that $19.4 billion of this amount is for military and civilian personnel and personnel-related operating costs associated with individuals in designated specialties that have combating terrorism-related missions, such as military police, civilian police, and security guard.	7,037	398
During the past several years, service chiefs and commanders in chief (CINC) have expressed concerns about the effect on current and future readiness of (1) the level of current military operations, (2) contingency operations, (3) the shifting of funds to support these operations, and (4) personnel turbulence. Related to these concerns is a question about the ability of the Department of Defense's (DOD) readiness reporting system to provide a comprehensive assessment of overall readiness. DOD's current system for reporting readiness to the Joint Chiefs of Staff (JCS) is the Status of Resources and Training System (SORTS). This system measures the extent to which individual service units possess the required resources and are trained to undertake their wartime missions. SORTS was established to provide the current status of specific elements considered essential to readiness assessments, that is, personnel and equipment on hand, equipment condition, and the training of operating forces. SORTS' elements of measure, "C" ratings that range from C-1 (best) to C-4 (worst), are probably the most frequently cited indicator of readiness in the military. According to JCS and DOD officials, the definition and measures of readiness that are currently available in SORTS are no longer adequate in today's national security environment. Specifically, SORTS does not (1) address all the factors that JCS considers critical, (2) provide a warning of impending decreases in readiness, and (3) provide data on joint readiness. In addition, SORTS includes subjective assessments of training proficiency. Figure 1 shows those elements reported under SORTS and all the elements that JCS believes would make up a more comprehensive assessment. Information reported under SORTS is a snapshot in time and does not predict impending changes. Units report readiness monthly or, for some units, upon a change of status. These reports provide commanders and JCS with status information only for that point in time. Commanders have stated that in today's environment of force reductions and increasing commitments, there is a need for indicators that can predict readiness changes. Some elements of SORTS are not based on objective data. The C-rating for training, for example, is based on a commander's subjective assessment of the number of additional training days the unit needs to reach a C-1 status. This assessment may be based on any number of factors, including completion of required or scheduled training or personal observation. In the past, we have found that Army training assessments have not been reliable. For example, in 1991 we reported that training readiness assessments of active Army units may have been overstated. We reported that the information provided to higher commands and JCS was of limited value because the assessments (1) were based on training conducted primarily at home stations rather than on results of more realistic exercises conducted at combat training centers and (2) may not have adequately considered the effect that the loss of key personnel had on proficiency. Likewise, in our reviews pertaining to the Persian Gulf War, we noted that readiness reports for Army support forces and National Guard combat forces were often inflated or unreliable. For example, in a September 1991 report, we noted that when three Army National Guard combat brigades were mobilized for Operation Desert Shield, their commanders were reporting readiness at the C-2 and C-3 levels, which meant that no more than 40 days of post-mobilization training would be needed for the brigades to be fully combat ready. However, on the basis of their independent assessment of the brigades' proficiency, active Army officials responsible for the brigades' post-mobilization training developed training plans calling for over three times the number of days that the readiness reports stated were needed. Finally, SORTS does not provide data with which commanders can adequately assess joint readiness. There is no clear definition of areas of joint readiness that incorporates all essential elements, such as individual service unit readiness, the deployability of forces, or en route and theater infrastructure support. The need for joint readiness information was demonstrated by the Persian Gulf War and reaffirmed by contingency operations in Somalia and Bosnia. Officials at four joint commands told us that SORTS, the primary source of readiness data, was inadequate for assessing joint readiness. Although the Joint Staff recently developed its first list of joint mission tasks, it has not developed the training conditions for conducting joint exercises and criteria for evaluating them. It may be several years before JCS completes these efforts. Recognizing the limitations of SORTS and the need for more reliable readiness information, DOD and the services have initiated actions to improve readiness assessments. In June 1994 the Defense Science Board Readiness Task Force, which is composed of retired general officers, issued its report to the Secretary of Defense on how to maintain readiness. The Task Force identified major shortcomings in assessing joint readiness and noted that while the services have increased their commitment to joint and combined training since Operation Desert Storm, such training requires greater emphasis. The Task Force recommended improvements in the measurement of joint readiness, stating that "real readiness must be measured by a unit's ability to operate as part of a joint or combined task force." More recently, DOD created the Senior Readiness Oversight Council to evaluate and implement the recommendations of the Readiness Task Force and to develop new ways to measure combat readiness. The Council, whose membership includes high-level military and civilian officials, is focusing on three main ways to improve readiness: (1) developing better analytical tools for determining the relationship of resources to readiness and predicting the potential impact of budget cuts on readiness, (2) developing analytical tools for measuring joint readiness, and (3) taking advantage of computer simulation to improve readiness, especially joint readiness. The Army implemented its Readiness Management System in June 1993. This system allows the Army to project for 2 years the status of elements reported under SORTS. The system integrates the reported SORTS data with other databases that contain future resource acquisition and distribution information. The Army can, for example, compare a unit's reported equipment shortages with planned acquisition and distribution schedules, and the system can then forecast when those shortages will be alleviated and the unit's readiness posture improved. In September 1993, the Air Force began to develop a computer model, called ULTRA, to forecast readiness. ULTRA is intended to measure four major elements: (1) the ability to deploy the right forces in a timely manner to achieve national objectives; (2) the ability to sustain operations; (3) the personnel end strength, quality, and training of people; and (4) the availability of facilities. If successful, the system will allow the Air Force to estimate the effect that various levels of funding have on readiness. The project is still under development, and the Air Force estimates it will be about 2 years before the system will provide credible, widely accepted forecasts. To supplement data currently reported in SORTS and facilitate readiness assessments at the unit level, the military commands in all four services independently monitor literally hundreds of additional indicators. These indicators are generally not reported to higher command levels. Military commanders and outside defense experts agreed that many of the indicators are not only critical to a comprehensive readiness assessment at the unit level but also have some degree of predictive value regarding readiness changes within the services. We compiled a list of over 650 indicators that 28 active and reserve service commands were monitoring in addition to SORTS. To further refine these indicators, we asked the commands to rate the indicators in three areas: (1) the importance of the indicator for assessing readiness, (2) the degree of value the indicator has as a predictor of readiness change, and (3) the quality of the information the indicator provides. Table 1 shows the readiness indicators that service officials told us were either critical or important to a more comprehensive assessment of readiness and that also have some predictive value. The indicators that are shaded are those rated highest by at least one-half of the commands visited. We asked the Defense Science Board Task Force on Readiness to examine the indicators presented in table 1. Task Force members agreed with the commands' ratings and said that the indicators are an excellent beginning for developing a more comprehensive readiness measurement system. The Task Force suggested four additional indicators: (1) the use of simulators to improve individual and crew proficiency on weapon systems; (2) the quality of recruits enlisted by the services; (3) equipment readiness based on fully mission capable rates rather than on mission capable rates, which permit a weapon system to be reported as mission capable even though it cannot fully perform its mission; and (4) the extent to which readiness-related information in DOD is automated. In commenting on a draft of this report DOD pointed out that it is useful to know if a system having a multimission capability can perform parts of the mission, therefore, it believes that both fully mission capable and mission capable rates are useful indicators. Also, DOD said that the extent to which readiness-related information is automated is not an indicator of readiness but that it might be helpful in obtaining an understanding of automation requirements. We agree with DOD's position on these two issues. As table 1 shows, some indicators are supported more by commanders of one service than by the others. For example, information on commitments and deployments (Training, item 15) and deployed equipment (Logistics, item 17) were assessed as critical by Marine Corps commanders because of the manner in which its forces and equipment are deployed. They were not listed as critical by any of the commands from the other services. By examining a group or series of indicators, one may gain a broader insight than is possible from a single indicator. To illustrate, changes in the extent of borrowed manpower (Personnel, item 7) may be related to proficiency on weapon systems (Training, item 12) or crew turnover (Personnel, item 8). Also, table 1 identifies indicators that because of restricted training time and opportunities are especially critical to the reserve components. Several of the indicators that commanders rated as critical to readiness assessments relate to major readiness concerns recently expressed by service chiefs and CINCs. For example, while in the midst of downsizing, U.S. military forces are being called upon for operational contingencies--delivering humanitarian aid in Iraq, Bosnia, Rwanda, and Somalia and enforcing "no-fly" zones in Bosnia and Iraq, to name just a few. Unusually high operating tempos required for these contingencies have exacerbated the turbulence inherent in a major downsizing of U.S. forces. Several senior service leaders have raised concerns about the impact of this situation on morale, retention, and the ability to maintain readiness for traditional warfighting missions. Among the indicators suggested by some of the command officials we interviewed were personnel tempo, a measure of the frequency and number of personnel deployed on assigned missions, and crew turnover, a measure of personnel turnover within weapon system crews. Similarly, the services report that they were required to shift funds from operations and maintenance appropriations to support contingency operations, and, according to officials of each of the services, some scheduled training exercises were canceled and others were postponed. Several commanders suggested readiness indicators related to operating tempo, funding levels, and individual/unit proficiency. Related to the feature of predictive capability is the ability to conduct trend analyses based on the most important indicators. Assuming that relevant data is available, the services can identify trends in the additional indicators over time. However, no criteria are currently available to assess the meaning of a trend in terms of its impact on readiness. During our visits to the military commands, we noted an unevenness in the availability of historical data, depending on the indicator being monitored. Also, the commands reported that there is unevenness in the quality of the data available for measurement. While some indicators were rated high in importance, they were rated low in quality. We recommend that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness to develop a more comprehensive readiness measurement system to be used DOD-wide. We recommend that as part of this effort, the Under Secretary review the indicators we have identified as being critical to predicting readiness and select the specific indicators most relevant to a more comprehensive readiness assessment, develop criteria to evaluate the selected indicators and prescribe how often the indicators should be reported to supplement SORTS data, and ensure that comparable data is maintained by all services to allow the development of trends in the selected indicators. In written comments on a draft of our report, DOD generally agreed with our findings and recommendation (see app. I). The Department said that it plans to address the issue of using readiness indicators not only to monitor force readiness but also to predict force readiness. In response to our recommendation, DOD said that it is developing a specification for a readiness prediction system and that it has already used the indicators presented in our report as input to that process. DOD did not agree with our assessment of the overall value of SORTS information and the reliability of training ratings contained in SORTS. First, DOD said that it did not agree that SORTS information provided to higher commands and JCS is of limited value. We agree that SORTS provides valuable information on readiness. Nevertheless, the system does have several limitations. The matters discussed in the report are not intended as criticisms of SORTS but rather as examples of limitations that are inherent in the system. For example, C-ratings represent a valuable snapshot of readiness in time but by design they do not address long-term readiness or signal impending changes in the status of resources. Second, DOD said that it did not agree that SORTS may not adequately consider the effect that the loss of key personnel has on proficiency. DOD may have misinterpreted our position on this issue. Although SORTS recognizes the loss of key personnel, it does not always consider the impact of replacing key personnel with less experienced personnel. Lastly, DOD cited a number of factors that it believes make it infeasible to base training readiness on the results of combat training center exercises. This report does not propose that DOD take this course of action. Reference to the fact that training readiness is based primarily on training conducted at home stations rather than on results of more realistic exercises conducted at combat training centers is intended only to illustrate how the reliability of SORTS training information can be effected. To assess the adequacy of the current definition and indicators of readiness, we examined military service and JCS regulations, reviewed the literature, and interviewed officials from 39 DOD agencies, including active and reserve service commands, defense civilian agencies, unified commands, and the Joint Staff (see app. II). To identify indicators that are being monitored to supplement SORTS data, we asked the 39 agencies to identify all the indicators they use to assess readiness and operational effectiveness. After compiling and categorizing the indicators by type, that is, personnel, training, and logistics, we asked the commands to rate the indicators' significance, predictive value, and quality. Indicator significance was rated as either critical, important, or supplementary. The commands' opinions of predictive value were provided on a five-point scale ranging from little or none to very great. The quality of the indicator was rated on a three-point scale--low, medium, and high. We asked the Defense Science Board's Task Force on Readiness to (1) review and comment on the indicators that the commands rated the highest in terms of their importance and predictive value and (2) identify additional indicators that, in their judgment, were also critical to a comprehensive readiness assessment. We conducted our review from May 1993 to June 1994 in accordance with generally accepted government auditing standards. As agreed with your office, unless you publicly announce this report's contents earlier, we plan no further distribution until 30 days from its issue date. At that time, we will send copies to the Chairmen of the Senate and House Committees on Armed Services and on Appropriations; the Subcommittee on Military Readiness and Defense Infrastructure, Senate Armed Services Committee; and the Subcommittee on Readiness, House Armed Services Committee; and to the Secretaries of Defense, the Army, the Navy, and the Air Force. Copies will also be made available to others on request. Please contact me at (202) 512-5140 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix III. Secretary of the Army Washington, D.C. 4th Infantry Division (Mechanized) Fort Carson, Colorado 18th Airborne Corps Fort Bragg, North Carolina 24th Infantry Division Fort Stewart, Georgia Corps Support Command 18th Airborne Corps Fort Bragg, North Carolina Headquarters, Forces Command Fort McPherson, Georgia Headquarters, Training and Doctrine Command Fort Monroe, Virginia National Guard Bureau Washington, D.C. Secretary of the Navy Washington, D.C. Secretary of the Air Force Washington, D.C. 1st Tactical Fighter Wing Langley Air Force Base, Virginia 375th Air Wing Scott Air Force Base, Illinois Air Combat Command Langley Air Force Base, Virginia Air Force Reserve Washington, D.C. Office of the Inspector General Washington, D.C. Office of the Joint Chiefs of Staff Washington, D.C. Ray S. Carroll, Jr., Evaluator-in-Charge James E. Lewis, Evaluator (Data Analyst) James K. Mahaffey, Site Senior Robert C. Mandigo, Jr., Site Senior Jeffrey C. McDowell, Evaluator Jeffrey L. Overton, Jr., Site Senior Susan J. Schildkret, Evaluator Lester L. Ward, Site Senior 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. 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.	Pursuant to a congressional request, GAO reviewed the effect of declining defense budgets on military readiness, focusing on whether: (1) the definition and indicators of readiness adequately reflect the many complex components that contribute to overall military readiness; and (2) there are readiness indicators that can predict positive or negative changes in readiness. GAO found that: (1) the Department of Defense's (DOD) system for measuring readiness, the Status of Resources and Training System (SORTS), has limitations; (2) SORTS was never intended to provide a comprehensive assessment of overall military readiness; (3) SORTS only measures individual service readiness because there are no indicators available to measure joint readiness; (4) SORTS does not assess operating tempo or troop morale; (5) to supplement SORTS data and facilitate readiness assessments at the unit level, the military commands independently monitor additional indicators that are critical to a comprehensive readiness assessment at the unit level and have some degree of predictive value; and (6) DOD can improve its comprehensive readiness assessments by incorporating unit level indicators, but these indicators will require further refinement to improve their usefulness.	3,990	233
Various types of providers may perform chronic pain management procedures, and each provider type is subject to certain education, training, certification, and licensure requirements. The range of chronic pain management providers and their practice requirements include the following: Pain physicians. These physicians have completed a subspecialty fellowship training program in pain medicine recognized by ABMS.Following medical school and a residency program in a primary specialty, pain physician candidates must complete an accredited 1-year fellowship and pass an examination to receive board certification. Other physicians. Physicians--including those in specialty and primary care--without certification in pain medicine have comprehensive medical knowledge through their medical school, as well as residency training that can last from at least 3 to 7 years. Although board certification is optional, most physicians take an exam to become certified in a medical specialty. CRNAs. According to the AANA, registered nurses with a Bachelor of Science in Nursing and at least 1 year of experience in an acute setting can pursue certification in nurse anesthesia. Graduates of accredited schools of nurse anesthesia, which provide 24 to 36 months of training, must pass a national examination to receive their certification as CRNAs. Other nonphysician providers, such as NPs or PAs. To become NPs, registered nurses undertake advanced clinical training and complete a master's program--lasting 1 1/2 to 3 years--or a doctoral program. PAs typically undertake roughly 2 years of master's-level training. Both NPs and PAs must be nationally certified. Providers must be licensed by the states in which they practice and adhere to state requirements. Physician and PA licensure is administered by state boards of medicine, while nursing licensure is administered by state boards of nursing. Furthermore, all providers are governed by state laws. For example, NPs may or may not be allowed to practice independently or prescribe medications depending on the state in which they practice, and PAs are generally allowed to prescribe medications, but must practice under the supervision of a physician. These laws can take precedence over other location- or payer-specific policies, such as hospital-based privileging. Although CMS has not issued a national coverage determination (NCD) for chronic pain management, some MACs have established local coverage determinations (LCD) for chronic pain procedures. Typically, these LCDs do not address which types of providers may bill Medicare for the services, but rather stipulate certain coverage or billing rules. For example, for procedures that may be given to a beneficiary in a series, an LCD may limit payment to no more than three procedures within a year. LCDs also contain instructions for providers on how to bill Medicare using various CPT codes and modifiers. A given procedure may have several CPT codes that indicate where on the body the procedure takes place or whether additional levels of a procedure were performed. For instance, paravertebral facet joint injections would be billed using one CPT code to indicate a cervical or thoracic location, and another CPT code to indicate a lumbar or sacral location--as well as "add-on" codes to specify when injections occurred on multiple levels of the spine. CMS uses a physician fee schedule to determine the amounts paid to providers for each CPT code billed. Nonphysician providers of chronic pain procedures vary in the percentage of the physician fee schedule they receive. For example, while CRNAs are generally paid 100 percent of the amount a physician is paid for a given procedure under the physician fee schedule, NPs and PAs are generally paid 85 percent of the physician fee schedule. From 2009 through 2012, CRNAs billed Medicare FFS for a small share of our selected chronic pain procedures, while pain physicians and other physicians billed for the largest shares. Of the procedures billed by CRNAs, most were billed by CRNAs in rural areas until 2012. Overall, the various providers' shares of chronic pain procedures billed to Medicare did not change much over the study period. (See table 2.) The share billed by NPs, PAs, and CRNAs combined grew from 1.4 to 2.6 percent, with CRNA's billing for less than 1/2 of 1 percent of all chronic pain procedures in each year. Pain physicians billed for over 40 percent of the selected procedures over the 4-year period, while other physicians billed for over half of the selected services each year. From 2009 through 2012, the trends in shares of Medicare payments by provider type were largely parallel to the trends in their shares of procedures billed. (See table 2.) Combined, CRNAs, NPs and PAs, received less than 3 percent of all payments for these services throughout the period. The pattern of CRNA billing by type of chronic pain procedure shows that CRNAs consistently billed for less than 1 percent of the total. (See table 3.) CRNAs had their largest market share in epidural injections, where they accounted for 0.9 percent of providers' billings in 2009; this share dropped to 0.6 percent in 2012. CRNAs billed for even smaller shares of facet neurolytic destruction injections, autonomic nerve blocks, and trigger point injections. Over time, the mix of procedures that CRNAs billed to Medicare from 2009 through 2012 changed somewhat. (See fig.1.) Epidural injections represented the largest share--roughly two- thirds--of CRNA-billed procedures, but that share decreased to less than half over the period. The share of paravertebral facet joint injections doubled between 2011 and 2012. Autonomic nerve blocks, facet neurolytic destruction, and trigger point injections billed by CRNAs held relatively small but growing shares of CRNA billing. By state, the trend among CRNAs' billing for selected chronic pain procedures was largely stable over the 4-year period. (See app. III for state-by-state data.) CRNAs' share increased by more than 1 percentage point in 2 states, declined by more than 1 percentage point in 6 states, and remained largely unchanged in 42 states and the District of Columbia. States that experienced the most growth in CRNA market share were New Hampshire and Tennessee, increasing 4.4 and 2.5 percentage points, respectively. By 2012, the CRNA share of selected chronic pain procedures was highest in New Hampshire (5.5 percent), Iowa (4.3 percent), and Kansas (4.0 percent). In 43 states and the District of Columbia, the CRNA share remained under 1 percent. Although the number of selected chronic pain procedures billed by all rural providers increased somewhat from 2009 through 2012, the number of procedures billed by CRNAs in rural areas declined over the period. (See fig. 2.) Of all CRNA claims for selected procedures, the share submitted by providers in rural areas fell from 66 percent in 2009 to 39 percent in 2012; meanwhile, the share of selected procedures nationwide billed by all rural provider types was roughly 11 percent in both 2009 and in 2012. In rural markets, provider shares followed the national trends. (See fig. 3.) Of the chronic pain procedures billed by rural providers, CRNA claims were a small percentage. Physicians without board certification in pain medicine billed for the majority of claims from rural providers; however, this number declined over time, while pain physicians billed for an increasing share--almost a third of rural claims in 2012. In mid-2011, Noridian began denying certain chronic pain management services that were billed by CRNAs and maintained this policy through 2012. The denial policy, among other factors, had the potential to affect beneficiary utilization in the Noridian states where CRNAs billed for chronic pain management services. We compared all providers' billing of selected chronic pain procedures in 2010--the year prior to the denial policy--with that in 2012--the full year in which the denial policy was in place--in the Noridian states with the highest share of CRNAs previously billing for these procedures. In 2009, CRNAs billed for 8 percent of the selected procedures in Montana, 1.7 percent in Wyoming, and 1.4 percent in South Dakota. During that same year, CRNAs accounted for 19 percent of selected chronic pain procedures in rural areas of Montana, 4 percent in rural Wyoming, and less than 1 percent in rural South Dakota. The change in chronic procedures billed between 2010 and 2012 was minimal for the three states overall, but varied by state.providers in those states billed for 28,238 selected chronic pain procedures--of which CRNAs accounted for 2.6 percent--and they billed for 28,155 procedures in 2012 when Noridian denied CRNA claims for these procedures. By state, the number of procedures billed by South Dakota and Wyoming providers declined by 9.2 percent and 6.7 percent, respectively, while Montana provider claims grew by 14 percent over the 2-year period. (See fig. 4.) Nearly all MACs allowed Medicare payment to CRNAs for some, or all, selected chronic pain procedures. As of April 2013, six of the nine MACs had uniform payment policies for CRNA-provided chronic pain procedures across all states within a jurisdiction. The remaining three MACs varied their policies for one state within a jurisdiction. At the state level, MACs reported the following payment policies regarding chronic pain procedures (see fig. 6): allowed payment to CRNAs for all selected procedures in 19 states, allowed payment to CRNAs for a subset of selected procedures in 30 states and the District of Columbia, and denied payment to CRNAs for all selected procedures in the remaining state. In the 30 states and the District of Columbia where MACs allowed payment to CRNAs for only certain chronic pain procedures, MAC payment policies indicated substantial variation in the specific procedures that can and cannot be billed. MACs most commonly denied CRNA payment for trigger point injections and facet neurolytic destruction, allowing CRNA payment for these procedures in only two states. Conversely, MACs allowed CRNAs payment for somatic nerve blocks in 20 states and epidural injections in 16 states. Furthermore, because each procedure can have multiple CPT codes associated with it, MACs may choose to only allow CRNAs payment for some of the CPT codes associated with the procedure and not others. This was the case for epidural injections, transforaminal epidural injections, autonomic nerve blocks, and somatic nerve blocks. Figure 7 illustrates the variation in MAC payment policies for selected CRNA-provided chronic pain procedures in Florida, Nevada, and Pennsylvania. In contrast to their policies on chronic pain procedures, MACs were generally more restrictive regarding payment for CRNA-billed E/M services. As of April 2013, they reported the following payment policies for E/M services (see fig. 8): allowed payment to CRNAs for E/M services in 24 states, and denied payment to CRNAs for E/M services in 26 states and the District of Columbia. Payment policies for CRNA-provided chronic pain procedures did not always align with payment policies for E/M services. In the 19 states where MACs reported that they allowed payment to CRNAs for all chronic pain procedures, they also allowed payment to CRNAs for E/M services. However, among the 30 states for which MACs told us that they allowed payment to CRNAs for only certain procedures, MACs indicated that they allowed payment for E/M services in 5--California, Florida, Hawaii, Kentucky, and Nevada--while denying payment for E/M services in the remaining states and the District of Columbia. The MACs did not implement CMS's CRNA payment policy consistently; three MACs took steps to apply the policy in 2013, while the remaining six MACs did not. MACs pointed to a number of challenges, including vagueness in state scope of practice laws, that affected their ability to implement the policy. Three MACs took steps to implement CMS's 2013 rule on CRNA payment and updated their CRNA payment policies, when necessary. CMS officials told us that they rely on MACs to determine whether CRNAs are allowed to provide specific services by reviewing each state's CRNA scope of practice laws. Two MACs made an effort to determine which services CRNAs are allowed to perform under each state's scope of practice laws. One of the two MACs directly reviewed the laws of the states in its jurisdiction, while the other MAC contacted each state to ask for its interpretation of the laws. Instead of attempting to interpret state scope of practice laws, a third MAC posted a new educational article on its website notifying CRNAs that they are responsible for knowing which services are allowable under their state laws. The remaining six MACs did not take steps to revisit their CRNA payment policies for 2013. Three of the six MACs reviewed the scope of practice laws for a state in their jurisdictions prior to CMS's 2013 ruling at the request of the state or provider groups. For instance, one MAC stated that when it began its contract in 2009, the CRNA association for one of its states asked the MAC to consider allowing its CRNAs to be paid for chronic pain services, citing a long-standing history of providing these services. At that time, the MAC reviewed the state's CRNA scope of practice laws and determined that they did not preclude CRNAs from providing chronic pain services. It then extended this affirmative payment policy across all states within its jurisdiction without reviewing further state laws. When asked about its implementation of CMS's 2013 CRNA payment policy, this MAC told us that it had not revisited any state scope of practice laws. Two of the six MACs reported that they have overarching policies in place to determine coverage for all nonphysician provider types and, therefore, have not taken any steps to implement this latest CRNA payment policy. For example, one of these MACs noted that nonphysician providers must submit a request to the MAC to receive payment for a specific CPT code. The MAC will then review the relevant state scope of practice law and determine whether to allow payment for that code. The remaining MAC reported that it was waiting for further instructions from CMS before implementing the policy. MACs discussed a variety of challenges that affected their implementation of CMS's CRNA payment policy. Most MACs reported challenges interpreting state scope of practice laws to make determinations about which services CRNAs are allowed to provide, noting that state scope of practice laws are generally vague and lack details about which specific services CRNAs can perform. MACs that asked states to provide an interpretation of the scope of practice laws reported that the states generally were unable to provide definitive responses. For instance, one MAC that looked into a state's CRNA scope of practice in 2010 told us that the process to determine whether the state law allowed CRNAs to perform chronic pain services was convoluted; the MAC was directed back and forth between many state and federal officials and provider groups. Another MAC said that when a determination could not be made about a state's scope of practice, it defaulted to allowing payment for all services approved by the AANA. A few MACs discussed the difficulty of differentiating between acute and chronic pain services for payment purposes. Because CPT codes for services used to treat chronic pain are also used to bill for acute pain care in the peri-operative setting, one MAC told us that the only definitive way to determine whether the service was for chronic or acute pain is to review the medical record. However, some MACs explained that since chronic pain procedures are typically provided in an outpatient setting, they can rely on the place of service listed on the claim to make a best guess at whether the procedure was used to treat chronic pain. In addition, a few MACs noted that the frequency of the service can also be an indicator, with multiple injections billed for a patient by the same provider over a period of time indicating that the procedure was likely used to treat chronic pain. Two MACs assumed that Medicare's rule requiring physician supervision of anesthesia services provided by CRNAs in hospital and ASC settings applied to chronic pain services in all settings; this assumption has potential implications for CRNA billing of chronic pain services. Under this rule, CRNA-provided anesthesia services furnished in hospital and ASC settings must be performed under the direction of a physician unless a state's governor has opted out of this requirement. CMS guidance clarifies that this requirement applies to anesthesia services and not to analgesia services, which are defined to include services used to dull or alleviate pain without other effects, such as the loss of consciousness; the guidance does not expressly use the term "chronic pain management." These two MACs took the view that they would have needed to review CRNA scope of practice laws only in states that had opted-out of the supervision requirement, implying that they considered chronic pain management services to be anesthesia services. Regardless of the validity of this interpretation, the supervision rule only applies in hospital and ASC settings, not office settings. By applying this rule to office settings, these MACs may have unnecessarily restricted the services for which CRNAs in 10 of the states under these MACs' jurisdictions are allowed to bill. Use of state scope of practice laws to govern Medicare coverage of CRNA-provided chronic pain care continues to be an area of uncertainty and confusion for many MACs. Similarly, certain MACs have interpreted the CRNA supervision rule, as it relates to CRNA-provided chronic pain management services, in a way that may inappropriately limit CRNA billing for such services when furnished in office settings. As a result, MACs have not implemented CMS's 2013 payment rule in a consistent manner that ensures appropriate beneficiary coverage and provider payment. Although CRNAs do not bill for a significant share of the chronic pain procedures we reviewed, if a MAC improperly denies payment to CRNAs in a state that allows CRNAs to independently furnish such services, beneficiary access to these services may be unnecessarily affected. In order to ensure consistent implementation of CRNA payment policy, we recommend that the Administrator of CMS (1) provide specific instructions to MACs on how to determine coverage with reference to a state's scope of practice laws, including instructions on how to proceed if the state scope of practice laws are not explicit, and (2) clarify the applicability of the CRNA supervision rule to payment for CRNA-provided chronic pain management services. We provided a draft of this report to HHS for comment. In its written response, reproduced in appendix IV, HHS concurred with our two recommendations. Regarding our recommendation to provide specific instructions to MACs on how to determine coverage with reference to a state's scope of practice laws, HHS stated that CMS plans to send a letter directing all MACs to seek clarification from appropriate state officials or entities if state scope of practice laws are not explicit. Regarding our recommendation to clarify the applicability of the CRNA supervision rule to payment for CRNA-provided chronic pain management services, HHS stated that CMS will clarify that the supervision rule governs only anesthesia services furnished in hospitals or ASCs. HHS 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 of it until 30 days from its date. At that time, we will send copies to the Secretary of Health and Human Services. In addition, the report will be available at no charge on the GAO website 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 key contributions to this report are listed in appendix V. This appendix describes our methodology for analyzing recent trends in billing for selected chronic pain procedures, as well as changes in the number of procedures billed during the period of Noridian Healthcare Solutions (Noridian) denials. It also describes our efforts to ensure the reliability of the data. We focused our review on a set of seven categories of chronic pain procedures and corresponding current procedural terminology (CPT) codes. To select procedures, we obtained an American Association of Nurse Anesthetists (AANA) list of CPT codes that are billed by certified registered nurse anesthetists (CRNA). We categorized the CPT codes by procedure, in consultation with nurse and physician pain experts. We narrowed this list to procedures that were either reported by a Medicare Administrative Contractor (MAC) billing specialist as most likely to be used in treating chronic pain (as opposed to acute pain), or those commonly mentioned across payer resources--such as local coverage determinations (LCD)--as pain management options. We excluded other types of chronic pain management services, such as evaluation and management (E/M) and pharmacological services because of the unavailability of reliable data. The procedures we selected to include were: autonomic nerve blocks, paravertebral facet joint injections, trigger point injections. This category excludes codes used for emerging technologies, services, or procedures. To determine trends in billing for the selected procedures, we analyzed 100 percent of Medicare fee-for-service (FFS) paid claims from 2009 through 2012. We calculated the number of procedures billed to Medicare FFS from the carrier/physician file, excluding claims billed by some critical access hospitals. We considered procedures administered on more than one vertebral level of the spine to be separate procedures. We derived overall expenditures for selected chronic pain procedures from both provider payments (through the physician/carrier file) and outpatient facility payments (through the outpatient file). We took additional steps in an effort to narrow our focus to procedures used to treat chronic pain. First, we excluded claims for procedures billed as distinct procedural services during the same encounter as another procedural service, where normally both would not be billable. We confirmed with several Medicare or chronic pain billing experts that, while not exclusively, these procedures are more likely than not to be for acute pain occurring in conjunction with another procedure. Additionally, we excluded claims in the carrier/physician file for procedures performed in the hospital inpatient setting. Several MACs told us that chronic pain is treated almost exclusively in outpatient settings. While these steps mitigated overcounting the number of chronic pain procedures, our analysis may still include some acute procedures and may exclude some chronic procedures. We disaggregated biller (provider) type based largely on the provider specialty indicated on the claim.physician biller type. To identify physicians that are board certified in pain medicine--pain physicians--we cross-referenced the names of physicians provided by the American Board of Medical Specialties (ABMS) as board certified in pain medicine, to a list of all Medicare providers, as maintained by the Centers for Medicare & Medicaid Services (CMS) through the National Plan and Provider Enumeration The exception to this is the pain System (NPPES).match 91 percent of the pain physicians to NPPES records. We then used the provider identifier from the NPPES data to identify pain physicians on the claims. Using a name-matching strategy, we were able to Our count of procedures provided by nonphysicians may be conservative. For example, physicians and certain other providers may bill "incident to"--whereby, for example, a physician might bill for a supervised service or procedure furnished by a nurse practitioner (NP), physician assistant (PA), or CRNA. There is no way on the claim to determine when a service is billed "incident to," rather than provided completely by the billing professional. Services billed "incident to" indicate the specialty of the billing professional. To the extent that nonphysician professionals provided services in whole or in part that were billed "incident to" another professional, we may have undercounted procedures provided by CRNAs, NPs, or PAs. In addition, providers, including pain physicians, can reassign their billing so that their employer may bill on their behalf. In this case, the provider identifier on the claim would be that of the employer, and we would not capture the provider as a pain physician based on our name matching strategy. We also disaggregated the data by geographic location. To analyze urban and rural biller (provider) status, we used the CMS Core-Based Statistical Area crosswalk to identify those rural providers as providers with a zip code that is not associated with a Core-Based Statistical Area. To determine the extent to which the number of selected chronic pain procedures billed to Medicare FFS changed during the period of denials, we analyzed Medicare FFS claims from 2009 through 2012 in those states under Noridian's jurisdiction that were subject to CRNA denials and under Noridian's jurisdiction for all 4 years of the study period. At the time of our analysis, Noridian's jurisdiction included Alaska, Arizona, Idaho, Montana, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming. We excluded Washington state, where CRNAs are dually trained as NPs, and thus not subject to the denials. We also excluded Idaho because it was under another contract until 2011. We then limited our analysis to those states where CRNAs constituted at least 1 percent of the chronic pain provider market in 2009: Montana, South Dakota, and Wyoming. We measured the overall number of procedures billed to Noridian for the same set of selected chronic pain procedures, using the same methodology as in the broader trend analysis. We compared billing for selected chronic pain procedures prior to the MAC denials--which began in 2011--to billing in 2012 when the MAC denial policy was fully implemented. We assessed the trend both state-wide and in rural areas. We ensured the reliability of the Medicare claims data, ABMS pain physician data, and NPPES data used in this report by performing appropriate electronic data checks, reviewing relevant documentation, and interviewing officials and representatives knowledgeable about the data. We found the data were sufficiently reliable for the purpose of our analyses. We conducted this performance audit from March 2013 through February 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 audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. From 2009 through 2012, the number of selected chronic pain procedures billed to Medicare fee-for-service (FFS) grew by about 5.7 percent annually, while Medicare spending on these procedures grew at a slightly higher rate. (See tables 4 and 5.) Growth rates varied across procedures; for example, claims for somatic nerve blocks and paravertebral facet joint injections rose more rapidly at about 11 percent and 9 percent per year, respectively, while claims for epidural injections rose by about 2 percent annually. Overall, Medicare payments for selected chronic pain procedures increased somewhat faster than the number billed, rising 6.5 percent annually between 2009 and 2012. (See table 5.) This rate of growth is above the average growth rate of 5.3 percent per year in overall Medicare Part B spending over the same period. As with the trend in the number billed, average annual growth in expenditures varied across selected chronic pain procedures; expenditures grew most rapidly for somatic nerve blocks (20 percent annually) and facet neurolytic destruction (13 percent annually), while expenditures for epidural injections grew least rapidly (5 percent annually). This appendix provides further detail on how certified registered nurse anesthetists' (CRNA) market share of selected chronic pain procedures changed between 2009 and 2012, by state. In addition to the contact named above, Rosamond Katz, Assistant Director; Sandra C. George; Richard Lipinski; Kate Nast; and Kathryn Richter made key contributions to this report.	Chronic pain costs the nation about $600 billion each year, a quarter of which is borne by Medicare. One MAC, Noridian Healthcare Solutions (Noridian), began denying CRNA claims for certain chronic pain services in 2011, citing patient safety concerns. CMS issued a rule, effective January 2013, clarifying that CRNAs can bill Medicare for "any services that a [CRNA] is legally authorized to perform in the state in which the services are furnished," including chronic pain management services. GAO was asked to review Medicare's payment policy regarding the provision of chronic pain management services by CRNAs. This report examines, among other things, (1) trends in Medicare provider billing for selected chronic pain procedures; (2) in which states MACs allowed payment for selected procedures billed by CRNAs as of early 2013; and (3) how MACs implemented the payment policy. To do this, GAO selected seven categories of chronic pain procedures, in consultation with pain care experts. GAO analyzed Medicare claims data from 2009 through 2012, by provider type and geography. To determine which MACs allow CRNA payments and how MACs implemented CMS's policy, GAO interviewed medical directors at all nine MACs. From 2009 through 2012, certified registered nurse anesthetists (CRNA)--a type of advanced-practice nurse specializing in anesthesia care--billed Medicare fee-for-service (FFS) for a minimal share of selected chronic pain procedures, less than 1/2 of 1 percent of these procedures in each year. Physicians without board certification in pain medicine billed for the majority of selected procedures each year, while pain physicians consistently billed for roughly 40 percent of selected procedures. Furthermore, although the number of chronic pain procedures billed by all rural providers increased from 2009 through 2012, the number of procedures billed by rural CRNAs declined over the period. Of all CRNA claims for selected procedures, the share billed by CRNAs in rural areas fell from 66 percent in 2009 to 39 percent in 2012. As of early 2013, Medicare Administrative Contractors (MAC)--entities that pay medical claims on behalf of Medicare--allowed payment to CRNAs for all selected procedures in 19 states, allowed payment for a subset of selected procedures in 30 states and the District of Columbia, and denied payments for all selected procedures in 1 state. Where MACs allowed payment to CRNAs for only certain procedures, payment policies indicated substantial variation in the specific allowed procedures. Three of the nine MACs took steps to implement a Department of Health and Human Services' (HHS) Centers for Medicare & Medicaid Services (CMS) rule, effective January 2013, that defers to state scope of practice laws to inform coverage for CRNAs. CMS relies on MACs to review each state's CRNA scope of practice laws. However, most MACs reported difficulty interpreting state scope of practice laws regarding the services that CRNAs are allowed to provide; MACs noted that state scope of practice laws generally lack detail on which specific services CRNAs can perform. In addition, two MACs assumed that Medicare's rule requiring physician supervision for anesthesia services provided by CRNAs in hospital and ambulatory surgical center settings applied to chronic pain management services provided in all settings; this may have unnecessarily restricted the services for which CRNAs are allowed to bill in certain states. GAO recommends that CMS provide specific instructions to MACs on (1) how to determine coverage with reference to a state's scope of practice laws, and (2) the application of the CRNA supervision rule. HHS concurred with these recommendations.	6,146	780
In DB plans, formulas set by the employer determine employee benefits. DB plan formulas vary widely, but benefits are frequently based on participant pay and years of service, and typically paid upon retirement as a lifetime annuity, or periodic payments until death. Because DB plans promise to make payments in the future and because tax-qualified DB plans must be funded, employers must use present value calculations to estimate the current value of promised benefits. The calculations require making assumptions about factors that affect the amount and timing of benefit payments, such as an employee's retirement age and expected mortality, and about the expected return on plan assets, expressed in the form of an interest rate. The present value of accrued benefits calculated using mandated assumptions is known as a plan's "current liability." Current liability provides an estimate of the amount of assets a plan needs today to pay for accrued benefits. The Employee Retirement Income Security Act of 1974 (ERISA), and several amendments to the law since its passage, established minimum funding requirements for sponsors of pension plans in order to try to ensure that plans have enough assets to pay promised benefits. Compliance with the minimum funding requirements is recorded through the plan's funding standard account (FSA). The FSA tracks events that affect the financial health of a plan during that plan year: credits, which reflect improvements to the plan's assets, such as contributions, amortized experience gains, and interest; and charges, which reflect an increase in the plan's financial requirements, such as the plan's normal cost and amortized charges such as the initial actuarial liability, experience losses, and increases in a plan's benefit formula. ERISA and the Internal Revenue Code (IRC) prescribe rules regarding the assumptions that sponsors must use to measure plan liabilities and assets. For example, for plan years 2004 and 2005, the IRC specifies that the interest rate used to calculate a plan's current liability must fall within 90 to 100 percent of the weighted average of the rate on an index of long-term investment-grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year. Similarly, rules dictate that sponsors report an "actuarial" value of assets that must be based on reasonable assumptions and must take into account the assets' market value. This value may differ in any given year, within a specified range, from the current market value of plan assets, which plans also report. While different methodologies and assumptions will change a plan's reported assets and liabilities, sponsors eventually must pay the amount of benefits promised; if the assumptions used to compute current liability differ from the plan's actual experience, current liability will differ from the amount of assets actually needed to pay benefits. Funding rules generally presume that the plan and the sponsor are ongoing entities, and plans do not necessarily have to maintain an asset level equal to current liabilities every year. However, the funding rules include certain mechanisms that are intended to keep plans from becoming too underfunded. One such mechanism is the AFC, introduced by the Omnibus Budget Reconciliation Act of 1987 (OBRA '87). The AFC requires sponsors of plans with more than 100 participants that have become underfunded to a prescribed level to make additional plan contributions in order to prevent funding levels from falling too low. With some exceptions, plans with an actuarial value of assets below 90 percent of current liabilities are affected by the AFC rules. In addition to setting funding rules, ERISA established PBGC to guarantee the payment of the pension benefits of participants, subject to certain limits, in the event that the plan could not. Under ERISA, the termination of a single-employer DB plan may result in an insurance claim with the single-employer program if the plan has insufficient assets to pay all benefits accrued under the plan up to the date of plan termination. PBGC may pay only a portion of a participant's accrued benefit because ERISA places limits on the PBGC benefit guarantee. For example, PBGC generally does not guarantee benefits above a certain amount, currently $45,614 annually per participant at age 65. Additionally, benefit increases arising from plan amendments in the 5 years immediately preceding plan termination are not fully guaranteed, although PBGC will pay a portion of these increases. Further, PBGC's benefit guarantee amount is limited to the monthly straight life annuity benefit the participant would receive if she were to commence the annuity at the plan's normal retirement age. Sponsors of PBGC-insured DB plans pay annual premiums to PBGC for their coverage. Premiums have two components: a per participant charge paid by all sponsors (currently $19 per participant) and a "variable-rate" premium that some underfunded plans pay based on the level of unfunded benefits. The recent decline of PBGC's single-employer program has occurred in the context of the long-term stagnation of the DB system. The number of PBGC-insured plans has decreased steadily from approximately 110,000 in 1987 to about 29,000 in 2004. While the number of total participants in PBGC-insured single-employer plans has grown approximately 25 percent since 1980, the percentage of participants who are active workers has declined from 78 percent in 1980 to 50 percent in 2002. Unless something reverses these trends, PBGC may have a shrinking plan and participant base to support the program in the future. From 1995 to 2002, while most of the 100 largest plans had sufficient assets to cover their plan liabilities, many did not. Furthermore, because of leeway in the actuarial methodology and assumptions sponsors can use to measure plan assets and liabilities, underfunding may actually have been more severe and widespread than reported at the end of the period. Because of flexible funding rules permitting the use of accounting credits other than cash contributions to satisfy minimum funding obligations, on average 62.5 of the 100 largest plans each year received no cash contributions from their sponsors. Although as a group, funding levels among the 100 largest plans were reasonably stable and strong from 1996 to 2000, by 2002, more than half of the largest plans were underfunded (see fig. 1). Two factors in the deterioration of many plans' finances were the decline in stock prices and prevailing interest rates. From 2000 to 2002, stock prices declined sharply each year, causing a decline in the value of many plans' pension assets. In addition, over the sample period, 30-year Treasury bond rates, which served as the benchmark for the rate used by plans to calculate pension liabilities, generally fell steadily, raising current liabilities. The combination of lower asset values and higher pension liabilities had a serious, adverse effect on overall DB plan funding levels. Accurate measurement of a plan's liabilities and assets is central to the sponsor's ability to maintain assets sufficient to pay promised benefits, as well as to the transparency of a plan's financial health. Because many plans chose allowable actuarial assumptions and asset valuation methods that may have altered their reported liabilities and assets relative to market levels, it is possible that funding over our sample period was actually worse than reported for a number of reasons. These include the use of above-market rates to calculate current liabilities and actuarial measurement of plan assets that differ from market values. Reported current liabilities are calculated using a weighted average of rates from the 4-year period before the plan year. While this allows sponsors to smooth fluctuations in liabilities that sharp swings in interest rates would cause, thereby reducing volatility in minimum funding requirements, it also reduces the accuracy of liability measurement because the rate anchoring reported liabilities is likely to differ from current market values. To the extent that the smoothed rate used to calculate current liabilities exceeds current rates, the 4-year smoothing could reduce reported liabilities relative to those calculated at current market values. Further, rules allowed sponsors to measure liabilities using a rate above the 4-year weighted average. The 4-year weighted average of the reference 30-year Treasury bond rate exceeded the current market rate in 76 percent of time in the months between 1995 and 2002, and the highest allowable rate for calculating current liabilities exceeded the current rate in 98 percent of those months. Sponsors of the plans in our sample chose the highest allowable interest rate to value their current liabilities 62 percent of the time from 1995 to 2002. For example, an interest rate 1 percentage point higher than the statutorily required interest rate would decrease the reported value of a typical plan's current liability by around 10 percentage points. As with liabilities, the actuarial value of assets used for funding may also differ from current market values. Under the IRC, actuarial asset values cannot be consistently above or below market, but in a given year may be anywhere from 80 to 120 percent of market asset levels. Among the plans we examined, on average each year, 86 percent reported a different value for actuarial and market assets. On average, using the market value instead of the actuarial value of assets would have raised reported funding levels by 6.5 percent each year. However, while the market value exceeded the actuarial value of assets during the late 1990s, when plan funding was generally strong, in the weaker funding year of 2002 market assets dipped below actuarial assets. In 2001 and 2002, calculating plan funding levels using market assets would have greatly increased the number of plans below 90 percent funded each year. A similar calculation for 2002 would have drastically increased the number of large plans below 80 percent funded, from 6 to 24. Thus, we see some evidence that using actuarial asset values lowered the volatility of reported funding levels relative to those using market asset values. However, the use of the actuarial value of assets also may have disguised plans' funded status as their financial condition worsened. Two large plans that terminated in 2002 illustrate the potential effects of discrepancies between reported and actual funding. The Bethlehem Steel Corporation in 2002 reported that its plan was 85.2 percent funded on a current liability basis; yet, the plan terminated later that year with assets of less than half of the value of promised benefits. The PBGC single-employer program suffered a $3.7 billion loss as a result of that termination, its largest ever at the time. Similarly, LTV Steel Company reported that its pension plan for hourly employees was over 80 percent funded on its Form 5500 filing for plan year 2001. When this plan terminated in March, 2002, it had assets equal to 52 percent of benefits, a shortfall of $1.6 billion. For the 1995 to 2002 period, the sponsors of the 100 largest plans each year on average made relatively small cash contributions to their plans. Annual cash contributions for the top 100 plans averaged approximately $97 million on plans averaging $5.3 billion in current liabilities, with figures in 2002 dollars. This average contribution level masks a large difference in contributions between 1995 and 2001, during which period annual contributions averaged $62 million, and in 2002, when contributions increased significantly to almost $395 million per plan. Further, in 6 of the 8 years in our sample, a majority of the largest plans made no cash contribution to their plan (see fig. 2). On average each year, 62.5 plans received no cash contribution, including an annual average of 41 plans that were less than 100 percent funded. The funding rules allow sponsors to meet their plans' funding obligations through means other than cash contributions. If a plan has sufficient FSA credits from other sources, such as an existing credit balance or large interest or amortization credits, to at least match its FSA charges, then the plan does not have to make a cash contribution in that year. Because meeting minimum funding requirements depends on reconciling total annual credits and charges, and not specifically on cash contributions, these other credits can substitute for cash contributions. From 1995 to 2002, it appears that many of the largest plan sponsors relied more heavily on other FSA credits than on cash contributions to meet minimum funding obligations. The average plan's credit balance carried over from a prior plan year totaled about $572 million (2002 dollars) each year, and 88 percent of plans on average carried forward a prior credit balance into the next plan year from 1995 to 2002. Not only could these accumulated credit balances help a plan to meet minimum funding obligations in future years, but they also accrue interest that augments a plan's FSA credits and further helps meet minimum funding requirements. In contrast, annual cash contributions averaged only $97 million, in 2002 dollars. On average each year, cash contributions represented 90 percent of the minimum required annual funding (from cash and credits). However, this average figure was elevated by high levels of contributions by some plans in 1995, 1996, and 2002. From 1997 to 2000, when funding levels were generally strong, cash contributions averaged only 42 percent of minimum required annual funding. During these years, a majority of plans in our sample received no cash contribution. Cash contributions represented a smaller percentage of annual minimum required funding during years when plans were generally well funded, indicating that in these years more plans relied more heavily on credits to meet minimum funding obligations. In addition to large credit balances brought forward from prior years, sponsors were able to apply funding credits from other sources, such as net interest credits ($42 million per plan per year, on average), and credits from the excess of a plan's calculated minimum funding obligation above the plan's full funding limitation ($47 million). Other plan events result in plan charges, which reflect events that increase the plan's obligations. For example, plans reported annual amortization losses, which could result from actual investment rates of return on plan assets below assumed rates of return (including outright losses) or increases in the generosity of plan benefits; these net amortization charges averaged almost $28 million in our sample. Funding credits, offset by charges, may help satisfy a plan's minimum funding obligation, substituting for cash contributions, and may explain why a significant number of sponsors made zero cash contributions to their plans in many years. The FSA credit accounting system provides some advantages to DB plan sponsors. Amortization rules require the sponsor to smooth certain events that affect plan finances over several years, and accumulated credit balances act as a buffer against swings in future funding requirements. These features often allow sponsors to better regulate their annual level of contributions, compared to annual fluctuations if funding were based strictly on yearly differences between the market value of plan assets and current liabilities. Similarly, current-law measurement and funding rules provide a plan with some ability to dampen volatility in required funding caused by economic events that may sharply change a plan's liabilities or assets. Pension experts told us that this predictability and flexibility make DB sponsorship more attractive to employers. However, the FSA accounting system, by smoothing annual contributions and liabilities, may distort a plan's funding level. For example, suppose a sponsor accrues a $1 million credit balance from making a contribution above the required minimum in a year. Suppose then that this $1 million purchases assets that lose all of their value by the following year. Even though the plan no longer had this $1 million in assets, the sponsor could still use that credit balance (plus interest on the credit balance) to reduce this year's contribution to the plan. Because of amortization rules, the sponsor would have to report only a portion of that lost $1 million in asset value as a plan charge the following year. Similarly, sponsors are required to amortize the financial effect of a change in a plan's benefit formula, which might result in increased benefits and therefore a higher funding obligation, over a 30-year period. Thus, even though higher benefits would immediately raise a plan's obligation to fund, the sponsor must spread this effect in the plan's FSA over 30 years. This disconnection between the reported and current market condition of plan finances raises the risk that plans will not react quickly enough to deteriorating plan conditions. Further, it reduces the transparency of plan financial information to stakeholders, such as participants, and investors. The experience of two large plans that terminated in a severely underfunded state help illustrate the potential disconnection between FSA accounting and the plan's true funded status. As stated earlier, the Bethlehem Steel Corporation and LTV Steel Company both had plans terminate in 2002, each with assets approximately equal to 50 percent of the value of benefits. Yet each plan was able to forgo a cash contribution each year from 2000 to 2002 by using credits to satisfy minimum funding obligations, primarily from large accumulated credit balances from prior years. Despite being severely underfunded, each plan reported an existing credit balance in 2002, the year of termination. Another possible explanation for the many instances in which sponsors made no annual cash contribution regards the full funding limitation (FFL). The FFL is a cap on minimum required contributions to plans that reach a certain funding level in a plan year. However, the FFL does not represent the contribution that would raise plan assets to the level of current liability. The FFL represents a "maximum minimum" contribution for a sponsor in a given year--a ceiling on the sponsor's minimum funding obligation for the plan. Between 1995 and 2002, rules permitted some plans with assets as low as 90 percent of current liability to reach the FFL, meaning that a plan could be considered fully funded without assets sufficient to cover all accrued benefits. The FFL is also distinct from the plan's annual maximum tax-deductible contribution. Because sponsors may be subject to an excise tax on contributions above the maximum deductible amount, the annual maximum contribution can act as a real constraint on cash contributions. Flexibility in the FFL rule has allowed many plan sponsors to take steps to minimize their contributions. In our sample, from 1995 to 2002 approximately two-thirds of the sponsors in each year made an annual plan contribution at least as large as the plan's FFL. However, in 65 percent of these instances, the sponsor had chosen the highest allowable rate to calculate current liability; using a lower rate to calculate current liability may have resulted in a higher FFL and, therefore, may have required a higher contribution. Further, the FFL was equal to zero for 60 percent of plans each year, on average. This means that these plans were permitted to forego cash contributions as a result of the FFL rule. This reflects the fact that if a plan's FFL equaled zero, that plan had assets at least equal to 90 percent of current liabilities that year and would not be required to make an additional contribution. The interaction between the FFL rule and the annual maximum tax- deductible contribution also has implications on the amount that plan sponsors can contribute. In some years, the maximum deductible contribution rules truly constrained some sponsors from making any cash contribution. In 1998, 50 of the 60 plans that contributed to the maximum deductible amount had a maximum deductible contribution of zero (see fig. 3). This meant that any cash contribution into those plans that year would generally subject the sponsor to an excise tax. For 37 of these plans, this was the case even if the sponsor had chosen the lowest statutorily allowed interest rate for plan funding purposes, which would have produced the highest calculated current liabilities. This constraint did not apply to as many plans in some other years. For example, in 1996, 52 plans contributed the maximum deductible amount. Thirty of these plans had a maximum deductible contribution of zero. Fourteen of the plans in this situation could not have made any additional contributions. However, the other 16 could have made at least some contributions by choosing a lower interest rate to raise their maximum deductible contribution level. Funding rules dictate that a sponsor of a plan with more than 100 participants in which the plan's actuarial value of assets fall below 90 percent of liabilities, measured using the highest allowable interest rate, may be liable for an AFC in that year. More specifically, a plan that is between 80 and 90 percent funded is subject to an AFC unless the plan was at least 90 percent funded in at least 2 consecutive of the 3 previous plan years. A plan with assets below 80 percent of liabilities, calculated using the highest allowable rate, is assessed an AFC regardless of its funding history. Despite the statutory threshold of a 90 percent funding level for some plans to owe an AFC, in practice a plan needed to be much more poorly funded to become subject to an AFC. While about 10 plans in our sample each year had funding below 90 percent on a current liability basis, on average fewer than 3 plans each year owed an AFC (see fig. 4). From 1995 to 2002, only 6 of the 187 unique plans that composed the 100 largest plans each year were ever assessed an AFC, and these plans owed an AFC a total of 23 times in years in which they were among the 100 largest plans. By the time a sponsor owed an AFC, its plan had an average funding level of 75 percent, suggesting that by the time the AFC was triggered, the plan's financial condition was weak. Further, while we observed 60 instances between 1995 and 2002 in which a plan had funding levels between 80 and 90 percent, only 5 times was a plan in this funding range subject to an AFC. This would indicate that, in practice, 80 percent represented the realistic funding threshold for owing or avoiding the AFC. Even with those plans subject to an AFC, other FSA credits may help a plan satisfy minimum funding obligations. Among plans in our sample assessed an AFC, the average annual AFC owed was $234 million, but annual contributions among this group averaged $186 million, with both figures in 2002 dollars. In addition, 61 percent of the time a plan was subject to an AFC, the sponsor used an existing credit balance to help satisfy its funding obligation. Over 30 percent of the time a plan was assessed an AFC, the funding rules allowed the sponsor to forgo a cash contribution altogether that year. Sponsors that owed an AFC had mixed success at improving their plans' financial conditions in subsequent years, and most of these plans remained significantly underfunded. Among the 6 plans that owed the AFC, funding levels rose slightly from an average 75 percent when the plan was first assessed an AFC to an average 76 percent, looking collectively at all subsequent years. All of these plans were assessed an AFC more than once. Again, terminated plans provide a stark illustration of weaknesses in the rules' ability to ensure sufficient funding. Bethlehem Steel's plan was assessed an AFC of $181 million in 2002, but the company made no cash contribution that year, just as it had not in 2000 or 2001, years in which the plan was not assessed an AFC. When the plan terminated in late 2002, its assets covered less than half of the $7 billion in promised benefits. LTV Steel, which terminated its pension plan for hourly employees in 2002 with assets of $1.6 billion below the value of benefits, had its plan assessed an AFC each year from 2000 to 2002, but for only $2 million, $73 million, and $79 million, or no more than 5 percent of the eventual funding shortfall. Despite these AFC assessments, LTV Steel made no cash contributions to this plan from 2000 to 2002. Both plans were able to apply existing credits instead of cash to fully satisfy minimum funding requirements. The recent funding experiences of large plans, especially those sponsored by financially weak firms, illustrate the limited effectiveness of certain current funding rules and represent a potentially large implicit financial risk to PBGC. The financial health of a plan sponsor may be key to plan funding decisions because sponsors must make funding and contribution decisions in the context of overall business operations. From 1995 to 2002, on average, 9 percent of the largest 100 plans were sponsored by a firm with a speculative grade credit rating, suggesting financial weakness and poor creditworthiness. Financial strength of plan sponsors' business operations has been a key determinant of risk to PBGC. Financially weak sponsors of large, underfunded plans are, by the nature of the insurance offered by PBGC, likely to cause the most financial burden to PBGC and other premium payers. For instance, PBGC typically trustees a plan when a covered sponsor is unable to financially support the plan, such as in the event of bankruptcy or insolvency. Current funding rules, coupled with the presence of PBGC insurance, may create incentives for financially distressed plan sponsors to avoid or postpone contributions and increase benefits. Many of the minimum funding rules are designed so that sponsors of ongoing plans may smooth contributions over a number of years. Sponsors that are in financial distress, however, may have a more limited time horizon and place other financial priorities above "funding up" their pension plans. To the extent that the presence of PBGC insurance causes financially troubled sponsors to alter their funding behavior, PBGC's potential exposure increases. Underfunded plans sponsored by financially weak firms pose the greatest immediate threat to PBGC's single-employer plans. PBGC's best estimate of the total underfunding of plans sponsored by companies with credit ratings below investment grade and classified by PBGC as "reasonably possible" to terminate was an estimated $96 billion as of September 30, 2004 (see fig. 5). From 1995 to 2002, we observed that plans sponsored by speculative grade-rated firms had lower levels of average funding compared with the average for the 100 largest plans. For instance, the average funding of these plans was 12 percentage points lower on average than the funding level for all plans from 1995 to 2002. Plans sponsored by speculative grade- rated firms were also more likely to be underfunded. From 1995 to 2002, each year, on average, 18 percent of plans sponsored by speculative grade- rated firms had assets that were below 90 percent of current liability. Plans sponsored by nonspeculative grade-rated firms had just over half this incidence, or an average of 10 percent of plans funded below 90 percent of current liability. Large plans sponsored by firms with a speculative grade rating were also more likely to incur an AFC. While plans sponsored by speculative grade- rated firms accounted for only 9 percent of all plans that we examined over the 1995 to 2002 period, they accounted for just over one-third of all instances in which a sponsor was required to pay an AFC. In contrast, no high investment grade sponsors (those rated AAA or AA) were required to pay an AFC for this period. While the AFC is intended to be a backstop for underfunded plans, to the extent that plans sponsored by speculative grade-rated firms are considered to pose a significant risk for near-term termination, it may not be an effective mechanism for improving a plan's funding level. Plans sponsored by firms that are in financial distress are, by definition, having difficulty paying off debts and may be ill equipped to afford increased contributions to their plan. That is, the AFC itself may be a symptom of plan distress rather than a solution to improve a plan's funding level. Large plans with sponsors rated as speculative grade were also generally more likely to use the highest allowable interest rate to compute their current liability under the minimum funding rules. While a majority of sponsors from all credit rating categories used the highest allowable interest rate, over the entire 1995 to 2002 period, speculative grade-rated sponsors used the highest rate at an incidence 23 percentage points above the incidence for all other plans in the sample. The use of higher interest rates likely lowers a plan's reported current liability and minimum funding requirement. To the extent that this depresses cash contributions, such plans may have a higher chance of underfunding, thus creating additional financial risk to PBGC. PBGC's claims experience shows that financially weak plans have been a source of substantial claims. Of the 41 largest claims in PBGC history in which a rating was known, 39 of the plan sponsors involved were credit rated as speculative grade at least 3 years prior to termination (see fig. 6). These claims account for 67 percent of the value of total gross claims on the single-employer program from 1975 to 2004. Most of the plan sponsors involved in these claims were given speculative grade ratings for many more years prior to their eventual termination. Even 10 years prior to plan termination, 33 of these 41 claims involved sponsors rated as speculative grade. Widely reported recent large plan terminations by bankrupt sponsors and the financial consequences for PBGC have pushed pension reform into the spotlight of national concern. Our analysis here suggests that certain aspects of the funding rules have contributed to the general underfunding of pensions and, indirectly, to PBGC's recent financial difficulties. The persistence of a large number of underfunded plans, even during the strong economic period of the late 1990s, implies that current funding rules are not stringent enough to ensure that sponsors can fund their pensions adequately. Further, the rules appear to lack strong mechanisms to compel sponsors to make regular contributions to their plans, even those that are underfunded or subject to an AFC. Perhaps most troubling is that current rules for measuring and reporting plan assets and liabilities may not reflect true current values and often understate the true degree of underfunding. The current rules have the reasonable and important goals of long-term funding adequacy and short-term funding flexibility. However, our work shows that although the current system permits flexibility, it also permits reported plan funding to be inadequate, misleading, and opaque; even so, funding and contributions for some plans can still swing wildly from year to year. This would appear not to serve the interest of any DB pension stakeholders effectively. The challenge is determining how to achieve a balance of interests: how to temper the need for funding flexibility with accurate measurement, adequate funding, and appropriate transparency. Despite flaws in the funding rules, our work here shows that most of the largest plans appear to be adequately funded. Rules should acknowledge that funding will vary with cyclical economic conditions, and even sponsors who make regular contributions may find their plans underfunded on occasion. Periodic and mild underfunding is not usually a major concern, but it becomes a threat to workers' and retirees' economic security in retirement and to PBGC when the sponsor becomes financially weak and the risk of bankruptcy and plan termination becomes likely. This suggests that perhaps the stringency of certain funding rules should be adjusted depending on the financial strength of the sponsor, with stronger sponsors being allowed greater latitude in funding and contributions than weaker sponsors that might present a near-term bankruptcy risk. However, focusing more stringent funding obligations on weak plans and sponsors alone may not be adequate, because strong companies and industries can quickly become risky ones, and, once sponsors and plans become too weak, it may be difficult for them to make larger contributions and still recover. It should be noted also that while funding rule change is an essential piece of the overall reform puzzle, it is certainly not the only piece. Indeed, pension reform is a challenge precisely because of the necessity of fusing together so many complex, and sometimes competing, elements into a comprehensive proposal. Ideally, effective reform would improve the accuracy of plan asset and liability measurement while minimizing complexity and maintaining contribution flexibility; develop a PBGC insurance premium structure that charges sponsors fairly, based on the risk their plans pose to PBGC, and provides incentives for sponsors to fund plans adequately; address the issue of severely underfunded plans making lump-sum distributions; resolve outstanding controversies concerning cash balance and other hybrid plans by safeguarding the benefits of workers regardless of age; and improve plan information transparency for PBGC, plan participants, unions, and investors in a manner that does not add considerable burden to plan sponsors. As deliberations on reform move forward, it will be important that each of these individual elements be designed so that all work in concert toward well-defined goals. Even with meaningful, carefully crafted reform, it is possible that some DB plan sponsors may choose to freeze or terminate their plans. While these are serious concerns, the overarching goals of balanced pension reform should be to protect the retirement benefits of American workers and retirees by providing employers reasonable funding flexibility while also holding those employers accountable for the promises they make to their employees. As I noted in my opening remarks, PBGC's challenges parallel the challenges facing our Social Security system. While both programs have adequate current revenues and assets to pay promised benefits today, both face large and growing accumulated deficits on an accrual basis. Further, timely action to address both private pension and Social Security reform is needed. However, consideration must be given to the interactive effects of any such reforms and how they contribute to addressing our nation's large and growing fiscal challenge, key demographic, economic and workforce trends, and the economic security of Americans in their retirement years. Mr. Chairman, this concludes my statement. I would be happy to respond to any questions you or other Members of the Committee may have. For further information, please contact Barbara Bovbjerg at (202) 512- 7215. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this testimony. Other individuals making key contributions to this testimony included Charlie Jeszeck, Mark Glickman, and Chuck Ford. 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.	This testimony discusses our recent report on the rules that govern the funding of defined benefit (DB) plans and the implications of those rules for the problems facing the Pension Benefit Guaranty Corporation (PBGC) and the DB pension system generally. In recent years, the PBGC has encountered serious financial difficulties. Prominent companies, such as Bethlehem Steel, U.S. Airways, and United Airlines, have terminated their pension plans with severe gaps between the assets these plans held and the pension promises these plan sponsors made to their employees and retirees. These terminations, and other unfavorable market conditions, have created large losses for PBGC's single-employer insurance program--the federal program that insures certain benefits of the more than 34 million participants in over 29,000 plans. The single-employer program has gone from a $9.7 billion accumulated surplus at the end of fiscal year 2000 to a $23.3 billion accumulated deficit as of September 2004, including a $12.1 billion loss for fiscal year 2004. In addition, financially weak companies sponsored DB plans with a combined $96 billion of underfunding as of September 2004, up from $35 billion as of 2 years earlier. Because PBGC guarantees participant benefits, there is concern that the expected continued termination of large plans by bankrupt sponsors will push the program more quickly into insolvency, generating pressure on the Congress, and ultimately the taxpayers, to provide financial assistance to PBGC and pension participants. Given these concerns, we placed the PBGC's single-employer program on GAO's high-risk list of agencies and programs that need broad-based transformations to address major challenges. In past reports, we identified several categories of reform that the Congress might consider to strengthen the program over the long term. We concluded that the Congress should consider comprehensive reform measures to reduce the risks to the program's long-term financial viability and thus enhance the retirement income security of American workers and retirees. More broadly, pension reform represents a real opportunity to address part of our long-term fiscal problems and reconfigure our retirement security systems to bring them into the 21st century. This opportunity has many related pieces: addressing our nation's large and growing long-term fiscal gap; deciding on the appropriate role and size of the federal government--and how to finance that government--and bringing the wide array of federal activities into line with today's world. Continuing on our current unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security. We therefore must fundamentally reexamine major spending and tax policies and priorities in an effort to recapture our fiscal flexibility and ensure that our government can respond to a range of current and emerging security, social, economic, and environmental changes and challenges. The PBGC's situation is an excellent example of the need for the Congress to reconsider the role of government organizations, programs, and policies in light of changes that have occurred since PBGC's establishment in 1974. Our recent work on DB pension funding rules provides important insights in understanding the problems facing PBGC and the DB system. To summarize our findings, while pension funding rules are intended to ensure that plans have sufficient assets to pay promised benefit to plan participants, significant vulnerabilities exist. Although from 1995 to 2002 most of the 100 largest DB plans annually had assets that exceeded their current liabilities, by 2002 over half of the 100 largest plans were underfunded, and almost one-fourth of plans were less than 90 percent funded. Further, because of leeway in the actuarial methodology and assumptions that sponsors may use to measure plan assets and liabilities, underfunding may actually have been more severe and widespread than reported. Additionally, on average over 60 percent of sponsors of these plans made no annual cash contributions to their plans. One key reason for this is that the funding rules allow a sponsor to satisfy minimum funding requirements without necessarily making a cash contribution each year, even though the plan may be underfunded. Further, very few sponsors of underfunded plans were required to pay an additional funding charge (AFC), a funding mechanism designed to reduce severe plan underfunding. Finally, our analysis confirms the notion that plans sponsored by financially weak firms pose a particular risk to PBGC, as these plans were generally more likely to be underfunded, to be subject to an additional funding charge, and to use assumptions to minimize or avoid cash contributions than plans sponsored by stronger firms.	7,272	960
As part of its mandate to guide the nation's civil space program, NASA is to preserve U.S. preeminence in critical aspects of space science, technology, and applications. The goal of life and microgravity sciences is to study gravity-dependent physical phenomena and those phenomena obscured by the effects of gravity in biological, chemical, and physical systems. Research is conducted in biotechnology (e.g., protein crystal growth), combustion science, fluid physics, life and biomedical sciences, and materials science. Life science research in space biology studies the effects of gravity on living systems by using acceleration environments across the "gravity continuum"--micro, earth-normal, and hypergravity. NASA's Office of Life and Microgravity Sciences and Applications, which was formed in 1993, funds this type of research. Between fiscal years 1989 and 1994, the annual budget authority for life and microgravity research increased by 114 percent, from $222.4 million to $476.3 million. Not all aspects of life and microgravity sciences research require a space-based environment. Short duration, low acceleration environments can be created in drop towers (2 to 5 seconds of free fall), aircraft flying a distinctively curved flight path (up to 23 seconds of low gravity), and suborbital rockets (over 300 seconds). Hypergravity can be created by a centrifuge. Space-based research is principally conducted in pressurized and nonpressurized facilities on the Space Shuttle. The centerpiece for this research is a 23-foot by 16-foot pressurized module--Spacelab--that fits in the Space Shuttle payload bay. Spacelab was developed by the European Space Agency and contains utilities, computers, work areas, and instrument racks for experiments. An exterior cutaway view of Spacelab is shown in figure 1. The most recent Spacelab flight was the second International Microgravity Laboratory (IML-2), which ended a 15-day mission on the Space Shuttle on July 23, 1994. IML-2 was a collaborative effort by NASA; the European Space Agency; and the national space agencies of Canada, France, Germany, and Japan. According to NASA officials, IML-2 provided a preview of the science operations to come on the space station. The IML flights, which began in January 1992, gave the U.S scientific community access to foreign-developed flight hardware while providing the international research community with access to the Space Shuttle/Spacelab. Approximately 80 investigations were performed on IML-2, including 15 U.S. experiments--11 in the biotechnology, fluid physics, and materials science and 4 in the life sciences. IML-2 was the last flight of this international series of spacelabs before the station era begins in 1997. An interior view of IML-2 is shown in figure 2. NASA publicly solicits research proposals from investigators in the life and microgravity research communities. The funding decision is principally based on an evaluation of the project's scientific merit by a peer review panel. NASA's peer review and other quality assurance procedures are outlined in appendix I. NASA intends to build a space station-era research community from the ground up. To do so, a larger cadre of ground-based researchers than currently available will be needed to adequately support U.S. research on the station. A NASA official estimates that the number of ground-based microgravity researchers needs to increase from 73 to 240 between fiscal years 1992 and 1998. NASA officials have not made comparable estimates for life science researchers. To accomplish this goal, NASA has abandoned its tradition--principally associated with life science research--of soliciting research proposals for general and specific space flight opportunities. Although this approach appears reasonable, the planned funding levels do not match the program's objective, and funding priorities may need to be reassessed if the number of life and microgravity ground-based investigators is to be significantly increased. In recent years, NASA has used two approaches for developing life and microgravity science research communities--"select for flight" or "select for science." In the select-for-flight approach, all of the U.S. life science and most of the U.S. microgravity investigators on IML-2 were selected from proposals submitted in response to flight-related announcements. In the select-for-science approach, two IML-2 microgravity investigators were selected from researchers who submitted proposals in response to two 1991 discipline-related ("fundamental science" and "biotechnology") research announcements. A NASA program scientist considers the IML-2 flight to have been a programmatic success and, in some respects, a model for the international space station. According to a NASA official, one indication of the flight's success was the amount of good research generated from the many proposals submitted in response to a mix of science and flight-related research announcements. Additionally, two of NASA's recent research announcements were in the select-for-flight tradition: its July 1993 announcement soliciting proposals for research on a 1998 space life sciences flight (Neurolab) and its February 1994 announcement soliciting proposals for life science research on the Russian space station Mir from 1995 to 1997. Presumably then, one effective way to develop a research community would be to solicit specific proposals for research that are directly related to the space station. NASA, however, has chosen to move toward exclusive use of "select for science," as discussed below. Although NASA recently solicited proposals specifically for research on Shuttle flights to Mir, NASA's life science office changed from the widespread use of the select-for-flight approach in December 1993. At that time, it solicited proposals for ground-based research in space biology focused on the hypergravity effects that can be induced by NASA's centrifuges. NASA's shift to ground-based research did not stifle competition for funding: it received 650 responses to the December 1993 announcement. Although "select for science" is relatively new to life science research, all microgravity research announcements since 1990 have focused on research opportunities in one or more science disciplines. And, as if to emphasize the independence of microgravity research from space station development, NASA changed the fiscal year 1992 goals for the microgravity program. The previous goals referred to developing and using the space station, whereas the current, more general goal is to "enable research . . . by choosing the carrier most appropriate for the experiment." Physical events, unlike biological processes, can be meaningfully observed under the short-duration microgravity conditions afforded by ground-based facilities, aircraft, and suborbital rockets. Consequently, a ground-based microgravity research investigator does not always have to conduct experiments in a space environment, and many do not. For example, of the 51 principal investigators who conducted such research at NASA's Lewis Research Center from fiscal years 1989 through 1993, only 7 have been principal investigators on space-based experiments, including a microgravity Spacelab flight in September 1995. "NASA establish a vigorous ground based research program focussing on gravitational biology in which centrifuge facilities at NASA centers are utilized for exploring science programs aimed at forces greater than 1g ." NASA's strategy for using the select-for-science approach to further develop a life science research community in the station-era appears reasonable based on the experience of the microgravity sciences community. First, the microgravity sciences research community has been growing. Principal investigators funded for microgravity sciences research increased by 120 percent--from 89 in calendar year 1989 to 196 in fiscal year 1993. The budget authority for microgravity sciences increased by 130 percent, from $75.6 million to $173.9 million during this period. The number of proposals submitted in response to research announcements also generally increased during this period. For example, although proposals submitted in response to materials, fluids, and fundamental (benchmark) physics research announcements decreased from 397 in 1991 to 217 in 1993, those responding to combustion physics announcements increased from 65 in 1989 to 98 in biotechnology research announcements increased from 94 in 1991 to 141 materials and fluids research announcements increased from 69 in 1990 to 346 in 1991. Second, the microgravity research community is stable but not stagnant. Fifty-five percent of all microgravity sciences investigators that were funded in 1989 were also funded in fiscal year 1993. This core group represents 25 percent of the investigators funded in fiscal year 1993. On the other hand, 44 percent of the investigators funded in 1993 were not funded in 1992. Third, NASA is attracting new investigators to its microgravity sciences program. The decline in proposals (from 397 to 217) submitted in response to the 1993 materials, fluids, and fundamental physics announcement may have been partly caused by NASA's stated purpose of encouraging new investigators, and most of the 55 investigators funded from this announcement were new to the program. Only 15 of them had been previously funded by NASA. In June 1994, NASA's life sciences advisory subcommittee recommended that NASA use this approach and establish appropriate categories within life science research announcements that recognize and encourage new investigators. Finally, for those proposals we reviewed, the select-for-science approach produced relatively fewer low peer review scores than the select-for-flight approach. Figure 3 shows that 8 percent of the select-for-science proposals received peer review scores in the bottom category, while 32 percent of the select-for-flight proposals received scores in the bottom category. Similarly, as figure 4 shows, of all the proposals in the bottom category, only 16 percent were in the select-for-science tradition, while 84 percent were in the select-for-flight tradition. Many of the proposals submitted in response to NASA's research announcements were not considered scientifically meritorious. For example, peer review panels gave 129, or 44 percent, of the 290 proposals we reviewed relatively low scientific merit scores. NASA's plans to expand its ground-based research program are not realistic based on planned funding. A NASA microgravity research official estimates that NASA will need to fund about 240 ground-based investigators to support a station-based microgravity sciences research program. In fiscal year 1992, NASA funded 73 ground-based investigators in microgravity sciences, only about 30 percent of the future need. Ground-based research is funded from NASA's research and analysis budget. However, NASA does not anticipate that this budget will increase for fiscal years 1995 through 1999. Annual life science research and analysis appropriations are estimated to be about $51 million and microgravity sciences at $21.7 million. To deal with this potential mismatch between plans and resources, NASA's microgravity sciences office has proposed that the research and analysis budget be augmented by research and development funds used to support NASA's space-based research program. The proposed amounts are $4.7 million for fiscal year 1996, $12.2 million for 1997, and $22.2 million for 1998. According to NASA, shifting resources in this way would not increase its overall budget authority. "where they are proven to be inadequate to support the intellectual underpinning of the flight program, even if this means a transfer from the budget so as to comply with overall budget constraints." NASA's quality assurance procedures start with a series of external and internal reviews designed to evaluate the merits of research proposals. Peer review is a crucial part of this consensus-building process. The process starts with individual reviewers independently evaluating each proposal assigned to peer review panels. The reviewers then resolve any differences by consensus within the peer review panel. The panel's final determinations are not binding on NASA's selection officials, and NASA can choose proposals other than those highly recommended by the panel. In June 1994, we reported that the peer review processes at the National Institutes of Health (NIH), National Science Foundation, and National Endowment for the Humanities appear to be working well and that intrinsic qualities of a proposal (e.g., research design), and not characteristics of reviewers or applicants (e.g., applicant's region, academic rank, or employing academic department's prestige) were important factors in reviewers scoring. In 1993, the Senate Committee on Appropriations directed NASA to model its peer review standards after NIH. Based on the Committee's direction, NASA requires that all research proposals be reviewed by peers for scientific merit and relevance (previously, some life science research conducted by NASA scientists was not subject to peer review); all research be reviewed by peers at least every 3 years; all research be reviewed for progress annually and for the performance of its objectives at least every 3 years; peer review be performed by the best-qualified individuals available in the peer review scores provided by external peer review groups be critical factors determining the priority for initial and continued funding of research projects and programs. The logic of peer review, in our opinion, rests, in part, on the assumption that two or more peers can independently agree on a research experiment's scientific merits. For example, they should agree on the testability of the proposed hypothesis and the relevance and appropriateness of the experimental design. As such, peers' scores for scientific merit of any given proposal ought to be the same or similar. Peers agreed on the scientific merit of 73 percent of the proposals that we reviewed, including all but 1 of the 15 U.S. experiments selected for IML-2. Table 1 shows the distribution of the reviewers' scores. Peer reviewers were better able to agree on proposals having top scientific merit scores than on proposals having middle or bottom scientific merit scores. Peers gave only 11 percent (11 of 99) of the top proposals dissimilar scores; in contrast, they gave 35 percent (44 of 126) of proposals dissimilar scores in the middle category and 38 percent (23 of 60) scores in the bottom category. Table 2 shows that NASA's selecting officials' funding decisions were generally congruent with the findings of the peer review panel. Of the 84 proposals funded, 73, or 87 percent, were in the top category for scientific merit scores, and the other 11 proposals funded were in the middle category. Determinations of peer review panels are not binding on NASA's selection officials. For example, NASA selected four proposals that received mid-level scores by the peer review panel. Based on an average of peers' individual scores, three of them would have been in the top category. However, in subsequent deliberations, the peer review panel members placed three proposals in the middle category because the need for the microgravity environment of space was not compelling, experiment-related issues could be resolved using the ground-based appropriateness of analytical techniques was questionable. No peer review panel was convened for the fourth proposal because the number of proposals in the specific area of investigation was too small. Generally, the peer reviewers found the proposal to be of high quality, but they also noted that the research objectives, although compatible with the life science program, were inconsistent with the microgravity science program. In this case, the investigator did not propose to use microgravity to study phenomena whose understanding is obscured on earth by the presence of gravity. After the peer review panel completed its deliberations, a NASA categorization committee made category assignments that were forwarded to a steering committee. The categorization committee determined that the four proposals were, in the words of a NASA official, "sound but not exceptional science"--the second highest of four possible categories.The steering committee assessed these categorizations and recommended funding the proposals, but committee members noted that one investigation resembled a "fishing expedition," another had "similar weaknesses" to proposals that were rejected, a third would require too much time to conduct on a Spacelab mission, and a fourth should only be partly funded. Despite these views, these four proposals were funded for IML-2. NASA's efforts to develop a research community are not likely to be adversely affected by the February 1994 cancellation of SLS-3. The U.S. principal investigators on the Spacelab flight stated that they will be able to meet their experiment objectives on other missions, including multiple Shuttle flights to Mir. They plan to submit proposals for future NASA research opportunities. NASA planned to fly a collaborative U.S.-French SLS-3 mission in February 1996. The purpose of the mission was to study the effects of microgravity on the musculoskeletal system of humans, Rhesus monkeys, and rats. The French were responsible for developing the Rhesus research facility. Planning for the mission began in the late 1970s. On February 18, 1994, however, the NASA Administrator notified his French counterpart that the flight was canceled because of budget limitations and NASA's commitment to the international space station. In November 1993, as part of the agreement between NASA and the Russian Space Agency to bring Russia into the space station program, the United States and Russia agreed to fly up to 10 Space Shuttle flights to the Russian space station Mir. "cancellation of mission or substitution of middeck experiments for a dedicated Spacelab mission would have serious consequences for . . . the continued participation of the mainstream life sciences community that NASA seeks to attract." NASA responded to these concerns in April 1994, stating that all experiments from SLS-3 have been accommodated on other missions, including Shuttle flights to Mir. NASA also noted that although Mir is not a substitute for Spacelab, it will augment and enhance on-orbit science capabilities because experiments requiring more than 30 days of microgravity cannot be performed on Spacelab. In late 1994, NASA announced a new life and microgravity sciences spacelab mission for July or August 1996. This mission will provide a flight opportunity for some experiments that were scheduled to fly on SLS-3. We discussed the cancellation of SLS-3 with 13 of the 15 U.S. investigators who were scheduled to fly experiments on this flight. Their views are summarized, as follows: Nine investigators were generally satisfied with the way NASA handled the cancellation. NASA never formally notified investigators about its decision to cancel the flight. Consequently, most investigators learned of the cancellation from rumors or other informal communication. One investigator said investigators should have been consulted before NASA canceled the mission. One investigator questioned why SLS-3, a relatively near-term mission, was canceled rather than a later one such as the Neurolab flight in 1998. Eleven investigators said that their experiments will be accommodated on other missions, including the Russian Biosatellite, another Spacelab mission, or Space Shuttle flights to Mir. Two investigators said they have not been assigned to specific missions. Ten investigators currently scheduled for other missions said they will be able to meet their basic experiment objectives. However, three of them said they will not necessarily be able to obtain the same amount of information as they would have on SLS-3. Their experiments involved the use of Rhesus monkeys, and even though they will fly on the Biosatellite, in-flight biological measurements cannot be done. Three other investigators said that their experiments on a substitute mission would be adversely affected by hardware limitations or the loss of opportunities to efficiently collaborate with other investigators. All 13 investigators said they will continue to submit proposals for future NASA research opportunities, and at least 6 have already done so. To accomplish our objectives, we obtained documents from and interviewed officials at NASA headquarters in Washington, D.C., and at NASA's Lewis, Johnson, and Marshall field centers in Cleveland, Ohio; Houston, Texas; and Huntsville, Alabama, respectively. In May 1994, we attended the IML-2 mission simulation and science review conference and observed crew training exercises prior to launch. To review the further development of NASA's life and microgravity sciences research community, we obtained information on research announcements issued between 1988 and 1994 and on the principal investigators who conducted ground- and space-based experiments. We examined peer review-related information on 319 proposals submitted in response to the 4 research announcements related to IML-2. We categorized the scores of all proposals that peer review panels considered responsive to the objectives of the announcements, as shown in appendix II. To assess the possible impact of the cancellation of the SLS-3 Spacelab flight on the further development of NASA's research community, we interviewed 13 of the 15 U.S. principal investigators on that mission. We performed our work between November 1993 and September 1994 in accordance with generally accepted government auditing standards. As requested, we did not obtain agency comments on this report. However, we discussed the issues in this report with NASA officials and incorporated their comments where appropriate. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 15 days from its issue date. At that time, we will send copies to the NASA Administrator and other appropriate congressional committees. Copies will also be made available to other interested parties on 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 III. The National Aeronautics and Space Administration's (NASA) guiding principle for quality assurance is periodic review over the lifetime of an experiment. Figure I.1 depicts the major science and engineering review milestones. The steps or actions involved throughout this process are outlined below. NASA's Discipline Working Group(s) evaluates research program's strengths and weaknesses and makes recommendations to the program scientist, who defines areas of investigation for forthcoming announcement. NASA conducts workshops for prospective investigators from the scientific community to develop interest in forthcoming announcement. NASA solicits research proposals by issuing announcement. Peers are selected by contractor (life sciences) or NASA (microgravity sciences) to evaluate proposals' scientific merit. Peers should be leading researchers in their field and free from conflicts of interest (e.g., a current or recent professional collaboration with an applicant), and not currently receiving research funds from NASA. For proposals receiving strong science reviews, the appropriate NASA field center assesses a proposal's estimated cost and engineering feasibility. For example, Lewis Research Center is a "center of excellence" for two microgravity science disciplines: combustion science and fluid physics. NASA program scientist recommends principal investigators' proposals for funding to senior NASA management. Principal investigator and project scientist describe science scope and feasibility for evaluation by Science Review Board. Project manager describes conceptual design of experiment-related hardware for evaluation by Engineering Panel. Project manager describes cost and schedule estimates. Engineering panel assesses design of hardware. Science panel assesses compatibility of science requirements with design of hardware. Preliminary design review assesses the compatibility of science requirements with a preliminary engineering model ("breadboard") of hardware. Critical design review assesses complete engineering model of hardware. Preshipment review consists of experiment simulations, integration with hardware, and testing prior to sending the hardware to the launch site. To determine the similarity/dissimilarity of peers' perception of a proposal's scientific merit, we defined similar scores on the five-point scales as same or adjacent scores (for example: "3" and "3", or "3" and "4"); and on the nine-point scales as same, adjacent, and next scores (for example: a "3" and "3", or "3" and "4"; or "3", "4", and "5"). Dave Warren Frank Degnan Thomas Mills James Berry Kimberly Carson Jeffrey Knott Larry Kiser 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. 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.	Pursuant to a congressional request, GAO reviewed the National Aeronautics and Space Administration's (NASA) efforts to develop a robust life and microgravity sciences research community for the space station, focusing on: (1) what NASA is doing to assess the required size of the research community needed for the space station and to ensure that such a community will be available; (2) how NASA will ensure that the research selected for the space station will be the best possible; and (3) whether the recently cancelled shuttle research flight adversely affected NASA efforts to develop a research community for the space station. GAO found that: (1) NASA is focusing on developing a comprehensive research program that emphasizes more ground-based research and uses space flight only for research efforts that require a microgravity environment in space; (2) NASA wants to greatly increase the number of ground-based investigators to accomplish this program; (3) the science-oriented approach is reasonable, but funding levels could jeopardize it unless NASA adjusts its funding priorities so, to achieve its goal, NASA will need to increase funding for life and microgravity sciences research and analysis from fiscal years 1995 through 1999; (4) if NASA funding remains at expected levels, a smaller than desired number of ground investigators in the ground-based research program will be selected; (4) although peer review panels and NASA sometimes disagree on the scientific merit and relevance of NASA funding proposals, NASA funding decisions were generally consistent with the recommendations of the peer review panels; and (5) NASA efforts to increase the size of its life and microgravity sciences research community are not likely to be adversely affected by the cancellation of the third Spacelab Life Sciences flight, since most of the principal investigators have been accommodated on other space flights and generally will be able to meet their experiment objectives.	5,287	381
SSI provides cash benefits to low-income aged, blind, or disabled people. Currently, the aged SSI population is roughly 1.4 million and the blind and disabled population more than 5.2 million. Those who are applying for benefits on the basis of age must be age 65 or older and be financially eligible for benefits; those who are applying for disability benefits must qualify on the basis of two criteria: financial and disability eligibility. To qualify for benefits financially, individuals may not have income greater than the current maximum monthly SSI benefit level of $484 ($727 for a couple) or have resources worth more than $2,000 ($3,000 for a couple). To be qualified as disabled, applicants must be unable to engage in any substantial gainful activity because of an impairment expected to result in death or last at least 12 months. The process SSA uses to determine an applicant's financial eligibility for SSI benefits involves an initial determination when someone first applies and periodic reviews to determine whether the recipient remains eligible. SSI recipients are required to report significant events that may affect their financial eligibility for benefits, including changes in income, resources, marital status, or living arrangements, such as incarceration or residence in a nursing home. To verify that the information provided by a recipient is accurate, SSA generally relies on matching data from other federal and state agencies, including Internal Revenue Service form 1099 information, Department of Veterans Affairs benefits data, and state-maintained earnings and unemployment benefits data. When SSA staff find discrepancies between income and assets claimed by a recipient and the data from other agencies, they send notices to SSA field offices to investigate further. To determine a person's qualifications for SSI as a disabled person, SSA must determine the individual's capacity to work as well as his or her financial eligibility. To determine whether an applicant's impairment qualifies him or her for SSI benefits, SSA uses state Disability Determination Services (DDS) to make the initial assessment. Once a recipient begins receiving benefits, SSA is required to periodically conduct Continuing Disability Reviews (CDR) to determine whether a recipient's condition remains disabling. Regarding returning recipients to work, the Social Security Act states that to the maximum extent possible, individuals applying for disability benefits should be rehabilitated into productive activity. To this end, SSA is required to refer SSI recipients to state vocational rehabilitation agencies for services intended to prepare them for returning to work. The act also provides various work incentives to safeguard cash and medical benefits while a recipient tries to return to work. To correctly determine an individual's initial and continuing financial eligibility, SSA needs accurate and timely information because it is much easier to prevent overpayments than to recover them. SSA tries to get this information directly from applicants and recipients but also supplements these data through the use of computer matches with other federal and state agencies. To do this, SSA compares federal and state data with information claimed by SSI applicants. In many instances, these matches allow SSA to detect information that SSI recipients fail to report; in other cases, they provide more accurate information. However, our prior reviews have found that data from computer matches are often quite old and sometimes incomplete. For example, computer matches for earned income rely on data that are from 6 to 21 months old, allowing overpayments to accrue for this entire period before collection actions can begin. This puts SSI at risk because it collects only about 15 percent of outstanding overpayments. Another weakness in this process is that SSA does not conduct some matches that could help to detect additional overpayments. For example, SSA has not matched data from Aid to Families With Dependent Children (AFDC) to detect SSI recipients who may be receiving benefits from this program. in SSI benefits, mainly because SSA lacked timely and complete information on their incarceration. Recipients or their representative payees did not report the incarceration to SSA as required, and SSA had not arranged for localities to report such information. SSA told us that it has begun a program to identify SSI recipients in jails who should no longer be receiving benefits. Our ongoing SSI work is identifying similar program problems and weaknesses as those noted in prior reports. For example, SSA staff have indicated that recipients' reporting of changes in living arrangements is frequently subject to abuse. One common scenario involves recipients who become eligible for SSI benefits and shortly thereafter report to SSA that they have separated from their spouse and are living in separate residences. SSA field staff suspect that these reported changes in living arrangements take place because recipients become aware that separate living arrangements will substantially increase their monthly benefits. Another ongoing study of SSI recipients admitted to nursing homes has found that despite SSA procedures and recent legislation to encourage reporting such living arrangement changes, thousands of SSI recipients in nursing homes continue to receive full benefits, resulting in millions of dollars in overpayments each year. This happens because recipients and nursing homes do not report changes in living arrangements and because computer matches with participating states to detect nursing home admissions are not done in a timely manner and are often incomplete. Consequently, these admissions and the resulting overpayments are likely to go undetected for long time periods. In a final area related to financial eligibility, we recently reported that between 1990 and 1994, approximately 3,500 SSI recipients transferred ownership of resources, such as cash, houses, land, and other items valued at an estimated $74 million, to qualify to SSI benefits. This figure represents only transfers of resources that recipients actually told SSA about. Although these transfers are legal, using them to qualify for SSI benefits raises serious questions about SSA's ability to protect taxpayer dollars from waste and abuse and may undermine the public's confidence in the program. SSA has acknowledged and supports the need to work with the Congress to develop legislation to address this problem. can be obtained immediately by SSA staff as soon as requested and used for a variety of purposes, including verifying the amount of AFDC or other benefit income a client reports. After reviewing this SSA initiative, we concluded that nationwide use of online access to state computerized data could prevent or more quickly detect about $130 million in overpayments due to unreported or underreported income in one 12-month period. Online access could save program dollars by controlling overpayments and reducing the administrative expense of trying to recover them. In responding to our review, SSA noted that it was exploring options for expanding online access and was examining the cost-effectiveness of doing so. Although some states can currently provide online access to their data inexpensively and easily, SSA has moved slowly in this area. In addition to state data, online access to other federal agencies' data may help SSA save program dollars. SSA has also moved slowly in this area, however. In addition to financial eligibility, for those who apply for disability benefits, SSA must also determine their disability eligibility or their capacity to work. SSA's lengthy and complicated disability decision-making process results in untimely and inconsistent decisions. Adjudicators at all levels of this process have to make decisions about recipients' work capacity on the basis of complex and often judgmental disability criteria. Determining disability eligibility became increasingly difficult in the early 1990s as younger individuals with mental impairments began to apply for benefits in greater numbers. Generally, mental impairments are difficult to evaluate, and the rates of award are higher for these impairments than for physical impairments. SSA's processes and procedures for determining disability have placed the SSI program at particular risk for fraud, waste, and abuse. For example, in 1995, we reported that SSA's ability to ensure reasonable consistency in administering the program for children with behavioral and learning disorders had been limited by the subjectivity of certain disability criteria. To address these problems, recent welfare reform legislation included provisions to tighten the eligibility rules for childhood disability and remove children from the rolls who have qualified for SSI on the basis of less restrictive criteria. It is too early, however, to tell what impact the new legislation will ultimately have on SSI benefit payments and SSA's ability to apply consistent disability policies to this population. In addition, we reported in 1995 that middlemen were facilitating fraudulent SSI claims by providing translation services to non-English- speaking individuals who were applying for SSI. These middlemen were coaching SSI claimants on appearing mentally disabled, using dishonest health care providers to submit false medical evidence to those determining eligibility for benefits, and providing false medical information on claimants' medical and family history. In one state alone, a middleman arrested for fraud had helped at least 240 people obtain $7 million in SSI benefits. SSI's vulnerability to fraudulent applications involving middlemen was the result of the lack of a comprehensive strategy for keeping ineligible applicants off the SSI rolls, according to our review. SSA told us that half of all SSI's recently hired field office staff are bilingual, a step that it believes will reduce the involvement of fraudulent middlemen. In light of the difficulty of determining disability and SSI's demonstrated vulnerability to fraud and manipulation, periodic reviews are essential to ensure that recipients are disabled. Our work has shown, however, that SSA has not placed adequate emphasis on CDRs of SSI cases. In 1996, we reported that many recipients received benefits for years without having any contact with SSA about their disability. We also noted that SSA performed relatively few SSI CDRs until the Congress mandated in 1994 that it conduct such reviews. Furthermore, SSA's processes for identifying and reviewing cases for continuing eligibility did not adequately target recipients with the greatest likelihood for medical improvement. Currently, SSA is implementing new review requirements in the welfare reform law. In addition, SSA had about 2-1/2 million required CDRs due or overdue in the Disability Insurance (DI) program and 118,000 SSI CDRs due or overdue as of 1996. Despite the importance of CDRs for ensuring SSI program integrity, competing workloads from implementing welfare reform legislation will challenge SSA in completing the required number of SSI CDRs. As mentioned previously, the Social Security Act states that as many people as possible who are applying for disability benefits should be rehabilitated into productive activity. We have found, however, that SSA places little priority on helping recipients move off the SSI rolls by obtaining employment. Yet, if only a small proportion of recipients were to leave the SSI rolls by returning to work, the savings in lifetime cash benefits would be significant. Technological and societal changes in the last decade have raised the possibility of more SSI recipients returning to work. For example, technological advances, such as standing wheelchairs and synthetic voice systems, have made it easier for people with disabilities to enter the workplace. Legislative changes, such as the Americans With Disabilities Act, and social changes, such as an increased awareness of the economic contributions of individuals with disabilities, have also enhanced the likelihood of these individuals finding jobs. During the past decade, the proportion of middle-aged SSI recipients has steadily increased. Specifically, the number of SSI recipients between the ages of 30 and 49 has increased from 36 percent in 1986 to about 46 percent in 1995 to about 1.6 million people. Thus, many SSI recipients have many productive years in which to contribute to the workforce. Despite these factors, SSA has missed opportunities to promote work among disabled SSI recipients. In 1972, the Congress created the plan for achieving self-support (PASS) to help low-income individuals with disabilities return to work. The program allows SSI recipients to receive higher monthly benefits by excluding from their SSI eligibility and benefit calculations any income or resources used to pursue a work goal. SSA pays about $30 million in additional cash benefits annually to PASS program participants. Despite these cash outlays, almost none of the participants leave the rolls by returning to work. SSA has poorly implemented and managed the PASS program. In particular, SSA has developed neither a standardized application containing essential information on the applicant's disability, education, and skills nor ways to measure program effectiveness. We have recommended that SSA act on several fronts to control waste and abuse and evaluate the effect of PASS on recipients' returning to work. In general, SSA has agreed with our recommendations and taken some steps to more consistently administer the PASS program. In the past several months, however, some efforts have begun to place a greater emphasis on returning disabled people to work. The administration is seeking statutory authority to create a voucher system that recipients could voluntarily use to get rehabilitation and employment services from public or private providers and is also seeking legislation to extend medical coverage for recipients who return to work. The Congress has also put forth several proposals in these areas. The problems we have identified in the SSI program are long-standing and have contributed to billions of tax dollars being overpaid to recipients. They have also served to compromise the integrity of the program and reinforce public perceptions that the SSI program pays benefits to too many people for too long. Although many of the changes recently enacted by the Congress or implemented by SSA may result in improvements, the underlying problems still exist. Our work has shown that SSI's vulnerability is due both to problems in program design and inadequate SSA management attention to the program. Revising SSA's approach to managing the program will require sustained attention and direction at the highest levels of the agency as well as actively seeking the cooperation of the Congress in improving the program's operations and eligibility rules. One challenge for the new SSA Commissioner will be to focus greater agency attention on management of SSI and the future viability and integrity of this program. This concludes my prepared statement. I will be happy to respond to any questions you or other members of the Subcommittee may have. For more information on this testimony, please call Jane Ross on (202) 512-7230 or Roland Miller, Assistant Director, on (202) 512-7246. Social Security Disability: Improvements Needed to Continuing Disability Review Process (GAO/HEHS-97-1, Oct. 16, 1996). Supplemental Security Income: SSA Efforts Fall Short in Correcting Erroneous Payments to Prisoners (GAO/HEHS-96-152, Aug. 30, 1996). Supplemental Security Income: Administrative and Program Savings Possible by Directly Accessing State Data (GAO/HEHS-96-163, Aug. 29, 1996). SSA Disability: Return-to-Work Strategies From Other Systems May Improve Federal Programs (GAO/HEHS-96-133, July 11, 1996). Social Security: Disability Programs Lag in Promoting Return to Work (GAO/T-HEHS-96-147, June 5, 1996). SSA Disability: Program Redesign Necessary to Encourage Return to Work (GAO/HEHS-96-62, Apr. 24, 1996). Supplemental Security Income: Some Recipients Transfer Valuable Resources to Qualify for Benefits (GAO/HEHS-96-79, Apr. 30, 1996). PASS Program: SSA Work Incentive for Disabled Beneficiaries Poorly Managed (GAO/HEHS-96-51, Feb. 28, 1996). Supplemental Security Income: Disability Program Vulnerable to Applicant Fraud When Middlemen Are Used (GAO/HEHS-95-116, Aug. 31, 1995). Social Security: New Functional Assessments for Children Raise Eligibility Questions (GAO/HEHS-95-66, Mar. 10, 1995). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 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.	GAO discussed the Social Security Administration's (SSA) Supplemental Security Income (SSI) program and GAO's decision to designate the program one of its high-risk areas. GAO noted that: (1) the SSI program has had significant problems in determining initial and continuing financial eligibility because of the agency's reliance on individuals' own reports of their income and resources and failure to thoroughly check this information; (2) moreover, the judgmental nature of SSA's disability determination process and SSA's past failure to adequately review SSI recipients to determine whether they remain disabled have also exposed the program to fraud, waste, and abuse; (3) SSA is at risk of paying some SSI recipients benefits for too long because it has not adequately addressed their special vocational rehabilitation needs or developed an agencywide strategy for helping recipients who can enter the workforce; (4) the Congress has recently made several changes that address program eligibility issues and increase the frequency of SSA's continuing eligibility reviews; (5) SSA has also begun addressing its program vulnerabilities and has made the prevention of fraud and abuse a part of its plan for rebuilding public confidence in the agency; (6) however, GAO's concerns about underlying SSI program vulnerabilities and the level of management attention devoted to these vulnerabilities continue; and (7) as part of GAO's high-risk work, it is continuing to evaluate the underlying causes of long-standing SSI problems and the actions necessary to address them.	3,622	315
As part of a uniform set of benefits provided to all veterans who enroll in its health care system, VA, through PSAS, provides prosthetic items to veterans. PSAS has budget and management responsibilities for VA's provision of prosthetic items, including allocating funding for prosthetic items to VISNs and VAMCs and ensuring veterans receive prescribed prosthetic items in a timely manner. According to PSAS officials, several factors--including expansions in the types of items VA defines as prosthetic items--contributed to an increased demand for prosthetic items between fiscal years 2005 and 2009. VA, through VHA, operates one of the nation's largest health care systems. VA provides a range of services to veterans who are enrolled in its health care system, such as preventive and primary health care, a full range of outpatient and inpatient services, and prescription drugs. VA's outpatient care includes providing prosthetic items to those veterans disabled as a result of amputation or permanent impairment of a body part or function. VA classifies a variety of medical devices and equipment as prosthetic items, including artificial arms and legs, eyeglasses, hearing aids, hearing aid batteries, home dialysis equipment and supplies, home respiratory aids, hospital beds, orthoses (orthotic braces, supports, and footwear), pacemakers, telehealth equipment, and wheelchairs. These items range in price, including a cane tip that costs about $2 as well as a microprocessor-controlled knee which can cost more than $100,000. In addition, while the vast majority of prosthetic items are purchased from outside vendors, VA fabricated nearly 4 percent of the artificial limbs and orthoses provided to veterans in fiscal year 2009. Table 1 shows the types of prosthetic items VA provides and specific examples of each type. In fiscal year 2009, the type of prosthetic items for which VA spent the largest amount was surgical implants, which accounted for 27 percent of the more than $1.6 billion VA spent for prosthetic items that year. (See fig. 1.) See appendix I for information on the total costs of and number of prosthetic items provided to veterans in fiscal years 2005 through 2009. The funding VA uses to procure prosthetic items for veterans is made available as part of the appropriations process for VA's health care services. Each year, VA formulates its annual health care budget by developing estimates of its likely spending for all of its health care services, including prosthetic items. We have previously noted that the formulation of VA's budget is challenging, as it is based on assumptions and imperfect information on the health services VA expects to provide. For example, VA is responsible for anticipating the service needs of very different veteran populations--including an aging veteran population and a growing number of veterans returning from military operations in Afghanistan and Iraq--and for calculating future costs associated with providing health care services to these populations. VA uses an actuarial model to develop its budget estimates for most of its health care services, including estimates for prosthetic items, and incorporates these estimates in the department's annual congressional budget justification to the appropriations subcommittees. Rather than receiving an appropriation for each individual health care service it provides, VA receives an appropriation for all its health care services--the Medical Services appropriation. As a result, VA has considerable discretion in how it allocates appropriated funding among its various health care services. VA allocates the Medical Services appropriation either as specific purpose funding or general purpose funding. Where specific purpose funding is restricted to the purposes of individual health care services, such as organ transplant services or readjustment counseling, general purpose funding may be used to cover costs related to any health care service, including services for which specific purpose funding may be insufficient. While most of the funding from the Medical Services appropriation is distributed among the VISNs and ultimately to the VAMCs, according to VA officials, VA also maintains a national reserve to provide additional funding, when needed, to VISNs and VAMCs, as well as for those health care services for which VA allocates specific purpose funds. In addition, during the course of a fiscal year, VA may reallocate funding--that is, adjust how the department allocates its funding--to match spending needs, including redesignating specific purpose funds as general purpose funds or vice versa. Citing significant decreases in the level of care and timely delivery of prosthetic items, VA designated funding for prosthetic items as specific purpose funding in 2001. In general, VA allocates specific purpose funds to PSAS, which in turn allocates them to VISNs; VISNs then allocate funds to VAMCs. These specific purpose funds are for the procurement of prosthetic items as well as the procurement of various components for VA- fabricated or VA-repaired prostheses and orthoses. According to VA officials, these funds do not cover administrative and clinical costs, such as the salaries and benefits of PSAS personnel or labor costs associated with VA fabrication of prosthetic items. Typically, these administrative and clinical costs are covered by a VISN's or VAMC's general purpose funds. In addition, VISNs and VAMCs may use their general purpose funds for prosthetic items if spending needs exceed the amount available in specific purpose funds. After physicians and other clinicians at VA medical facilities determine the prosthetic needs of veterans and prescribe specific prosthetic items to meet those needs, PSAS is responsible for processing the prescriptions and providing the prescribed prosthetic items to individual veterans. According to PSAS officials, purchasing agents, generally located at VAMCs, perform administrative actions to process prescriptions for prosthetic items. These administrative actions include activities such as requesting and obtaining additional information from a prescribing clinician, obtaining a price quote from a contractor, and creating a purchase order to authorize the procurement and shipment of an over-the- counter item or the fabrication of a custom-ordered item. PSAS officials stated that the processing of the prescription is considered complete when a prosthetic item has been issued to the veteran from PSAS's inventory or a purchase order is created for the item. PSAS also has some clinical staff--prosthetists and orthotists--who provide clinical services related to the provision of artificial limbs and orthoses, including participating in the evaluations of prosthetic needs for amputees and, subsequently, designing, fabricating, fitting, and adjusting artificial limbs and custom orthoses. PSAS officials reported that they provide varying levels of services related to the design, fabrication, fitting, and delivery of artificial limbs and orthoses at 77 locations. PSAS officials are also responsible for the overall administration of VA's provision of prosthetic items. Specifically, PSAS officials in VA's central office establish national policies and procedures on VA's provision of prosthetic items; allocate VA specific purpose funding for prosthetic items among the 21 VISNs; monitor the spending of this specific purpose funding and, if appropriate, facilitate the reallocation of funding among the VISNs; and establish and monitor mechanisms, such as performance measures and goals, to evaluate VA's performance in providing prosthetic items. VISN prosthetic representatives (VPR), located within each of VA's 21 VISNs, further allocate specific purpose funding among their VAMCs and, with the assistance of local prosthetics chiefs, support central office efforts to monitor VA's spending for prosthetic items and VA's performance in providing prosthetic items. Between fiscal years 2005 and 2009, the annual number of veterans who received prosthetic items through PSAS increased about 50 percent and the total amount VA spent on those items grew by about 60 percent. According to VA officials, a number of factors have contributed to this growth and may contribute to expected increases in the future. These factors include the following: VA has expanded the medical devices and equipment it classifies as prosthetic items. For example, during fiscal year 2008, VA classified biological implants, such as bone and tissue grafts, as prosthetic items. In fiscal year 2009, VA spent about $21 million on biological implants. New technologies in prosthetic items available to veterans may increase costs. For example, in the fall of 2010, PSAS plans to begin providing the X2 microprocessor knee--the latest generation of components for prosthetic legs--to some veterans. According to PSAS officials, this component is expected to add about $40,000 to the cost of each prosthesis using this technology. VA guidance clarifying veteran eligibility for certain prosthetic items expanded the number of veterans receiving prosthetic items. For example, in October 2008, VA released a directive restating the department's policy on veteran eligibility for eyeglasses. As result, the number of eyeglasses VA provided to veterans increased by nearly 22 percent, from about 830,000 pairs in fiscal year 2008 to more than 1 million pairs in fiscal year 2009. In addition, VA expanded eligibility for enrollment in its health care system. In 2009, VA raised the income thresholds that define certain veterans' eligibility for VA health care services, resulting in approximately 260,000 additional veterans gaining eligibility. This may also have increased the number of prosthetic items provided. In each of fiscal years 2005 through 2009, VA's actual spending needs for prosthetic items differed from the estimates VA reported in its congressional budget justifications for those years, on which the initial allocation to PSAS for prosthetic items was based. As shown in figure 2, VA spent less for prosthetic items than it had estimated in its justifications for fiscal years 2006 and 2007. These differences--about $82 million in fiscal year 2006 and about $150 million in fiscal year 2007--represented 7 and 12 percent, respectively, of VA's actual spending for prosthetic items during those fiscal years. In fiscal years 2005, 2008, and 2009, VA spent about $91 million, $83 million, and $183 million more, respectively, than originally estimated (9, 6, and 11 percent, respectively, of VA's spending for prosthetic items in those fiscal years). VA officials from the VHA Office of Finance and PSAS central office said that they did not perform analysis to determine the specific reasons for the differences between VA's budget estimates and its actual spending for prosthetic items in a given fiscal year. PSAS officials reported that they do perform some analysis to identify new trends in VA's spending for prosthetic items, which are taken into account when allocating specific purpose funding for prosthetic items. According to officials, to develop the budget estimates, VHA's Office of Finance uses the most recently available spending and utilization data in its actuarial model. They noted, however, that these data are 3 years old at the time VA begins to develop budget estimates for a new fiscal year--for example, the actuarial model in VA's 2010 budget estimate used spending and utilization data from fiscal year 2007. This, coupled with the increased demand for prosthetic items, makes it more difficult to accurately estimate year-to-year PSAS funding needs, according to VA officials. PSAS central office officials reported that they depend upon staff at the VISNs and VAMCs to identify local factors, such as a new surgical service, that could increase demand for prosthetic items, in order to develop more up-to-date estimates for the purpose of allocating specific purpose funding for prosthetic items to VISNs and VAMCs. PSAS officials at each of the 13 VAMCs in our sample identified numerous local factors that can affect spending for prosthetic items during a particular fiscal year. For example, at one VAMC, the prosthetics chief said that the hiring of a new surgeon was expected to increase local spending for certain surgical implants, such as pacemakers, by more than $300,000. This same prosthetics chief also noted that recent increases in the diagnosis and treatment of sleep apnea resulted in an increase of nearly $380,000 in local spending for prosthetic items. In 4 of the 5 fiscal years we reviewed, VA reallocated the funding available for prosthetic items--that is, adjusted the amount of the specific purpose funding for these items--in an effort to better match specific purpose funds for prosthetic items with actual spending needs. Specifically, in fiscal years 2006, 2007, and 2009, VA reduced the amount of specific purpose funding for prosthetic items. During fiscal year 2008, VA allocated an additional $56 million in specific purpose funds from the department's national reserve in order to meet a request from PSAS for additional funding. (See table 2.) VA based these reallocations on projections of annual spending for prosthetic items developed throughout each fiscal year using year-to-date information on spending. Each year during the third quarter of the fiscal year, for example, VA uses the amount spent on prosthetic items through the first two quarters of the fiscal year to project spending for the rest of the fiscal year and reallocates funding to adjust the amount of specific purpose funding available for prosthetic items accordingly. In addition to the efforts VA made at the national level to reallocate funds to better match specific purpose funding for prosthetic items with actual spending needs, for 3 of the 5 fiscal years we reviewed, some VISNs and VAMCs used general purpose funds for prosthetic items. VA policy requires that VISNs provide additional funding to PSAS, when necessary, from general purpose funding to ensure the provision of prosthetic items is not delayed for lack of funding. In fiscal years 2005, 2007, and 2008, VISNs and VAMCs provided $91 million, $5 million, and $27 million, respectively, from their general purpose funds to address the difference between allocated specific purpose funding and actual spending needs for prosthetic items. (See fig. 3.) While VHA and PSAS officials acknowledge the use of general purpose funds for prosthetic items reduced the funding available for other purposes, they emphasized that this use did not compromise any veteran's medical care. PSAS has performance measures that monitor the timeliness of its processing of prosthetic prescriptions and a number of veteran feedback mechanisms to identify problems in how it provides prosthetic items to veterans. In fiscal year 2009, PSAS's performance measures showed that nearly all of its prescriptions for prosthetic items met its performance goals. While in many cases, PSAS's performance measures serve as a reasonable proxy for monitoring the timeliness of veterans' receipt of their prosthetic items, they may miss some instances in which veterans experience long wait times. Recognizing this shortcoming, PSAS officials rely on a number of other mechanisms--such as feedback submitted through telephone calls from veterans and receipt of veteran evaluation cards--to obtain information on veteran satisfaction that may alert them of timeliness or other problems not reflected in its performance measures. During fiscal years 2005 through 2009, PSAS had in place and monitored two performance measures that assessed the timeliness of administrative actions related to processing prosthetic prescriptions. The first measure, called "delayed orders," assessed the percentage of prosthetic prescriptions for which the first administrative action related to the prescription, such as researching the cost of the prosthetic item from different commercial vendors, occurred more than 5 business days after the clinical provider submitted it. PSAS's performance goal related to this measure was to have no more than 2 percent of orders categorized as delayed orders. The second measure, called "consults pending," assessed the percentage of prosthetic prescriptions that took more than 45 business days to complete the administrative process associated with ordering the prosthetic item; that is, from the time the first administrative action was taken to the time PSAS determined that the order was complete. PSAS's related performance goal was to have no consults pending; that is, to administratively process all prescriptions within 45 business days. For fiscal year 2009, PSAS basically met both of its goals related to the delayed orders and consults pending performance measures. PSAS calculated its performance relative to these performance measures for processing all prosthetic prescriptions submitted at each of its VAMCs and VISNs during the year. Based on its calculations, PSAS met its delayed order goal of no more than 2 percent delayed orders, and slightly missed its goal of having no consults pending by about 0.3 percent. According to VA, the delayed order and consults pending measures in many cases accurately reflected the timeliness of processing of prosthetic items. However, because of a weakness in PSAS's consults pending measure, some prescriptions that took longer than 45 business days to process were not detected by the measure. Specifically, PSAS officials found that prescriptions could be cancelled and reentered, effectively resetting the clock on their processing time. In one VAMC we visited, for example, the prosthetics chief noted that the VAMC was receiving a number of complaints from veterans on the timely receipt of their prosthetic items. Upon further investigation, she identified more than 3,000 unprocessed prosthetic prescriptions that were not reflected in the VAMC's consults pending measure because the computer system used to process prescriptions allowed purchasing agents to cancel and reenter the prescriptions that were not meeting the 45 business day goal. According to PSAS officials, there are a number of legitimate reasons why processing the prescription for prosthetic items can take longer than 45 days to complete. However, this prosthetics chief told us that, due to high purchasing agent workloads, some of the delays she identified most likely represented orders for prosthetic items that fell through the cracks, and veterans may not have received their prosthetic items until 5 or 6 months after their prescriptions were submitted. Recognizing the limitation in its consults pending measure, PSAS started-- at the beginning of fiscal year 2010--to use a new measure, called the "timeliness monitor," which according to PSAS officials was designed to better assess the timeliness of the complete administrative process of providing a prosthetic item to a veteran and provide better assurance that a prosthetic item was provided in a timely manner. Specifically, PSAS officials said that the timeliness monitor assesses whether both the goals for the delayed order and consults pending measures were met, and whether the prescription was completed by either issuing a prosthetic item directly to the veteran from PSAS's inventory, or generating a purchase order for the item. PSAS's goal related to the new timeliness monitor is to have 95 percent of prosthetic prescriptions meet the timeliness monitor performance measure, according to PSAS officials. In the first quarter of fiscal year 2010, PSAS's timeliness monitor showed that less than 83 percent of prescriptions for prosthetic items met the time frames in the timeliness monitor performance measure. According to PSAS officials at two VISNs, one factor that played a significant role in PSAS not meeting its goal for the timeliness monitor was that the new measure may recognize some prescriptions as incomplete when actually they have been completely processed by PSAS staff. For example, if a veteran does not return to the VAMC to pick up a custom-fit item, such as a pair of orthopedic shoes, the item would not be recorded on the veteran's prosthetic record even though PSAS staff had completed the administrative process related to the item and it was available for pick up. PSAS officials told us that they are updating their system to allow purchasing agents to close prescriptions that were processed by PSAS but not recorded in a veteran's record for legitimate reasons, effectively excluding these prescriptions from being considered in the timeliness monitor. According to PSAS officials, once the system is updated, PSAS's timeliness monitor scores should improve considerably. An additional weakness of VA's performance measures--both with the new "timeliness monitor" and the former "consults pending" measure--is that these measures do not always identify cases in which a veteran waits a long time to receive an item. In many cases, the administrative actions related to prosthetic prescriptions do serve as a reasonable proxy for monitoring the timeliness of when veterans received their prosthetic items. For example, when a veteran receives an item out of inventory at a VAMC, the time the prescription is recorded as complete reflects the time that the veteran received their prosthetic item. However, the completion of processing of a prescription does not always correspond with the time at which the veteran receives the item. In particular, delays that occur for items that must be fabricated for the veteran or are back-ordered by a vendor are not reflected in VA's performance measures. For example, according to the prosthetics chief at one VAMC we visited, veterans routinely waited 10 to 12 weeks to receive eyeglasses because of manufacturing delays at the facility that produced the eyeglasses--even though PSAS processed the eyeglass prescriptions in a timely manner. That is, once the purchase order was sent to the facility to manufacture the eyeglasses, VA's system considered the processing of the prescription to be complete. Officials reported that the VA optical laboratory could not meet the unexpected increase in demand that followed guidance that VA issued in October 2008. This guidance restated the department's policy that veterans whose vision impairment interferes with their participation in their own medical treatment are eligible to receive eyeglasses. The prosthetics chief at the VAMC explained that through feedback from veterans, they became aware of these delays. The VA optical laboratory has since taken steps to improve wait times, including authorizing overtime and using commercial vendors. Further, officials told us that they are planning a renovation of the optical laboratory to improve its operations. PSAS officials stated that they recognize their performance measures have limitations and that they rely on a number of feedback mechanisms-- described below--to alert them of timeliness or other problems not reflected in PSAS's performance measures. At a national level, PSAS uses additional mechanisms to identify timeliness or other problems which are not captured by its performance measures. These include the following: Comments or complaints on VA's Web site. When VA receives comments, complaints, or other inquiries related to prosthetics through its Web site, the department directs the information to PSAS's central office, according to PSAS officials. PSAS's central office either handles the inquiry directly, or routes it to the relevant location or service, such as a VISN or VAMC, to resolve. As of July 2010, PSAS central office officials reported that they have responded to and closed more than 2,085 inquiries received through VA's Web site. Direct contact with PSAS staff. PSAS central office, VISNs, and VAMCs receive letters, in-person visits, and telephone calls from veterans about complaints or problems with prosthetic items, according to VA officials we spoke with. If these complaints come in through contacts with PSAS staff at the central office, VISN, or VAMC leadership, the complaints or problems are generally passed on to PSAS staff at the VAMC level for direct action. PSAS officials told us that it is PSAS's policy to handle complaints and problems in the most direct manner. For example, in one VAMC we visited, officials said that when they receive a complaint, they pass it on to the PSAS purchasing agent responsible for ordering the prosthetic item. The purchasing agent is then responsible for contacting the patient to resolve the complaint or problem. PSAS central office officials reported that while individual VISNs and VAMCs may, to varying degrees, track patient complaints made in person or by letter or telephone, PSAS central office does not systematically track these complaints. In addition to efforts initiated nationally, some VISNs and VAMCs we visited reported that they have developed local mechanisms to further monitor veteran satisfaction with VA's processing and providing prosthetic items: VISN-sponsored surveys. One VISN we visited conducts patient satisfaction surveys of veterans who receive prosthetic items from the VAMCs in the VISN. On a quarterly basis, PSAS personnel at the VISN send these surveys directly to a sample of veterans who have received prosthetic items requesting veterans to rate aspects of PSAS's performance such as the quality of the prosthetic items they received, the instructions they received, the courtesy and knowledge of the prosthetic staff that they came in contact with, and the time it took to deliver the prosthetic items. The patients return the surveys to the VISN, where PSAS staff summarize the results of the surveys and provide quarterly reports to the prosthetics chiefs and leadership in each of the VAMCs. The VISN requires prosthetics chiefs at VAMCs with a patient satisfaction score below the VISN's established goal to develop improvement plans. VISN PSAS staff told us that the surveys have enabled them to identify problems and make improvements in how PSAS staff at the VAMCs interact with veterans, how PSAS staff process prosthetic prescriptions, and in the timeliness and quality of the services provided by vendors, such as home oxygen suppliers. Vendor evaluation cards. PSAS officials at one VISN reported that their VISN required some of their vendors--such as vendors for home oxygen and durable medical equipment--to include a patient comment card with the delivery of the prosthetic items. Veterans return these comment cards to the VISN where VISN PSAS officials review the comments and forward relevant information to VAMC prosthetics offices on at least a quarterly basis. VAMC comment cards. Several VAMCs in our sample provided their own comment cards. Typically, these cards are or will be made available at the PSAS counter and waiting area. PSAS officials at these VAMCs told us that they collect and review the comment cards they receive and address the comments veterans make concerning VA's processing and providing of prosthetic items on a case-by-case basis. Letters informing veterans to expect delivery of prosthetic items. Officials at two of the five VISNs we visited told us that they use a feature in PSAS's system for processing prescriptions to generate and send a letter to a veteran each time a prescription is processed. These letters provide information such as the date the prosthetic item was ordered from a vendor, the date the veteran can expect to receive the prosthetic item, and contact information for the PSAS staff responsible for monitoring the order. PSAS officials expressed confidence that, together, the mechanisms they have in place would alert them of serious timeliness and veteran satisfaction issues. Officials at PSAS's central office, the VISNs, and the VAMCs in our sample told us about a number of local, regional, and national efforts to enhance management effectiveness and efficiency and improve prosthetic services for veterans. PSAS staff at the 13 VAMCs in our sample reported that they had undertaken local efforts to improve performance. For example, PSAS personnel at one VAMC were working to obtain funding from VA's Office of Rural Health to place orthotic fitters--technicians who fit orthoses--at community-based outpatient clinics. By placing fitters in these clinics, PSAS officials hope to improve access for veterans--for example, to eliminate the need for veterans to travel for several hours to a VAMC to be fitted for and obtain their orthotic shoes--as well as to relieve the workload of prosthetists and orthotists at the VAMCs in this VISN. In addition, 6 of the 13 VAMCs in our sample had recently completed renovations, were in the process of renovating, or were planning renovations of their laboratories and clinical space. PSAS officials explained that the purpose of these renovations was to provide greater patient privacy or increase their capacity to fabricate artificial limbs within the VAMCs. Some officials further explained that increasing the capacity of their prosthetic laboratories would allow more veterans to receive their prosthetic limbs directly from the VA rather than from outside vendors, which could increase convenience for veterans and reduce costs for VA. At the regional level, according to PSAS central officials, 7 of VA's 21 VISNs have chosen to centralize the management of PSAS within the VISN. Under a centralized PSAS management structure, the VPR is in charge of managing all aspects of the provision of prosthetic items in the VAMCs within their VISN, including the hiring and firing of PSAS personnel such as prosthetics chiefs and purchasing agents, and resolving veterans' complaints. PSAS's central office has recommended that VISNs adopt this management structure for PSAS for more than a decade, but as part of VA's overall decentralized management structure, each VISN's leadership has the authority to determine how PSAS is managed in its region. Although PSAS's central office has not collected performance data conclusively showing the benefits of centralized management, officials we spoke with identified several potential benefits. PSAS central office officials stated that a centralized management structure allows for resource sharing within the VISN--for example, PSAS purchasing agents at one VAMC performing duties for other VAMCs within the VISN--and helps ensure greater uniformity of supervision and services. PSAS and VISN officials at three VISNs we visited that had centralized management noted that because centralization shifts costs and decisions related to PSAS personnel from the VAMCs to the VISN, PSAS avoids competing with other health care services within VAMCs for staff resources. Officials in two of these VISNs also stressed that centralization not only improved efficiency by facilitating the development and implementation of standardized procedures for processing prosthetic prescriptions across the VISN, but also enhanced veteran care by moving some of the day-to- day administrative tasks up to the VISN, thus freeing PSAS staff at the VAMCs to devote more time to meeting veterans' needs. While in general, the officials we spoke with--both at PSAS's central office and at VISNs that had adopted a centralized approach to managing PSAS--supported centralization, a few VAMC officials in some centralized VISNs expressed some concerns. For example, VAMC officials at two VAMCs we visited said that although PSAS was currently meeting the needs of veterans at their facilities, they were concerned that under a centralized management structure local leadership might not have the authority to take appropriate action if the performance of local PSAS staff was not satisfactory. In addition, one of these officials noted that under a prior director, centralization had contributed to a lack of communication between PSAS personnel and VAMC leadership. Specifically, it was their understanding that, since PSAS staff reported directly to the VISN rather than the leadership at that VAMC, the previous VAMC leadership had at times not included PSAS staff in management meetings and decisions that affected PSAS. PSAS has a number of national efforts to improve the delivery of prosthetic items across VA. These efforts include developing national contracts, conducting site visits to poorly performing VAMCs, providing clinical practice recommendations for physicians who prescribe prosthetic items, obtaining accreditation and certification for prosthetic laboratories and staff, and training new management staff. National contracts. PSAS uses national contracts that, according to PSAS officials, provide prosthetic items to veterans across the country in a more consistent, timely, and cost-efficient manner. PSAS first used national contracts to purchase prosthetic items in fiscal year 2002, and in fiscal year 2009, PSAS had 49 national contracts for prosthetic items ranging from orthopedic shoes and diabetic socks to implantable joints and cardiac pacemakers. According to PSAS officials, national contracts can improve efficiency and timeliness because the specifications, price, and shipping requirements for prosthetic items are determined by the contract rather than by individual purchasing agents. These contracts also help ensure that the quality of the prosthetic items provided to veterans is consistent across the country. According to PSAS officials, PSAS's use of national contracts has resulted in substantial cost savings since fiscal year 2002. Site visits. Officials from PSAS central office told us that they have begun to conduct site visits to review PSAS operations in a number of VAMCs. Specifically, PSAS officials told us that they are conducting site visits to identify staffing or other problems that lead to poor performance and to make recommendations that should lead to faster and more consistent prosthetic services for veterans at these facilities. For the initial visits, PSAS selected VAMCs and VISNs that performed poorly on PSAS's performance measures, such as its consults pending measure. As of June 2010, PSAS staff had conducted 42 site visits, and PSAS officials said they plan to conduct reviews in all 153 VAMCs. Clinical practice recommendations. PSAS has developed 40 clinical practice recommendations, which are guidance documents to help VA clinical staff make appropriate decisions about prosthetic prescriptions. These include prescribing recommendations for orthotic devices, home oxygen equipment, pacemakers, and hip and knee joint replacements. According to PSAS officials, these recommendations help ensure that prosthetic items are provided to veterans in a more consistent manner across the country. Accreditation and certification. PSAS has implemented an initiative to provide additional assurance that VA is providing high-quality prosthetic services and to develop the technical and management skills of PSAS staff. In fiscal year 2007, PSAS established a policy to obtain accreditation for its orthotic and prosthetic laboratories, and certification for all clinical personnel. According to PSAS officials, as of September 2010, PSAS had obtained accreditation, or the accreditation was pending, for nearly all of its 77 orthotic and prosthetic service locations, and certification for 165 of its 172 orthotists, prosthetists, and fitters. Management training. PSAS created a technical intern program to train prospective managers on the operations of PSAS at the VAMC level. According to VA officials, this program is important because a large number of the prosthetics chiefs are nearing retirement and in many cases there are few experienced staff who could replace them. We provided a draft of this report to VA for review. We received technical comments from VA, which we incorporated as appropriate. We are sending copies of this report to the Secretary of Veterans Affairs, appropriate congressional committees, and other interested parties. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. This appendix provides the results of our analysis of data from the National Prosthetic Patient Database (NPPD)--an internal database used by the Department of Veterans Affairs (VA) to administer its provision of prosthetic items that contains information on prosthetic items furnished to veterans. This appendix presents the total costs and number of prosthetic items provided to veterans in fiscal years 2005 through 2009. Table 3 shows the total costs and number of prosthetic items provided to veterans by type of prosthetic item. For fiscal year 2009, the total cost for various types of prosthetic items ranged from about $93 million for orthoses to about $439 million for surgical implants. Table 4 shows the total costs and number of prosthetic items provided to veterans by Veterans Integrated Service Network (VISN). For fiscal year 2009, the total costs for prosthetic items for VISNs ranged from about $34 million in VISN 5 (Capitol Health Care Network) to about $164 million in VISN 8 (VA Sunshine Healthcare Network). Table 5 shows the total costs and number of prosthetic items provided to veterans by VA station. For fiscal year 2009, the total costs of prosthetic items at individual stations that provided any prosthetic items ranged from less than $1 million at Pittsburgh HCS-Highland Dr., Chattanooga, and several other stations to about $39 million at the San Antonio VAMC. In addition to the contact named above, Kim Yamane, Assistant Director; Susannah Bloch; Matthew Byer; Aaron Holling; Lisa Motley; Daniel Ries; and Said Sariolghalam made key contributions to this report.	In fiscal year 2009, the Department of Veterans Affairs (VA) provided more than 59 million prosthetic items to more than 2 million veterans. After VA physicians and other clinicians prescribe prosthetic items, VA's Prosthetic and Sensory Aids Service (PSAS) is responsible for processing prescriptions and providing prosthetic items to veterans. PSAS is also responsible for managing VA's spending for prosthetic items--more than $1.6 billion in fiscal year 2009. In fiscal year 2008, this spending exceeded VA's budget estimates. Each year, VA makes an initial funding allocation for prosthetic items, and may reallocate by increasing or decreasing the funding available for prosthetic items during the fiscal year. GAO was asked to examine (1) how, for fiscal years 2005 through 2009, VA's spending for prosthetic items compared to budget estimates, and the extent to which VA reallocated funding for prosthetic items; (2) how PSAS monitors its performance in processing and providing prosthetic items to veterans; and (3) the efforts VA has undertaken to improve PSAS's performance. GAO reviewed VA's spending and funding allocation data for fiscal years 2005 through 2009. GAO also reviewed documents and interviewed VA officials at headquarters, 5 of VA's 21 regional health care networks, called VISNs, and 13 VA medical centers (VAMC). VA spending for prosthetic items for each of fiscal years 2005 through 2009 differed from budget estimates, varying in amounts--both under and over budget estimates--ranging from 6 to 12 percent of VA's overall spending for prosthetic items during the 5 fiscal years. In fiscal years 2005, 2008, and 2009, VA spent about $91 million, $83 million, and $183 million more, respectively, than VA originally estimated for its congressional budget justification. Conversely, in fiscal years 2006 and 2007, VA spent about $82 million and about $150 million less, respectively, for prosthetic items than estimated. VA officials reported that they did not perform analysis to determine the specific causes of these differences, but that new trends are taken into account when allocating funding to be used for prosthetic items. In an effort to more closely match funds available for prosthetic items to actual spending needs, VA reallocated the funding available to PSAS and relied on VISNs and VAMCs to address the need for additional funding for prosthetic items at specific VA locations. For example, in fiscal year 2008, when an additional $83 million in funding was required for prosthetic items, VA reallocated $56 million to PSAS and VISNs and VAMCs covered $27 million in spending for prosthetic items. PSAS has performance measures that monitor the timeliness of its processing of prosthetic prescriptions and a number of veteran feedback mechanisms to identify problems in how it provides prosthetic items to veterans. In fiscal year 2009, PSAS's performance measures showed that nearly all of its prescriptions for prosthetic items met its performance goals. While in many cases, PSAS's performance measures serve as a reasonable proxy for monitoring the timeliness of veterans' receipt of their prosthetic items, they may miss some instances in which veterans experience long wait times. Recognizing this shortcoming, PSAS officials rely on a number of other mechanisms--such as telephone calls from veterans and receipt of veteran evaluation cards--to obtain information on veteran satisfaction that may alert them to timeliness or other problems not reflected in their performance measures. VA is making a number of efforts at various levels to improve its performance in providing prosthetic items to veterans. For example, in 7 of VA's 21 VISNs, PSAS personnel at the VISN level centrally manage the provision of prosthetic items at all of the VAMCs in their region. According to VA officials in several VISNs that have adopted this centralized management structure, giving VISN-level PSAS personnel more authority has allowed local PSAS personnel at the VAMCs to devote more time to meeting veterans' needs, and in some cases, has enhanced management effectiveness and efficiency. At the national level, in fiscal year 2009, PSAS had 49 national contracts for prosthetic items, which, according to PSAS officials, help ensure that the quality of prosthetic items provided to veterans is consistent across the country. VA provided technical comments that GAO incorporated as appropriate.	7,772	910
From May 2003 through June 2004, the Coalition Provisional Authority (CPA), led by the United States and the United Kingdom, was the UN-recognized coalition authority responsible for the temporary governance of Iraq and for overseeing, directing, and coordinating the reconstruction effort. In May 2003, the CPA dissolved the military organizations of the former regime and began the process of creating or reestablishing new Iraqi security forces, including the police and a new Iraqi army. Over time, multinational force commanders assumed responsibility for recruiting and training some Iraqi defense and police forces in their areas of responsibility. In May 2004, the President issued a National Security Presidential Directive, which stated that, after the transition of power to the Iraqi government, the Department of State (State), through its ambassador to Iraq, would be responsible for all U.S. activities in Iraq except for security and military operations. U.S. activities relating to security and military operations would be the responsibility of the Department of Defense (DOD). The Presidential Directive also established two temporary offices: (1) the Iraq Reconstruction and Management Office to facilitate transition of reconstruction efforts to Iraq and (2) the Project and Contracting Office (PCO) to provide acquisition and project management support for some U.S.-funded reconstruction projects. Other U.S. government agencies also play significant roles in the reconstruction effort. USAID is responsible for projects to restore Iraq's infrastructure, support healthcare and education initiatives, expand economic opportunities for Iraqis, and foster improved governance. The U.S. Army Corps of Engineers provides engineering and technical services to the PCO, USAID, and military forces in Iraq. On June 28, 2004, the CPA transferred power to an interim sovereign Iraqi government, the CPA was officially dissolved, and Iraq's transitional period began. Under Iraq's transitional law, the transitional period covers the interim government phase (from June 28, 2004, to January 30, 2005) and the transitional government phase, which is currently scheduled to end by December 31, 2005. Under UN Resolution 1546, the Multi-National Force - Iraq (MNF-I) has the authority to take all necessary measures to contribute to security and stability in Iraq during this process, working in partnership with the Iraqi government to reach agreement on security and policy issues. The Presidential Directive required the U.S. Central Command (CENTCOM) to direct all U.S. government efforts to organize, equip, and train Iraqi security forces. The Multi-National Security Transition Command-Iraq, which operates under MNF-I, now leads coalition efforts to train, equip, and organize Iraqi security forces. The United States is the primary contributor to rebuilding and stabilization efforts in Iraq. U.S. appropriations have been used largely for activities that include the repair of infrastructure, procurement of equipment, and training of Iraqi security forces. International donors have provided a lesser amount of funding for reconstruction and development activities; however, most of the pledged amount is in the form of loans that largely have not been accessed by the Iraqi government. Iraqi funding, under CPA or Iraqi control, has generally supported operating expenses of the Iraqi government. Finally, Iraqi needs may be greater than the funding currently made available. U.S. appropriated funding has largely focused on infrastructure repair and training of Iraqi security forces and this funding has been reallocated as priorities changed. As of August 2005, approximately $30 billion in U.S. appropriations had been made available for rebuilding and stabilization needs in Iraq, about $21 billion had been obligated, and about $13 billion had been disbursed. These funds were used for activities that included infrastructure repair of the electricity, oil, and water and sanitation sectors; infrastructure repair, training, and equipping of the security and law enforcement sector; and CPA and U.S. administrative expenses. Many current U.S. reconstruction efforts reflect initial plans that the CPA developed before June 2004. As priorities changed, particularly since the transition of power to the Iraqi interim government, the U.S. administration reallocated about $5 billion of the $18.4 billion fiscal year 2004 emergency supplemental among the various sectors (see fig. 1). According to State department documents, these reallocations were made to meet immediate needs: in October 2004, for projects in security and law enforcement, economic and private sector development, and governance; in January 2005, for quick-impact projects in key cities; in April 2005, for job creation and essential services activities; and in July 2005, for security force training and election support. As Figure 1 shows, security and justice funds increased while resources for the water and electricity sectors decreased. International donors have provided about $2.7 billion in multilateral and bilateral grants, of the pledged $13.6 billion, for reconstruction activities; however, most of the pledged amount is in the form of loans that largely have not been accessed by the Iraqis. International reconstruction assistance provided in the form of multilateral grants has been used largely for activities such as electoral process support, education and health projects, and capacity building of the ministries. As of August 2005, donors have deposited about $1.2 billion into the two trust funds of the International Reconstruction Fund Facility for Iraq (IRFFI). Of that amount, about $800 million had been obligated and nearly $300 million disbursed to individual projects. Donors have also provided bilateral assistance for Iraq reconstruction activities; however, complete information on this assistance is not readily available. As of August 2005, State has identified $1.5 billion--of the $13.6 billion pledged--in funding that donors have provided as bilateral grants for reconstruction projects outside the IRFFI. About $10 billion, or 70 percent, of the $13.6 billion pledged in support of Iraq reconstruction is in the form of loans, primarily from the World Bank, the International Monetary Fund (IMF), and Japan. According to a State Department official, Iraq is in discussions with the government of Japan and the World Bank for initial projects of lending programs that total about $6.5 billion. As of October 12, 2005, Iraq had accessed a loan of $436 million from the IMF and an initial loan of $500 million from the World Bank, according to a State Department official. Iraqi funds--under the CPA or Iraqi control--primarily have supported the Iraqi operating budget with some focus on relief and reconstruction projects.Of the Iraqi funds under CPA control from May 2003 to June 2004, about $21 billion came from the Development Fund for Iraq (DFI) and $2.65 billion from vested and seized assets from the previous Iraqi regime. The CPA disbursed these Iraqi funds primarily to support the 2003 and 2004 Iraqi budgets for government operating expenses, such as salary payments and ministry operations, the public food distribution system, and regional government outlays. In addition, CPA used Iraqi funds to support efforts such as the import of refined fuels and electricity restoration projects. On June 28, 2004, stewardship of the DFI was turned over to the Iraqi interim government. Proceeds from Iraqi crude oil exports continue to be deposited into the DFI and represent more than 90 percent of the $23 billion in domestic revenue support for the Iraqi 2005 budget. According to Iraq's National Development Strategy, the 2005 Iraqi budget planned for nearly $28 billion in expenditure. These expenditures exceed estimated domestic revenues by $4.8 billion. However, higher than anticipated domestic revenues may offset this deficit. Planned expenditures of this budget include about 37 percent for direct subsidies; about 21 percent for capital investment, especially in the oil and gas sector; about 20 percent for employee wages and pensions; nearly 18 percent for goods and services; and about 4 percent for war reparations. Direct subsidies included the import of gasoline and other refined fuel products (projected to cost $2.4 billion) and Iraqs' public distribution system's basic food basket (projected to cost $4 billion). The Iraqi government continues to develop plans to reform fuel price subsidies, partly due to an agreement with the IMF to reduce subsidies by $1 billion per year, according to IMF and agency documents. In addition to subsidy expenditures, Iraq has planned for capital investment levels of 21 percent from 2005 to 2007. In 2005, the majority of these funds were planned for the oil and gas sector--about $3 billion of about $5 billion in total for various ministries. Initial assessments of Iraq's needs through 2007 by the UN/World Bank and the CPA estimated that the reconstruction of Iraq would require about $56 billion. However, Iraq may need more funding than currently available to meet the needs and demands of the country. The state of some Iraqi infrastructure was more severely degraded than U.S. officials originally anticipated or initial assessments indicated. The condition of the infrastructure was further exacerbated by post-2003 conflict looting and sabotage. For example, some electrical facilities and transmission lines were damaged, and equipment and materials needed to operate treatment and sewerage facilities were destroyed by the looting that followed the 2003 conflict. In the oil sector, a June 2003 U.S. government assessment found that over $900 million would be needed to replace looted equipment at Iraqi oil facilities. In addition, initial assessments assumed reconstruction would take place in a peace-time environment and did not include additional security costs. Further, these initial assessments assumed that Iraqi government revenues and private sector financing would increasingly cover long-term reconstruction requirements. However, private sector financing and government revenues may not yet meet these needs. In the oil sector alone, Iraq will likely need an estimated $30 billion over the next several years to reach and sustain an oil production capacity of 5 million barrels per day, according to industry experts and U.S. officials. The United States faces three key challenges in stabilizing and rebuilding Iraq. First, the unstable security environment and the continuing strength of the insurgency have made it difficult for the United States to transfer security responsibilities to Iraqi forces and engage in rebuilding efforts. Second, inadequate performance data and measures make it difficult to determine the overall progress and impact of U.S. reconstruction efforts. Third, the U.S. reconstruction program has encountered difficulties with Iraq's inability to sustain new and rehabilitated infrastructure projects and to address maintenance needs in the water, sanitation, and electricity sectors. Over the past 2 years, significant increases in attacks against the coalition and coalition partners have made it difficult to transfer security responsibilities to Iraqi forces and engage in rebuilding efforts in Iraq. The insurgency in Iraq intensified in early 2005 and has remained strong since then. Poor security conditions have delayed the transfer of security responsibilities to Iraqi forces and the drawdown of U.S. forces in Iraq. The unstable security environment has also affected the cost and schedule of rebuilding efforts and has led, in part, to project delays and increased costs for security services. The insurgency intensified through early 2005 and has remained strong since then. As we reported in March 2005, the insurgency in Iraq--particularly the Sunni insurgency--grew in complexity, intensity, and lethality from June 2003 through early 2005. Enemy-initiated attacks against the coalition, its Iraqi partners, and infrastructure had increased in number over time, with the highest peaks occurring in August and November 2004 and in January 2005. The November 2004 and January 2005 attacks primarily occurred in Sunni-majority areas, whereas the August 2004 attacks took place countrywide. MNF-I is the primary target of the attacks, but the number of attacks against Iraqi civilians and security forces increased significantly during January 2005, prior to Iraq's national election for a transitional government that was held January 30, 2005. According to the Director of the Defense Intelligence Agency (DIA), attacks on Iraq's Election Day reached about 300, double the previous 1-day high of about 150 attacks on a day during Ramadan in 2004. Although the number of attacks decreased immediately after the January elections, the strength of the insurgency in Iraq has remained strong and generally unchanged since early 2005, according to senior U.S. military officers. As shown in figure 2, although enemy-initiated attacks had decreased in February and March 2005, they generally increased through the end of August 2005. According to a senior U.S. military officer, attack levels ebb and flow as the various insurgent groups--which are an intrinsic part of Iraq's population--rearm and attack again. As DOD reported in July 2005, insurgents share a goal of expelling the Coalition from Iraq and destabilizing the Iraqi government to pursue their individual and, at times, conflicting goals. Iraqi Sunnis make up the largest proportion of the insurgency and present the most significant threat to stability in Iraq. Radical Shia groups, violent extremists, criminals, and, to a lesser degree, foreign fighters, make up the rest. Senior U.S. military officers believe that the insurgents remain adaptive and capable of choosing the time and place of their attacks. These officers have also predicted spikes in violence around Iraq's upcoming constitutional referendum scheduled for October 15, 2005, and the national elections scheduled for December 15, 2005. The continuing strength of the insurgency has made it difficult for the multinational force to develop effective and loyal Iraqi security forces, transfer security responsibilities to them, and progressively draw down U.S. forces in Iraq. In February 2004, the multinational force attempted to quickly shift responsibilities to Iraqi security forces but did not succeed in this effort. Police and military units performed poorly during an escalation of insurgent attacks in April 2004, with many Iraqi security forces around the country collapsing or assisting the insurgency during the uprising. About that time, the Deputy Secretary of Defense said that the multinational force was engaged in combat in Iraq, rather than in peacekeeping as had been expected. The United States decided to maintain a force level of about 138,000 troops until at least the end of 2005, rather than drawing down to 105,000 troops by May 2004 as DOD had announced in November 2003. The United States has maintained roughly the same force level of 138,000 troops in Iraq since April 2004, as it has sought to neutralize the insurgency and develop Iraqi security forces. In late September and early October 2005, the Secretary of Defense and senior U.S. military officers reported on their strategy to draw down and eventually withdraw U.S. forces as Iraq meets certain conditions. These conditions would consider the level of insurgent activity, readiness and capability of Iraqi security forces and government institutions, and the ability of the coalition forces to reinforce the Iraq security forces if necessary. The ability to meet these conditions will be affected by progress in political, economic, and other areas. According to the commanding general of the multinational force, as conditions are met, multinational forces will progressively draw down in phases around the country. By the time the multinational force's end state is achieved, U.S. forces will be withdrawn or drawn down to levels associated with a normal bilateral security relationship. The defined end state is an Iraq at peace with its neighbors, with a representative government that respects the human rights of all Iraqis, and with a security force that can maintain domestic order and deny Iraq as a safe haven for terrorists. DOD and the multinational force face a number of challenges in transferring security responsibilities to the Iraqi government and security forces. As we reported in March 2005, the multinational force faced four key challenges in increasing the capability of Iraqi forces: (1) training, equipping, and sustaining a changing force structure; (2) developing a system for measuring the readiness and capability of Iraq forces; (3) building loyalty and leadership throughout the Iraqi chain of command; and (4) developing a police force that upholds the rule of law in a hostile environment. Further, in a July 2005 report to Congress, DOD noted continuing problems with absenteeism in the Iraqi Army, Police Service, and Border Police; among those units conducting operations; and units relocating elsewhere in Iraq. The report also noted that there was insufficient information on the extent to which insurgents have infiltrated Iraqi security forces. However, in an October 2005 report to Congress, DOD noted insurgent infiltration is a more significant problem in Ministry of Interior forces than in Ministry of Defence forces. Moreover, in early October 2005, senior U.S. military officers noted challenges in developing effective security ministries, as well as logistics capabilities of Iraqi forces. Since March 2005, the multinational force has taken some steps to begin addressing these challenges. For example, the multinational force has embedded transition teams at the battalion, brigade, and division levels of Ministry of Defense forces, as well as in the Ministry of Interior's Special Police Commando battalions, the Civil Intervention Force, and the Emergency Response Unit. Multinational force transition teams conduct new transition readiness assessments that identify the progress and shortcomings of Iraqi forces. According to DOD's report, these assessments take into account a variety of criteria that are similar but not identical to those the U.S. Army uses to evaluate its units' operational readiness, including personnel, command and control, training, sustainment/logistics, equipment, and leadership. The assessments place Iraqi units into one of the following four categories: Level 1 units are fully capable of planning, executing, and sustaining independent counterinsurgency operations. Level 2 units are capable of planning, executing, and sustaining counterinsurgency operations with coalition support. Level 3 units are partially capable of conducting counterinsurgency operations in conjunction with coalition units. Level 4 units are forming or otherwise incapable of conducting counterinsurgency operations. The multinational force is also preparing similar readiness assessments on the Iraqi police through partnerships at the provincial levels. These assessments look at factors that are tailored to the tasks of a police force, including patrol/traffic operations, detainee operations, and case management. According to DOD's October 2005 report and DOD officials, Iraqi combat forces have made progress in developing the skills necessary to assume control of counterinsurgency operations. However, they also recognize that Iraqi forces will not be able to operate independently for some time because they need logistical capabilities, ministry capacity, and command and control and intelligence structures. According to DOD's October 2005 report, Iraq has 116 police and army combat battalions actively conducting counter insurgency operations. This number corresponds to the number of battalions in levels 1, 2, and 3 described above. Of these battalions, 1 battalion was assessed as level 1, that is, fully capable of planning, executing, and sustaining independent counterinsurgency operations. Thirty-seven were level 2, or capable of planning, executing, and sustaining counterinsurgency operations with coalition support; and 78 were level 3--partially capable of conducting counterinsurgency operations in conjunction with coalition units. The assessment of Iraqi units' capabilities also considers the threat level they face. According to a senior U.S. military officer, Iraqi forces have more quickly progressed from level 3 to level 2 in areas that have experienced fewer insurgent attacks, such as southern Iraq. GAO's forthcoming classified report on Iraq's security situation will provide further information and analysis on the challenges to developing Iraqi security forces and the conditions for the phased draw down of U.S. and other coalition forces. The security situation in Iraq has affected the cost and schedule of reconstruction efforts. Security conditions have, in part, led to project delays and increased costs for security services. Although it is difficult to quantify the costs in time and money resulting from poor security conditions, both agency and contractor officials acknowledged that security costs have diverted a considerable amount of reconstruction resources and have led to canceling or reducing the scope of some reconstruction projects. For example, in March 2005, the USAID cancelled two electrical power generation-related task orders totaling nearly $15 million to help pay for increased security costs incurred at another power generation project in southern Baghdad. In another example, work was suspended at a sewer repair project in central Iraq for 4 months in 2004 due to security concerns. In a September 2005 testimony, the Special Inspector General for Iraq Reconstruction and a USAID official also observed that the cost of security had taken money away from reconstruction and slowed down reconstruction efforts. However, the actual cost that security has added to reconstruction projects is uncertain. We reported in July 2005, that, for 8 of 15 reconstruction contracts we reviewed, the cost to obtain private security providers and security-related equipment accounted for more than 15 percent of contract costs, as of December 31, 2004. Our analysis and discussions with agency and contractor officials identified several factors that influenced security costs, including (1) the nature and location of the work, (2) the type of security required and the security approach taken, and (3) the degree to which the military provided the contractor security services. For example, projects that took place in fixed locations were generally less expensive to secure than a project, such as electrical transmission lines, which extended over a large geographic location. In addition, some contractors made more extensive use of local Iraqi labor and employed less costly Iraqi security guards, while others were able to make use of security provided by the U.S. military or coalition forces. Our analysis did not include increased transportation or administrative expenses caused by security-related work stoppages or delays, or the cost associated with repairing the damage caused by the insurgency on work previously completed. We also excluded the cost associated with the training and equipping of Iraqi security forces and the costs borne by DOD in maintaining, equipping, and supporting U.S. troops in Iraq. In July 2005, to improve agencies' ability to assess the impact of and manage security costs in future reconstruction efforts, we recommended that the Secretary of State, the Secretary of Defense, and the Administrator, USAID, establish a means to track and account for security costs to develop more accurate budget estimates. State did not indicate whether it agreed with our recommendation, Defense agreed, and USAID did not comment on the recommendation. In addition, the security environment in Iraq also has led to severe restrictions on the movement of civilian staff around the country and reductions of a U.S. presence at reconstruction sites, according to U.S. agency officials and contractors. For example, work at a wastewater plant in central Iraq was halted for approximately 2 months in early 2005 because insurgent threats drove subcontractors away and made the work too hazardous to perform. In the assistance provided to support the electoral process, U.S. funded grantees and contractors also faced security restrictions that hampered their movements and limited the scope of their work. For example, IFES was not able to send its advisors to most of the governorate-level elections administration offices, which hampered training and operations at those facilities leading up to Iraq's Election Day on January 30, 2005. While poor security conditions have slowed reconstruction and increased costs, a variety of management challenges have also adversely affected the implementation of the U.S. reconstruction program. In September 2005, we reported that management challenges such as low initial cost estimates and delays in funding and awarding task orders have also led to the reduced scope of the water and sanitation program and delays in starting projects. In addition, U.S. agency and contractor officials have cited difficulties in initially defining project scope, schedule, and cost, as well as concerns with project execution, as further impeding progress and increasing program costs. These difficulties include lack of agreement among U.S. agencies, contractors, and Iraqi authorities; high staff turnover; an inflationary environment that makes it difficult to submit accurate pricing; unanticipated project site conditions; and uncertain ownership of projects sites. State has set broad goals for providing essential services, and the U.S. program has undertaken many rebuilding activities in Iraq. The U.S. program has made some progress in accomplishing rebuilding activities, such as rehabilitating some oil facilities to restart Iraq's oil production, increasing electrical generation capacity, restoring some water treatment plants, and reestablishing Iraqi health services. However, limited performance data and measures make it difficult to determine and report on the progress and impact of U.S. reconstruction. For example, in the water and sanitation, health, and electricity sectors, limited performance data and reporting measures are output focused and make it difficult to accurately measure program results and assess the effectiveness of U.S. reconstruction efforts. Although information is difficult to obtain in an unstable security environment, opinion surveys and additional outcome measures have the potential to help determine progress and gauge the impact of the U.S. reconstruction efforts on the lives of the Iraqi people. In the water and sanitation sector, the Department of State has primarily reported on the numbers of projects completed and the expected capacity of reconstructed treatment plants. However, we found that the data are incomplete and do not provide information on the scope and cost of individual projects nor do they indicate how much clean water is reaching intended users as a result of these projects. For example, although State reported that 143 projects were complete as of early July 2005, it could not document the location, scope, and cost of these projects. Moreover, reporting only the number of projects completed or under way provides little information on how U.S. efforts are improving the amount and quality of water reaching Iraqi households or their access to sanitation services. Information on access to water and its quality is difficult to obtain without adequate security or water metering facilities. However, opinion surveys assessing Iraqis' access and satisfaction with water sanitation services have found dissatisfaction with these services. The most recent USAID quality of life survey, in February 2005, found that just over half of respondents rated their water supply as poor to fair and over 80 percent rated their sewerage and wastewater disposal as poor to fair. These surveys demonstrate the potential for gathering data to help gauge the impact of U.S. reconstruction efforts. Limitations in health sector measurements also make it difficult to relate the progress of U.S. activities to its overall effort to improve the quality and access of health care in Iraq. Department of State measurements of progress in the health sector primarily track the number of completed facilities, an indicator of increased access to health care. For example, State reported that the construction of 145 out of 300 health clinics had been completed, as of August 31, 2005. However, the data available do not indicate the adequacy of equipment levels, staffing levels, or quality of care provided to the Iraqi population. Monitoring the staffing, training, and equipment levels at health facilities may help gauge the effectiveness of the U.S. reconstruction program and its impact on the Iraqi people. In addition, opinion surveys assessing Iraqis' access and satisfaction with health services also have the potential for gathering data to help gauge the impact of U.S. reconstruction efforts. For example, the most recent USAID quality of life survey, in February 2005, found that the majority of Iraqis approved of the primary healthcare services they received; although fewer than half of the respondents approved of the level of health care at Ta'mim, Al Basrah, and Maysan governorates. In the electricity sector, U.S. agencies have primarily reported on generation measures such as levels of added or restored generation capacity and daily power generation of electricity; numbers of projects completed; and average daily hours of power. For example, as of May 2005, U.S.-funded projects reportedly had added or restored about 1,900 megawatts of generation capacity to Iraq's power grid. However, these data do not show whether (1) the power generated is uninterrupted for the period specified (eg., average number of hours per day), (2) there are regional or geographic differences in the quantity of power generated, and (3) how much power is reaching intended users. Information on the distribution and access of electricity is difficult to obtain without adequate security or accurate metering capabilities. However, opinion surveys assessing Iraqis' access and satisfaction with electricity services have found dissatisfaction with these services. The February 2005 USAID survey found that 74 percent of the respondents rated the overall quality of electricity supply as poor or very poor. The surveys also found that the delivery of electricity directly influenced the perceived legitimacy of local government for many respondents. These surveys demonstrate the potential for gathering data to help gauge the impact of U.S. reconstruction efforts. In September 2005, we recommended that the Secretary of State address this issue of measuring progress and impact in the water and sanitation sector. State agreed with our recommendation and stated that it is taking steps to address the problem. The U.S. reconstruction program has encountered difficulties with the Iraqis' ability to sustain the new and rehabilitated infrastructure and address maintenance needs. In the water, sanitation, and electricity sectors, in particular, some projects have been completed but have sustained damage or become inoperable due to the Iraqis' problems maintaining or properly operating them. In the water and sanitation sector, U.S. agencies have identified limitations in the Iraqis' capacity to maintain and operate reconstructed facilities, including problems with staffing, unreliable power to run treatment plants, insufficient spare parts, and poor operations and maintenance procedures. As of June 2005, approximately $52 million of the $200 million in completed large-scale water and sanitation projects either were not operating or were operating at lower capacity due to looting of key equipment and shortages of reliable power, trained Iraqi staff, and required chemicals and supplies. For example, one repaired wastewater plant was partially shut down due to the looting of key electrical equipment and repaired water plants in one southern governorate lacked adequate electricity and necessary water treatment chemicals. In addition, two projects lacked a reliable power supply, one lacked sufficient staff to operate properly, and one lacked both adequate staff and power supplies. In response, U.S. agencies have taken initial steps to improve Iraqi capacity to operate and maintain water and sanitation facilities. For example, in August 2005, USAID awarded a contract to provide additional maintenance and training support for 6 completed water and sanitation facilities. The U.S. embassy in Iraq stated that it was moving from the previous model of building and turning over projects to Iraqi management toward a "build-train-turnover" system to protect the U.S. investment. However, these efforts are just beginning, and the U.S. assistance does not address the long-term ability of the Iraqi government to support, staff, and equip these facilities. It is unclear whether the Iraqis will be able to maintain and operate completed projects and the more than $1 billion in additional large-scale water and sanitation projects expected to be completed through 2008. Without assurance that the Iraqis have adequate resources to maintain and operate completed projects, the U.S. water and sanitation reconstruction program risks expending funds on projects with limited long-term impact. In September 2005, we recommended that the Secretary of State address the issue of sustainability in the water and sanitation sector. State agreed with our recommendation and stated that it is taking steps to address the problem. In the electricity sector, the Iraqis' capacity to operate and maintain the power plant infrastructure and equipment provided by the United States remains a challenge at both the plant and ministry levels. As a result, the infrastructure and equipment remain at risk of damage following their transfer to the Iraqis. In our interviews with Iraqi power plant officials from 13 locations throughout Iraq, the officials stated that their training did not adequately prepare them to operate and maintain the new U.S.-provided gas turbine engines. Due to limited access to natural gas, some Iraqi power plants are using low-grade oil to fuel their natural gas combustion engines. The use of oil-based fuels, without adequate equipment modification and fuel treatment, decreases the power output of the turbines by up to 50 percent, requires three times more maintenance, and could result in equipment failure and damage that significantly reduces the life of the equipment, according to U.S. and Iraqi power plant officials. U.S. officials have acknowledged that more needs to be done to train plant operators and ensure that advisory services are provided after the turnover date. To address this issue, USAID implemented a project, in February 2005, to train selected electricity plant officials (plant managers, supervisors, and equipment operators) in plant operations and maintenance. According to DOD, PCO also has awarded one contract and is developing another to address operations and maintenance concerns. Although agencies had incorporated some training programs and the development of operations and maintenance capacity into individual projects, recent problems with the turnover of completed projects, such as those in the water and sanitation and electricity sectors, have led to a greater interagency focus on improving project sustainability. In May 2005, an interagency working group including State, USAID, PCO, and the Corps of Engineers, was formed to identify ways of addressing Iraq's capacity development needs. The working group reported that a number of critical infrastructure facilities constructed or rehabilitated under U.S. funding have failed, will fail, or will operate in sub-optimized conditions following handover to the Iraqis. They found that a number of USAID and PCO projects encountered significant problems in facility management and operations and maintenance when turned over to the Iraqis or shortly thereafter. To mitigate the potential for project failures, the working group recommended increasing the period of operational support for constructed facilities from a 90-day period to a period of up to one year. According to a State department official, as of September 22, 2005, the recommendations are currently under active consideration and discussion by the Embassy Baghdad and Washington. For the past two and half years, the United States has served as the chief protector and builder in Iraq. The long-term goal is to achieve a peaceful Iraq that has a representative government respectful of human rights and the means to maintain domestic order and quell terrorism. To achieve this goal, the United States has provided $30 billion to develop capable Iraqi security forces, rebuild a looted and worn infrastructure, and support democratic elections. However, the United States has confronted a capable and lethal insurgency that has taken many lives and made rebuilding Iraq a costly and challenging endeavor. It is unclear when Iraqi security forces will be capable of operating independently, thereby enabling the United States to reduce its military presence. Similarly, it is unclear how U.S. efforts are helping the Iraqi people obtain clean water, reliable electricity, or competent health care. Measuring the outcomes of U.S. efforts is needed to determine how they are having a positive impact on the daily lives of the Iraqi people. Finally, the United States must ensure that the billions of dollars it has already invested in Iraq's infrastructure are not wasted. The Iraqis need additional training and preparation to operate and maintain the power plants, water and sewage treatment facilities, and health care centers the United States has rebuilt or restored. This would help ensure that the rebuilding efforts improve Iraq's economy and social conditions and establish a secure, peaceful, and democratic Iraq. We will continue to examine the challenges the United States faces in rebuilding and stabilizing Iraq. Specifically, we will examine the efforts to stabilize Iraq and develop its security forces, including the challenge of ensuring that Iraq can independently fund, sustain, and support its new security forces; examine the management of the U.S. rebuilding effort, including program execution; and assess the progress made in developing Iraq's energy sectors, including the sectors' needs, existing resources and contributions, achievements, and future challenges. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions you or the other Subcommittee members may have. For further information, please contact Joseph A. Christoff on (202) 512- 8979. Individuals who made key contributions to this testimony were Monica Brym, Lynn Cothern, Tim DiNapoli, Muriel Forster, Charles D. Groves, B. Patrick Hickey, Sarah Lynch, Judy McCloskey, Kendall Schaefer, Michael Simon, and Audrey Solis. 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.	The United States, along with coalition partners and various international organizations, has undertaken a challenging and costly effort to stabilize and rebuild Iraq following multiple wars and decades of neglect by the former regime. This enormous effort is taking place in an unstable security environment, concurrent with Iraqi efforts to complete a constitutional framework for establishing a permanent government. The United States' goal is to help the Iraqi government develop a democratic, stable, and prosperous country, at peace with itself and its neighbors, a partner in the war against terrorism, enjoying the benefits of a free society and a market economy. In this testimony, GAO discusses (1) the funding used to rebuild and stabilize Iraq and (2) the challenges that the United States faces in its rebuilding and stabilization efforts. This statement is based on several reports GAO has issued to the Congress over the past three months. In July, we issued two reports on (1) the status of funding and reconstruction efforts in Iraq and (2) the use of private security providers in Iraq. We issued two additional reports in September on (1) U.S. reconstruction efforts in the water and sanitation sector and (2) U.S. assistance for the January 2005 Iraqi elections. Finally, we expect to issue shortly a report on U.S. efforts to stabilize the security situation in Iraq (a classified report). This statement includes unclassified information only. The United States is the primary contributor to efforts to stabilize and rebuild Iraq. Since 2003, the United States has made available about $30 billion for activities that include the construction and repair of infrastructure, procurement of equipment, and training and equipping of Iraqi security forces. International donors have pledged $13.6 billion in reconstruction funds (from 2004 through 2007), of which about $2.7 billion was provided in multilateral and bilateral grants through August 2005. However, most of the pledged amount''about $10 billion--is in the form of loans on which the Iraqi government largely has not yet drawn. Iraqi funds have primarily supported the country's operating budget, with some focus on capital improvement projects. For 2005, Iraq planned for about $28 billion in expenditures--largely supported by oil proceeds--to fund salaries, pensions, ministry operations, and subsidies. It is likely that Iraq may need more funds than currently available due to the severely degraded infrastructure, post conflict looting and sabotage, and additional security costs. The United States faces three key challenges in stabilizing and rebuilding Iraq. First, the security environment and the continuing strength of the insurgency have made it difficult for the United States to transfer security responsibilities to Iraqi forces and to engage in rebuilding efforts. The security situation in Iraq has deteriorated since June 2003, with significant increases in attacks against the coalition and the coalition's partners. Second, inadequate performance data and measures make it difficult to determine the overall progress and impact of U.S. reconstruction efforts. The United States has set broad goals for providing essential services in Iraq, but limited performance measures present challenges in determining the overall progress and impact of U.S. projects. Third, the U.S. reconstruction program has encountered difficulties with Iraq's ability to maintain new and rehabilitated infrastructure projects and to address maintenance needs in the water, sanitation, and electricity sectors. For example, as of June 2005, U.S.-funded water and sanitation projects representing about $52 million of approximately $200 million spent on completed projects were inoperable or were operating at lower than normal capacity. The United States has made a significant investment in the rebuilding and stabilization of Iraq. To preserve that investment, the United States must address these critical challenges.	7,797	763
DOD's current policy calls for each military service to determine its requirements and acquire sufficient war reserve materiel for the execution of current wartime scenarios and to be able to sustain these operations until being re-supplied. Thus, in developing their plans, the services must consider the availability of spare parts in their peacetime operating stocks, their war reserve spare parts inventories, and from the industrial base, and then estimate what additional materiel they need to buy. The Army's industrial base and stationing strategies and DOD's regulations reflect the importance of the industrial base in supporting wartime operations and require the services to rely on the industrial base to the maximum extent possible. In addition, the Army is required to maintain a viable capability to monitor and assess the health of the industrial base and identify potential risks. The U.S. Army Materiel Command is responsible for determining the Army's requirements for war reserve spare parts, as well as the Army's estimate of what private industry can be expected to provide during wartime, in order to derive the war reserve spare parts shortfall. It receives technical expertise from the Army Materiel Systems Analysis Agency in determining its war reserve requirements and an estimate of what can be expected from private industry. The Command's major subordinate commands are responsible for purchasing specific types of materiel, such as aviation, tank, automotive, and communications parts, and they have a limited number of industrial base specialists who can be assigned to provide data for assessments. Figure 1 illustrates the steps that the Army follows to determine its war reserve shortfall. To plan how much war reserve materiel it needs to buy, the Army develops estimates of when spare parts will be available from the industrial base during wartime so that it can determine how much war reserve materiel it needs to buy and put into its war reserve inventory. In preparing its estimates, the Army first calculates the total amount of war materiel that it needs to support current wartime scenarios. Specifically, it calculates its requirements by using a computer model that considers several factors, such as spare parts usage and breakage rates. Next, it determines the amount of peacetime and war reserve inventories that are available to meet that requirement. The Army then applies the amount it estimates the industrial base can be expected to provide during wartime. The remaining amount is considered the total spare parts shortfall. The total shortfall can then be divided into the amount for which Congress has authorized funding, any amounts budgeted for future years, and an additional amount the Army has not yet requested from Congress. As table 2 shows, in preparation for its fiscal year 2003 budget submission to Congress (part of the fiscal year 2003-2007 out-of-cycle Program Objective Memorandum), the Army calculated that it required $3.30 billion for its wartime spare parts. Of this amount, it estimated that $1.93 billion worth of spare parts would be available from peacetime and war reserve inventories. Another $0.13 billion expected to be available from private industry was applied. The resulting total spare parts shortfall was $1.24 billion. Of this amount, the Army has been funded $0.11 billion for fiscal years 2000-2002 and expects to request $0.47 billion in fiscal years 2003-2007. Overall the Army reports a total spare parts shortfall of approximately $0.66 billion. The Army's approach for assessing wartime spare parts industrial base capability still does not use current data from industry. Rather, the Army's assessments of industry's capability to produce spare parts in wartime depend on historical data and lead-time factors that the Army develops itself. Without current data on industry's capability, assessments could be unreliable, resulting in reduced readiness due to critical spare parts shortfalls in wartime or inflated and costly war reserve spare parts inventories in peacetime. Moreover, the Army's budget requests to Congress for war reserve spare parts risk being inaccurate. In the past, the Army collected data directly from private industry through paper questionnaires to industry representatives that were up to 22 pages long. It stopped this practice primarily because of the poor response rates. According to Army Materiel Command officials, industry representatives said they saw no apparent direct benefit from filling in the lengthy questionnaires and, moreover, felt they should be compensated for their time and effort. We were told that command officials themselves do not believe that collecting current data from industry is cost-effective. Now, rather than collecting current data from private industry, the Army uses data that it acquired several years ago from private industry to create lead-time factors for estimating its wartime industrial base capability. These factors are based on out-of-date industry data. Furthermore they were developed from a limited range of spare part items but were applied to all parts needed for war. For example, in developing its fiscal year 2003 budget submission to Congress, the Army used a formula with wartime lead-time factors that were derived from estimated accelerated peacetime administrative lead times and production lead times. These accelerated lead-time factors of 85 and 61 percent, respectively, were based on data obtained prior to 1998 for specific items, such as howitzers, that were managed by the Army Tank and Automotive Command's Rock Island facility. According to an Army document, this method of calculating lead times fails to account for variations that exist from item to item and can lead to unrealistic industrial base capability estimates. For example, a 1998 Army study found that 44 of 86 parts assumed to be supported by industry could not be and that 176 of 218 parts that were assumed not to be supported by the industrial base were. Partly in response to the recommendation in our prior report, the Army has several initiatives underway to improve its industrial base capability assessments, but these initiatives continue to focus on historical, rather than current industry data. In one initiative, the Army is developing a new approach to calculate its wartime spare parts requirements, in part, from data collected from private industry during 1998. In another, the Army Materiel Command has designed a tool--called the Industrial Base Hub-- that brings together in one Web-based automated system a broad range of existing industrial base data. The data consist of war reserve requirements, producer capabilities, contract awards and actions, contractor businesses, and commercial businesses and finances. The Industrial Base Hub relies on historical data rather than on current data from industry. In a third initiative, the Army Materiel Systems Analysis Agency has proposed periodically collecting data on production lead times for the 100 costliest spare parts, which account for 70 percent of the total dollar value of the entire wartime spare parts requirement. The Army Materiel Systems Analysis Agency believes that collecting current data periodically from the private manufacturers of the top 100 costliest spare parts could be a reasonable way to get a cost-effective, reliable industrial base offset estimate. The Army could improve the reliability of its industrial base assessments by considering several key attributes present in DLA's industrial base assessment program. These include the collection of up-to-date industry data, the timely analysis of data to develop current and reliable industrial base assessments, and the use of analytical data to create management strategies aimed at reducing spare parts costs and the risk of shortfalls. To improve its management of spare parts for the services, and thus reduce costs and inventory, DLA re-engineered its industrial base capability assessment program. DLA's assessment program, called the Worldwide Web Industrial Capabilities Assessment Program, was started in the fall of 1999. It consists of a data collection tool and an analytical tool, which is used to create management strategies. (See appendix I for a more detailed description.) The data collection tool provides the capability to gather new and updated information directly from private companies via the Internet. Company representatives voluntarily respond to a series of on-line survey questions that, depending on how answered, are self- tailored to that company to simplify and speed up the survey process. Private companies provide information on what spare part items they can provide (or are willing to provide); what quantities they can produce; how long it will take to produce them under different scenarios (e.g., normal or crisis conditions); and what potential bottlenecks (e.g., availability of certain materials, or equipment constraints) exist that could limit the production of certain spare parts. DLA validates this information as part of its assessment process before acting on the information. The program's analytical tool provides analysts with immediate access to the automated data collected from industry. This provides the capability to develop timely and reliable assessments of industry's ability to provide various spare parts in peacetime as well as wartime. In addition, it provides the capability to use the analytical data to identify actual or potential parts availability problems (e.g., items with unusually long lead times or items that are involved in bottlenecks) and, based on this information, to create a management strategy for resolving these problems, for example, by changing its acquisitions procedures or targeting investments in material and technology resources to reduce production lead times. Although DLA's industrial base assessment program is relatively new, it provides a number of examples that illustrate the effectiveness of collecting current data directly from the industrial base. Table 3 shows the impact on production lead time when it is based on up-to-date industry data. For example, clamp couplings for tanks, aircraft, and aircraft engines have a production lead time of 35 days during a crisis (surge) situation rather than a lead time of 156 days (lead time of record) previously estimated by DLA for normal, or peacetime, situations. This more reliable information could result in greater economy in purchasing decisions. For example, private industry says it can provide a resilient mount within 70 days during a crisis rather than in the 163 days that DLA previously estimated. The war reserve requirement for this item occurs during the first 3 months of a war. The reduction in production lead time from 163 to 70 days means that the third month could be covered with a savings of $4,810 by not buying the items. Likewise, the war reserve requirement for the centrifugal fan spreads over the first 6 months of a war with the bulk occurring during the last 3 months. The lead-time reduction from 109 days to 56 days means that months 2-6 could be covered with a savings of $62,560 by not buying the items. Additional benefits from the assessment program stem from evaluating currently collected and analyzed information to identify potential problems with production and create various management strategies to resolve them. For example, by identifying an unusually long lead time for a cesium lamp and examining the reasons for this, DLA was able to ultimately reduce the lamp's lead time of 360 days to only 30 days. The lamp is used on several types of Navy, Marine Corps, and Air Force aircraft in electronic counter measure systems to defeat infrared missiles. The lamp cartridge, which is a critical element used in these systems, is made of exotic materials and operates at extreme temperatures and power levels. An industrial capabilities assessment concluded that the lead time of record for this item was 360 days. Negotiations with the vendor, however, reduced this to 300 days. The lead time of 300 days is due to the use of highly technical processes and several long-lead-time materials in its production. Because of the unique nature of the cesium lamp, additional measures were needed to reduce the lead time further. As part of a targeted investment, DLA awarded a contract to preposition and rotate long-lead materials and partially finished components, resulting in a further 270-day reduction in lead time to 30 days. As a result, DLA is spending $530,000 for this investment, compared with the $1.1 million it would cost to purchase and store an equivalent amount of finished product to meet war reserve requirements, saving approximately $600,000. The Army's approach for assessing wartime spare parts industrial base capability can be improved. A comparative analysis of DLA's program to the Army's approach shows opportunities to improve, specifically in the areas of data collection, data analysis, and management strategies. Table 4 compares the DLA and Army industrial base assessment approaches for the three key attributes. By focusing on the above attributes, DLA's industrial base capability assessment program has become an improved, simplified, time-saving process for companies to provide current production capability data. For example, the process uses a streamlined Internet based data collection tool that industry representatives say is an improvement over the old paper process. Also DLA uses follow-up letters and phone calls to encourage use of the online data collection tool. Companies can then participate with DLA in creating management strategies to reduce lead times, which can reduce required war reserve inventories. Industrial base capability assessments designed to have current data such as DLA's create opportunities for sound decision making regarding the planning for and purchase of Army war reserve spare parts. The Army's approach to industrial base capability assessments lacks key attributes that include the collection of current industry data, the analysis of that data and the creation of management strategies for improving wartime spare parts availability. Out-of-date data could result in reduced readiness and inflated or understated war reserve spare parts funding requests within budget submissions to Congress. Without a process that provides such analysis, the Army cannot identify long lead times and create management strategies to reduce lead times and thus the amount of inventory needed. In order to improve the Army's readiness for wartime operations, achieve greater economy in purchasing decisions, and provide Congress with accurate budget submissions for war reserve spare parts, we recommend that the Secretary of Defense direct the Secretary of the Army to have the Commander of Army Material Command take the following actions to expand or change its current process consistent with the attributes in this report: establish an overarching industrial base capability assessment process that considers the attributes in this report; develop a method to efficiently collect current industrial base capability data directly from industry itself; create analytical tools that identify potential production capability problems such as those due to surge in wartime spare parts demand; and create management strategies for resolving spare parts availability problems, for example, by changing acquisition procedures or by targeting investments in material and technology resources to reduce production lead times. DOD partially concurred with the overall findings and recommendations. However, it nonconcurred with specific points in several of our recommendations relating to the need to improve the capability of the Army's approach to assessing industrial base capabilities. Our evaluation of the Department's specific comments on each recommendation follows. DOD agreed with the overall point of our first recommendation that it establish an overarching industrial base assessment process relying on the most accurate information available. However, it did not concur that the Army should change its current process to be consistent with attributes of the DLA program. It stated that the Army's current system already applies many of these attributes and must have the flexibility to do so in its own manner consistent with its specific requirements and resources. As we reported, our analysis shows the Army's program does not have all the key attributes such as collecting current industrial base capability data from industry. Furthermore, we considered the Army's need for flexibility in managing and executing its program when developing our recommendation by stating that the Army should be consistent with--not necessarily mirror the attributes of DLA's program. Therefore, we continue to believe our recommendation is appropriate. DOD agreed with the underlying premise of our second recommendation that the most accurate data lead to the most accurate estimates. However, it stated that we provided no evidence that more current data would result in a more accurate forecast of industry's capability to provide parts for war. As pointed out in our report, DLA provided examples of how it could save money by using current data it collected from industry, such as over $62,000 on the centrifugal fan. Furthermore, we noted that a study done by the Army in 1998 showed that data collected at that time about actual industrial base capability significantly disagreed with the Army's estimated industrial base capability. The department also did not agree to a comprehensive data collection effort because keeping more current data does not warrant additional resources and stated that it will direct the Army examine the feasibility of attempting to proactively collect production data for a limited number of items. We recognized the potential for such an initiative in our report and stated that the Army Materiel Systems Analysis Agency believes that periodically collecting current data on the top 100 costliest spare parts could be a reasonable approach. Although this is a good first step, a comprehensive effort to collect current industrial base capability data directly from industry is basic to the recommendation's underlying premise and is a best practice. Therefore we continue to believe that our recommendation has merit. DOD concurred with the point of our third recommendation that there is a need to identify potential production capability problems such as those resulting from a wartime surge in demand for spare parts. However, it did not agree that the Army does not have such a process. While the Army's approach may have many analytical features, it does not provide specific analyses of production capability. Such analyses contribute to identifying possible production capability problems and could enhance the Army's management decisions. Therefore, we continue to recommend that the Army create such analytical tools. Furthermore, in response to DOD's comment about the need to validate survey data on production capability before taking action, we added information to our report stating that DLA does validate its industry surveys as part of its process. With regard to our fourth recommendation, DOD concurred with the concept that management strategies are needed to resolve spare parts availability problems. But, it disagreed with the implication that the Army has no such strategies. While the Army does have some processes at the individual command level that identify and address spare parts availability problems, we did not find an overarching process to create management strategies designed to reduce lead times and inventories. Therefore, we continue to believe that our recommendation is appropriate. To determine whether the Army is using current industrial base data for assessing wartime spare parts industrial base capability, we interviewed Army officials responsible for war reserve spare parts planning, requirements development, and estimation of industrial base capability in the Office of the Army Deputy Chief of Staff for Logistics in Washington, District of Columbia; the Army Materiel Command in Alexandria, Virginia; the Army Aviation and Missile Command at Redstone Arsenal, Alabama; and the Army Materiel Systems Analysis Agency at Aberdeen Proving Grounds, Maryland. To determine whether opportunities exist to improve the reliability of the Army's industrial base capabilities assessments, we compared the Army's approach to key attributes of the DLA's program by interviewing DLA officials in the Supplier Assessment and Capability Division at Fort Belvoir, Virginia, and the Defense Supply Centers in Richmond, Virginia, and Columbus, Ohio, that are responsible for an industrial base data collection and analysis activity using information from private industry to improve spare parts management. We also reviewed the processes used by the Army and DLA to assess industrial base capability. We performed our review between October 2001 and May 2002 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretary of Defense and the Secretary of the Army. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me on (202) 512-8412 if you or your staff has any questions concerning this report. The Defense Logistics Agency's (DLA) industrial base assessment program operates within the Supplier Assessment and Capability Division in the Acquisition Management and Logistics Policy Directorate. Among the division's objectives are: (1) to provide information tools to assess the capabilities of suppliers and (2) to identify potential readiness shortfalls and mitigate them through various business practices such as investing in long-lead materials and by taking advantage of manufacturing commonalities. To achieve these objectives, the division has developed a variety of tools to assess the supplier base in each of its major product categories-- weapon systems and hardware, construction, medical supplies, subsistence items, and clothing and textiles. Using these tools, DLA is able to evaluate suppliers' capabilities to provide items in both peacetime and wartime, to take actions to mitigate quantifiable risks, and to examine broad industrial base issues and trends, using statistically valid information. The tools allow assessments to be made by individual item or grouped by items, product family, sector or subsector, weapon system or platform, or supplier. One of these tools, the Worldwide Web Industrial Capabilities Assessment Program, was designed for assessing supplier resources available to the Defense Department. The program is an automated, interactive, Web- based program that allows the gathering of information from industrial suppliers and the use of this data to assess the industrial sector's capabilities for supplying various items. It also enables information to be analyzed in a wide variety of formats in order to identify strategies directed toward reducing costs and providing wartime readiness. Developed in 1997, the Worldwide Web Industrial Capabilities Assessment Program replaced the old data collection process, which relied on mass mailings of lengthy (up to 22 pages), cumbersome questionnaires that suppliers had to fill out by hand. The response rate from industry was typically too low to allow any statistically relevant analysis. In addition, the narrative answers to key questions were incompatible with computer analysis, and thus the information that industry provided could not be acted upon. The development of the program changed both the way information is collected from industrial suppliers and the way that information is used to conduct industrial base assessments and analyses. The data collection tool was built specifically for industrial base assessments. It resides on a Web site that can be easily accessed by industry representatives. It uses an interactive survey format to collect information directly from a company about its ability to supply certain items. A company's representative checks in and fills out, or updates, a survey questionnaire for each item or group of items that is supplied. Depending on how a user answers a question, the questionnaire automatically adjusts itself to remain as short as possible but still collect the essential information that is needed for analysis. The survey information is saved in a permanent database, which eliminates the need for a company to reenter information when it is updated. The program identifies each item by the supplier's own part number grouped by an industry standard classification code. This simplifies input of information for multiple items that might use the same production line or equipment. It requests a wide range of information about the industry's ability to supply an item, including high and low estimates of production time, capacity, potential constraints and bottlenecks, and inventory on- hand. See table 5 for a list of the data fields. While the data collection tool interfaces with industry via the Web to gather data, the analytical tool, also Web-based, is a centralized tool that is available to all approved personnel regardless of location. The analytical tool allows analysts to assess what is needed in the way of industrial items and what the industrial base is capable of providing. It does this by combining the current information supplied by industry with existing DLA legacy data (e.g., item purchase histories, and previous item shortfalls). Analysts can use this integrated database to examine information at various levels (e.g., individual item, family groups, sector and subsector, weapon system and platform, or supplier) and to graphically depict this information in a range of formats and export the data to external files for further complex analysis. They can create statistically valid samples of discrete data to analyze. With this information, they are able to identify acquisition strategies that take advantage of similar manufacturing processes and affect changes in peacetime buying practices as a low-cost way of providing wartime readiness. Key contributors to this report were Richard Payne, Paul Gvoth, Leslie Gregor, Douglas Mills, and Nancy Benco.	The Army's approach to assessing wartime spare parts industrial base capability does not use current data from industry. Instead, the Army uses historical parts procurement data because its prior efforts to collect current data from industry were not successful due to poor response rates. GAO identified a program in the Defense Logistics Agency (DLA) that has several attributes reflecting sound management practices for reliable industrial base capability assessments. Although DLA's program is in its early stages of implementation, DLA has been able to successfully collect current data directly from private industry on thousands of parts. Further, DLA is analyzing that data to identify actual or potential parts availability problems.	5,057	134
The Forest Service and Interior collectively manage about 700 million acres of federal land, much of which is considered to be at high risk of fire. Federal researchers estimate that from 90 million to 200 million acres of federal lands in the contiguous United States are at an elevated risk of fire because of abnormally dense accumulations of vegetation, and that these conditions also exist on many nonfederal lands. Addressing this fire risk has become a priority for the federal government, which in recent years has significantly increased funding for fuels reduction. Fuels reduction is generally done through prescribed burning, in which fires are deliberately lit in order to burn excess vegetation, and mechanical treatments, in which mechanical equipment is used to cut vegetation. Although prescribed burning is generally less expensive on a per-acre basis than mechanical treatment, prescribed fire may not always be the most appropriate method for accomplishing land management objectives--and in many locations it is not an option, because of concerns about smoke pollution, for example, or because vegetation is so dense that agency officials fear a prescribed fire could escape and burn out of control. In such situations, mechanical treatments are required, generating large amounts of wood--particularly small-diameter trees, limbs, brush, and other material that serve as fuel for wildland fires. Woody biomass can be used in many ways. Small logs can be peeled and used as fence posts, or can be joined together with specialized hardware to construct pole-frame buildings. Trees also can be milled into structural lumber or made into other wood products, such as furniture, flooring, and paneling. Woody biomass also can be chipped for use in paper pulp production and for other uses--for example, a New Mexico company combines juniper chips with plastic to create a composite material used to make road signs--and can be converted into other products such as ethanol and adhesives. Finally, woody biomass can be chipped or ground for energy production in power plants and other applications. Citing biomass's potential to serve as a source of electricity, fuel, chemicals, and other materials, the President and the Congress have encouraged federal activities regarding biomass utilization--but until recently, woody biomass received relatively little emphasis. Major congressional direction includes the Biomass Research and Development Act of 2000, the Farm Security and Rural Investment Act of 2002, the Healthy Forests Restoration Act of 2003, and the American Jobs Creation Act of 2004. Utilization of woody biomass also is emphasized in the federal government's National Fire Plan, a strategy for planning and implementing agency activities related to wildland fire management. For example, a National Fire Plan strategy document cites biomass utilization as one of its guiding principles, recommending that the agencies "employ all appropriate means to stimulate industries that will utilize small-diameter woody material resulting from hazardous fuel reduction activities." Federal agencies also are carrying out research concerning the utilization of small-diameter wood products as part of the Healthy Forests Initiative, the administration's initiative for wildland fire prevention. Most of the federal government's woody biomass utilization efforts are being undertaken by USDA, DOE, and Interior. While some activities are performed jointly, each department also conducts its own activities, which generally involve grants for small-scale woody biomass projects; research on woody biomass uses; and education, outreach, and technical assistance aimed at woody biomass users. USDA, DOE, and Interior have undertaken a number of joint efforts related to woody biomass. In June 2003, the three departments signed a memorandum of understanding on woody biomass utilization, and the departments sponsored a 3-day conference on woody biomass in January 2004. The departments also have established an interagency Woody Biomass Utilization Group, which meets quarterly to discuss relevant developments and to coordinate departmental efforts. Another interdepartmental collaboration effort is the Joint Biomass Research and Development Initiative, a grant program conducted by USDA and DOE and authorized under the Biomass Research and Development Act of 2000. The program provides funds for research on biobased products. DOE also has collaborated with both USDA and BLM on assessment of biomass availability, while USDA and Interior have entered into a cooperative agreement with the National Association of Conservation Districts to promote woody biomass utilization. USDA, DOE, and Interior also participate in joint activities at the field level. For example, DOE's National Renewable Energy Laboratory (NREL) and the Forest Service have collaborated in developing and demonstrating small power generators that use woody biomass for fuel. The Forest Service also collaborates with Interior in funding and awarding grants under the Fuels Utilization and Marketing program, which targets woody biomass utilization efforts in the Pacific Northwest. The agencies also collaborate with state and local governments to promote the use of woody biomass--for example, the Forest Service, NREL, and BLM entered into a memorandum of understanding with Jefferson County, Colorado, to study the feasibility of developing an electricity-generating facility that would use woody biomass. Most of USDA's woody biomass utilization activities are undertaken by the Forest Service and involve grants, research and development, and education, outreach, and technical assistance. The Forest Service provides grants through its Economic Action Programs, created to help rural communities and businesses dependent on natural resources become sustainable and self-sufficient. The Forest Service also has created a grant program in response to a provision in the Consolidated Appropriations Act for Fiscal Year 2005, which authorized up to $5 million for grants to create incentives for increased use of biomass from national forest lands. Two other USDA agencies--the Cooperative State Research, Education and Extension Service (CSREES) and USDA Rural Development--maintain programs that could include woody biomass utilization activities. CSREES oversees the Biobased Products and Bioenergy Production Research grant program and the McIntyre-Stennis grant program, which provides grants to states for research into forestry issues under the McIntyre-Stennis Act of 1962. Within USDA Rural Development, the Rural Business-Cooperative Service oversees a grant program emphasizing renewable energy systems and energy efficiency among rural small businesses, farmers, and ranchers, and the Rural Utilities Service maintains a loan program for renewable energy projects. Forest Service researchers are conducting research into a variety of woody biomass issues. Researchers have conducted assessments of the woody biomass potentially available through land management projects and have developed models of the costs and revenues associated with thinning projects. Researchers also are studying the economics of woody biomass use in other ways; one researcher, for example, is beginning an assessment of the economic, environmental, and energy-related impacts of using woody biomass for power generation. The Forest Service also conducts extensive research, primarily at its Forest Products Laboratory, into uses for woody biomass, including wood-plastic composites and water filtration systems that use woody biomass fibers, as well as less expensive ways of converting woody biomass to liquid fuels. In addition, the Forest Service conducts extensive education, outreach, and technical assistance activities. Much of this activity is conducted by the Technology Marketing Unit (TMU) at the Forest Products Laboratory, which provides woody biomass users with technical assistance and expertise in wood products utilization and marketing. Forest Service field office staff also provide education, outreach, and technical assistance, and each Forest Service region has an Economic Action Program coordinator who has involvement in woody biomass issues. For example, one such coordinator organized a "Sawmill Improvement Short Course" designed to provide information to small-sawmill owners regarding how to better handle and use small-diameter material. The Forest Service also has partnerships with state and regional entities that provide a link between scientific and institutional knowledge and local users. Most of DOE's woody biomass activities are overseen by its Office of the Biomass Program and focus primarily on research and development, although the department does have some grant and technical assistance activities. DOE's research and development activities generally address the conversion of biomass, including woody biomass, to liquid fuels, power, chemicals, or heat. Much of this work is carried out by NREL, where DOE recently opened the Biomass Surface Characterization Laboratory. DOE also supports research into woody biomass through partnerships with industry and academia. Program management activities for these partnerships are conducted by DOE headquarters, with project management provided by DOE field offices. In addition to its research activities, DOE provides information and guidance to industry, stakeholder groups, and users through presentations, lectures, and DOE's Web site, according to DOE officials. DOE also provides outreach and technical assistance through its State and Regional Partnership, Federal Energy Management Program (FEMP), and Tribal Energy Program. FEMP provides assistance to federal agencies seeking to implement renewable energy and energy efficiency projects, while the Tribal Energy Program provides technical assistance to tribes, including strategic planning and energy options analysis. DOE's grant programs include (1) the National Biomass State and Regional Partnership, which provides grants to states for biomass-related activities through five regional partners; and (2) the State Energy Program, which provides grants to states to design and carry out their own renewable energy and energy efficiency programs. In addition, DOE's Tribal Energy Program provides funds to promote energy sufficiency, economic development, and employment on tribal lands through renewable energy and energy efficiency technologies. Interior's activities include providing education and outreach and conducting grant programs, but they do not include research into woody biomass utilization issues. Four Interior agencies--BLM, the Bureau of Indian Affairs (BIA), Fish and Wildlife Service (FWS), and National Park Service (NPS)--conduct activities related to woody biomass. These agencies conduct education, outreach, and technical assistance, but not to the same degree as the Forest Service. For example, BIA provides technical assistance to tribes seeking to implement renewable energy projects, and while FWS and NPS conduct relatively few woody biomass utilization activities, in some cases the agencies will work to find a woody biomass user nearby if a market exists for the material. Interior plans to expand its outreach efforts by using the National Association of Conservation Districts, with which it signed a cooperative agreement, to conduct outreach activities related to woody biomass. And while Interior's grant programs generally do not target woody biomass, BIA has provided some grants to Indian tribes, including a 2004 grant to the Confederated Tribes of the Warm Springs Reservation in Oregon to conduct a feasibility study for updating and expanding a woody biomass-fueled power plant. Several other federal agencies are engaged in limited woody biomass activities through their advisory or research activities. The Environmental Protection Agency provides technical assistance, through its Combined Heat and Power Partnership, to power plants that generate combined heat and power from various sources, including woody biomass. Three other agencies--the National Science Foundation, Office of Science and Technology Development, and Office of the Federal Environmental Executive--also are involved in woody biomass activities through their membership on the Biomass Research and Development Board, which is responsible for coordinating federal activities for the purpose of promoting the use of biobased industrial products. Two groups serve as formal vehicles for coordinating federal agency activities related to woody biomass utilization. One, the Woody Biomass Utilization Group, is a multiagency group that meets quarterly on woody biomass utilization issues and is open to all national, regional, and field- level staff across numerous agencies. The other, the Biomass Research and Development Board, is responsible for coordinating federal activities to promote the use of biobased industrial products. The board consists of representatives from USDA, DOE, and Interior, as well as EPA, the National Science Foundation, Office of the Federal Environmental Executive, and Office of Science and Technology Policy. When discussing coordination among agencies, however, agency officials more frequently cited using informal mechanisms for coordination--through telephone discussions, e-mails, participation in conferences, and other means-- rather than the formal groups described above. Several officials told us that informal communication among networks of individuals was essential to coordination among agencies. Officials also described other forms of coordination, including joint review teams for interagency grant programs and multiagency working groups examining woody biomass at the regional or state level. The Forest Service--the USDA agency with the most woody biomass activities--developed a woody biomass policy in January 2005, and, in March 2005, in response to a recommendation in our draft report, the agency assigned responsibility for overseeing and coordinating its woody biomass activities to an official within the Forest Service's Forest Management branch. In addition, the agency has created the Biomass Utilization Steering Committee, consisting of the staff directors of various Forest Service branches, to provide direction and support for agency biomass utilization. DOE coordinates its woody biomass utilization activities through its Office of Energy Efficiency and Renewable Energy. Within this office, the Office of the Biomass Program directs biomass research at DOE national laboratories and contract research organizations, while the Federal Energy Management Program and the Tribal Energy Program conduct a small number of other woody biomass activities. Interior has appointed a single official to oversee its woody biomass activities and is operating under a woody biomass policy adopting the principles of the June 2003 memorandum of understanding among USDA, DOE, and Interior. Interior also has appointed a Renewable Energy Ombudsman to coordinate all of the department's renewable energy activities, including those related to woody biomass, and has worked with its land management agencies to develop woody biomass policies allowing service and timber contractors to remove woody biomass where ecologically appropriate. Similarly, BLM has appointed a single official to oversee woody biomass efforts and has developed a woody biomass utilization strategy to guide its activities that contains overall goals related to increasing the utilization of biomass from treatments on BLM lands. Agency officials cited two principal obstacles to increasing the use of woody biomass: the difficulty in using woody biomass cost-effectively and the lack of a reliable supply of the material. Agency activities are generally targeted toward the obstacles identified by agency officials, but some officials told us that their agencies are limited in their ability to fully address these obstacles and that additional steps beyond the agencies' authority to implement are needed. However, not all agree that such steps are appropriate. The obstacle most commonly cited by officials we spoke with is the difficulty of using woody biomass cost-effectively. Officials told us the products that can be created from woody biomass--whether wood products, liquid fuels, or energy--often do not generate sufficient income to overcome the costs of acquiring and processing the raw material. One factor contributing to the difficulty in using woody biomass cost- effectively is the cost incurred in harvesting and transporting woody biomass. Numerous officials told us that even if cost-effective means of using woody biomass were found, the lack of a reliable supply of woody biomass from federal lands presents an obstacle because business owners or investors will not establish businesses without assurances of a dependable supply of material. Officials identified several factors contributing to the lack of a reliable supply, including the lack of widely available long-term contracts for forest products, environmental groups' opposition to federal projects, and the shortage of agency staff to conduct activities. A few officials cited internal barriers that hamper agency effectiveness in promoting woody biomass utilization, including limited agency expertise related to woody biomass and limited agency commitment to the issue. A variety of other obstacles were noted as well, including the lack of a local infrastructure for handling woody biomass, consisting of loggers, mills, and equipment capable of treating small- diameter material. Agency activities related to woody biomass were generally aimed at overcoming the obstacles agency officials identified, including many aimed at overcoming economic obstacles. For example, Forest Service staff have worked with potential users of woody biomass to develop products whose value is sufficient to overcome the costs of harvesting and transporting the material; Economic Action Program coordinators have worked with potential woody biomass users to overcome economic obstacles; and Forest Products Laboratory researchers are working with NREL to make wood-to-ethanol conversion more cost-effective. Despite ongoing agency activities, however, numerous officials believe that additional steps beyond the agencies' authority are need to fully address obstacles to woody biomass utilization. Among these steps are subsidies and tax credits, which officials told us are necessary to develop a market for woody biomass but which are beyond the agencies' authority. According to several officials, the obstacles to using woody biomass cost- effectively are simply too great to overcome by using the tools--grants, outreach and education, and so forth--currently at the agencies' disposal. One official stated that "in many areas, the economic return from smaller- diameter trees is less than production costs. Without some form of market intervention, such as tax incentives or other forms of subsidy, there is little short-term opportunity to increase utilization of such material." Some officials stated that subsidies have the potential to create an important benefit--reduced fire risk through hazardous fuels reduction--if they promote additional thinning activities by stimulating the woody biomass market. Rather than incentives or subsidies, some officials noted the potential for increased use of woody biomass through state requirements--known as renewable portfolio standards--that utilities procure or generate a portion of their electricity by using renewable resources, which could include woody biomass. But not all officials believe these additional steps are efficient or appropriate. One official told us that, although he supports these activities, tax incentives and subsidies would create enormous administrative and monitoring requirements. Another official stated that although increased subsidies could address obstacles to woody biomass utilization, he does not believe they should be implemented, preferring instead to allow research and development efforts and market forces to establish the extent of woody biomass utilization. Further, not all agree that the market for woody biomass should be expanded. One agency official told us he is concerned that developing a market for woody biomass could result in overuse of mechanical treatment (rather than prescribed burning) as the market begins to drive the preferred treatment, and representatives of one national environmental group told us that relying on woody biomass as a renewable energy source will lead to overthinning, as demand exceeds the supply that is generated through responsible thinning. The amount of woody biomass resulting from increased thinning activities could be substantial, adding importance to the search for ways to use the material cost-effectively rather than simply disposing of it. However, the use of woody biomass will become commonplace only when doing so becomes economically advantageous for users--whether small forest businesses or large utilities. Federal agencies are targeting their activities toward overcoming economic and other obstacles, but some agency officials believe that these efforts alone will not be sufficient to stimulate a market that can accommodate the vast quantities of material expected-- and that additional action may be necessary at the federal and state levels. Nevertheless, we believe the agencies will continue to play an important role in stimulating woody biomass use. The Forest Service took a significant step recently by designating an agency lead for woody biomass activities, responding to a need we had identified in our draft report and enhancing the agency's ability to ensure that its multiple activities contribute to its overall objectives. Given the magnitude of the woody biomass issue and the finite nature of agency budgets, it is essential that federal agencies appropriately coordinate their woody biomass activities--both within and across agencies--to maximize their potential for addressing the issue. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions that you or other Members of the Subcommittee may have at this time. For further information about this testimony, please contact me at (202) 512-3841 or at [email protected]. David P. Bixler, James Espinoza, Steve Gaty, Richard Johnson, and Judy Pagano 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.	In an effort to reduce the risk of wildland fires, many federal land managers--including the Forest Service and the Bureau of Land Management--are placing greater emphasis on thinning forests and rangelands to help reduce the buildup of potentially hazardous fuels. These thinning efforts generate considerable quantities of woody material, including many smaller trees, limbs, and brush--referred to as woody biomass--that currently have little or no commercial value. GAO was asked to determine (1) which federal agencies are involved in efforts to promote the use of woody biomass, and the actions they are undertaking; (2) how these agencies coordinate their activities; and (3) what the agencies see as obstacles to increasing the use of woody biomass, and the extent to which they are addressing the obstacles. This testimony is based on GAO's report Natural Resources: Federal Agencies Are Engaged in Various Efforts to Promote the Utilization of Woody Biomass, but Significant Obstacles to Its Use Remain (GAO- 05-373), being released today. Most woody biomass utilization activities are implemented by the Departments of Agriculture (USDA), Energy (DOE), and the Interior and include awarding grants to businesses, schools, Indian tribes, and others; conducting research; and providing education. Most of USDA's woody biomass utilization activities are undertaken by the Forest Service and include grants for woody biomass utilization, research into the use of woody biomass in wood products, and education on potential uses for woody biomass. DOE's woody biomass activities focus on research into using the material for renewable energy, while Interior's efforts consist primarily of education and outreach. Other agencies also provide technical assistance or fund research activities. Federal agencies coordinate their woody biomass activities through formal and informal mechanisms. Although the agencies have established two interagency groups to coordinate their activities, most officials we spoke with emphasized informal communication--through e-mails, participation in conferences, and other means--as the primary vehicle for interagency coordination. Internally, DOE coordinates its woody biomass activities through its Office of Energy Efficiency and Renewable Energy, while Interior and the Forest Service--the USDA agency with the most woody biomass activities--have appointed officials to oversee, and have issued guidance on, their woody biomass activities. The obstacles to using woody biomass cited most often by agency officials were the difficulty of using woody biomass cost-effectively and the lack of a reliable supply of the material; agency activities generally are targeted toward addressing these obstacles. Some officials told us their agencies are limited in their ability to address these obstacles and that incentives--such as subsidies and tax credits--beyond the agencies' authority are needed. However, others disagreed with this approach for a variety of reasons, including the concern that expanding the market for woody biomass could lead to adverse ecological consequences if the demand for woody biomass leads to excessive thinning.	4,330	633
VA's mission is to promote the health, welfare, and dignity of all veterans in recognition of their service to the nation by ensuring that they receive medical care, benefits, social support, and memorials. VA is one of the largest federal departments, with more than $150 billion in obligations and a workforce of approximately 313,000 employees for fiscal year 2013. VA is responsible for administering health care and other benefits that directly affect the lives of about 22 million veterans and eligible members of their families. The department is to provide these services through the Veterans Health Administration, Veterans Benefits Administration, and the National Cemetery Administration. VA serves over 6 million patients at 151 medical centers, provides compensation and benefits for about 4 million veterans and beneficiaries, and maintains about 3 million gravesites at 131 properties. In carrying out its mission, VA collects and maintains sensitive medical records and personally identifiable information (PII) of veterans through the use of medical, administrative, and financial computer applications. For example, the department stores veterans' admission, diagnosis, surgical procedure, and discharge information for each stay at a VA medical center, nursing home, or domiciliary, as well as storing PII such as Social Security numbers. Each of the medical centers, which are located around the country, uses local computer systems to run these standard applications. In addition, in providing oversight for disability assistance and economic opportunity to veterans, VA maintains information such as compensation, pension, insurance, and benefits assistance services, as well as educational, loan, and vocational rehabilitation and employment services data. In providing health care and other benefits to veterans and their dependents, VA relies on a vast array of information technology systems and networks, which supports its operations and stores sensitive information, including medical records and PII. Without proper safeguards, these computer systems are vulnerable to significant risks, including loss or theft of resources; inappropriate access to and disclosure, modification, or destruction of sensitive information; use of computer resources for unauthorized purposes or to launch attacks on other computer systems; and embarrassing security incidents that erode the public's confidence in the agency's ability to accomplish its mission. Cyber-based threats are evolving and growing and arise from a wide array of sources. These threats can be unintentional or intentional. Unintentional threats can be caused by software upgrades or defective equipment that inadvertently disrupt systems, as well as user error. Intentional threats can come from sources both internal and external to the organization. Internal threats include fraudulent or malevolent acts by employees or contractors. External threats include the ever-growing number of cyber-based attacks that can come from hackers, criminals, foreign nations, and other sources. These threat sources can exploit vulnerabilities such as those resulting from flaws in software code that could cause a program to malfunction. Reports of incidents affecting VA's systems and information highlight the serious impact that inadequate information security can have on, among other things, the confidentiality, integrity, and availability of veterans' personal information. For example: In January 2014, a software defect in VA's eBenefits system--a web application used by over 2.8 million veterans to access information and services--improperly allowed users to view the personal information of other veterans. According to an official from VA's Office of Information and Technology, this defect potentially allowed 5,399 users to view data of 1,301 veterans or their dependents. In June 2013, VA's former Chief Information Security Officer testified that in 2010 VA's network had been compromised by uninvited visitors--nation-state-sponsored attackers--and that attacks had continued. He stated that these attackers were taking advantage of weak technical controls within VA, including those for web applications that contained common exploitable vulnerabilities. He further stated that these resulted in unchallenged and unfettered access to and exploitation of VA systems and information by this specific group of attackers. The Federal Information Security Management Act of 2002 (FISMA) sets forth a comprehensive framework for ensuring the effectiveness of information security controls over information resources that support federal operations and assets.other things, develop, document, and implement an agency-wide information security program, using a risk-based approach to information security management. Such a program includes planning, implementing, evaluating, and documenting remedial actions to address information security deficiencies. FISMA requires each agency to, among The act also assigned the National Institute of Standards and Technology (NIST) responsibility for developing standards and guidelines that include minimum information security requirements. For example, NIST specifies requirements for testing vulnerabilities, remediating them, and developing plans of action and milestones for information systems. At VA, the Assistant Secretary for Information and Technology, who serves as the agency's Chief Information Officer (CIO), is responsible for ensuring that information systems operate at an acceptable level of risk. The CIO reports annually to the head of VA on the overall effectiveness of VA's information security program, including the progress of remedial actions. The CIO designated a Chief Information Security Officer (CISO) who, among other things, manages the development and maintenance of information security policies, procedures, and control techniques to address applicable requirements. The CISO also heads the department's Office of Information Security, which is responsible for the department's system authorization process, including ensuring plans of action and milestones are maintained. Also within the Office of Information Security, NSOC is responsible for performing vulnerability and compliance scans. Among other things, NSOC may detect incidents such as network intrusions, test web applications for security vulnerabilities, and scan VA's network to test devices connected to the network for known vulnerabilities. In addition, under the direction of the CIO, the Deputy CIO for Service Delivery and Engineering and system owners are responsible for the overall procurement, development, integration, modification, daily operation, maintenance, and disposal of VA information and information systems. These responsibilities include ensuring (1) that the secure baseline configuration for each system is documented and approved by the authorizing official prior to implementation; (2) compliance with federal security requirements and VA security policies; and (3) remediation and updating of plans of action and milestones and completion of other reviews. As we recently testified, VA has faced long-standing challenges in effectively implementing its information security program. Specifically, from fiscal year 2007 through 2013, VA has consistently had weaknesses in key information security control areas. In addition, in fiscal year 2013, the department's independent auditor reported, for the 12th year in a row, that weaknesses in information system controls over financial systems constituted a material weakness. Further, the department's inspector general has identified development of an effective information security program and system security controls as a major management challenge for VA. These findings are consistent with challenges GAO has identified in VA's implementation of its security program going back to the late 1990s. While VA has taken actions to mitigate previously identified security vulnerabilities, they were insufficient to ensure that these weaknesses were fully addressed. Specifically, VA took steps to contain and eradicate an incident involving intrusion of its network, but these activities were not fully effective. In addition, VA took insufficient actions to address vulnerabilities in two key web applications. Finally, weaknesses identified on VA's workstations (e.g., laptop computers) had not been corrected in a timely manner. Collectively, these weaknesses increase the risk that sensitive data--including veterans' personal information--could be compromised. Upon detection of an incident, NIST requires that agencies document actions taken in analyzing, containing, eradicating, and recovering from the incident. Specifically, agencies should create follow-up reports for each incident and keep them for a period of time as specified in record retention policies. Organizations should establish a policy for how long evidence from an incident should be retained, taking into account factors such as providing evidence for law enforcement, data retention policies, and cost. Moreover, NIST directs agencies to follow National Archives and Records Administration (NARA) guidance, which states that agency records related to computer security incident handling should be maintained for 3 years. NIST guidance also notes the importance of agencies having tools in place to aid in incident response. VA took actions to contain and eradicate an incident detected in 2012 involving an attack by malicious outsiders. VA's NSOC had analyzed the scope of the incident and documented actions taken in response. For example, center staff identified hosts that they believed were affected by the event and took actions to eradicate the effects from these hosts. They documented the actions taken to address the incident to the point where they believed the incident had been successfully remediated. However, VA could not provide sufficient documentation to demonstrate that these actions were effective. This is consistent with our findings from a recent government-wide review, in which we estimated that agencies were not able to effectively demonstrate actions taken in response to detected incidents in about 65 percent of cases. For this particular incident at VA, staff could not locate the associated forensic analysis report or other key materials. Officials explained that digital evidence was only maintained for 30 days due to storage space constraints. As a result, we could not determine the effectiveness of actions taken to address this incident. Subsequent to this incident, VA established a standard operating procedure that requires the forensic analysis report and related documentation to be maintained for 6 years but allows digital evidence collected during a forensic analysis to be purged 1 month after the completion of the associated forensic analysis report. However, purging such evidence after 1 month is not consistent with NIST-recommended NARA guidance, which calls for records related to computer security incident handling to be maintained for at least 3 years. Without maintaining evidence of incidents, VA cannot demonstrate the effectiveness of its incident response activities and will be unable to use these records to assist in handling future incidents or aiding law enforcement authorities in investigating and prosecuting crimes. In addition, VA has not yet addressed an underlying vulnerability that contributed to the intrusion. Specifically, VA had planned to implement a solution that would have corrected the weakness in February 2014, but at the time of our review, the solution had not been implemented. VA did take other actions to mitigate the weakness--specifically, limiting the use of the affected system. However, this is insufficient to prevent recurrence of a similar incident. Until this weakness is fully addressed, or additional mitigating controls are applied, unnecessary risk exists that an incident of this type could recur. More broadly, NSOC did not have sufficient visibility into VA's computer networks. NIST Special Publication 800-61 states that incident response policies should identify the roles, responsibilities, and levels of authority for those implementing incident response activities. However, VA's policies did not define the authority for NSOC's access to logs of activity on VA's network that are collected at VA's data centers. As a result, the NSOC cannot be assured that the incident was effectively contained and eradicated from VA's network. As we reported in April 2014, VA's incident response policies defined roles and responsibilities but did not include authorities for the incident response team. Accordingly, we recommended, among other things, that VA revise its policies for incident response by including requirements for defining the incident response team's level of authority. VA concurred with this recommendation. Implementing this recommendation should include providing the NSOC with appropriate authority to review logs of activity on VA's network. NSOC has initiatives under way to further improve incident response capabilities. For example, it is performing an analysis to determine how best to further restrict access to the VA network and is planning to purchase new incident response tools. However, it has not established a time frame for completing these actions. As noted in our prior work, elements such as specific actions, priorities, and milestones are desirable for evaluating progress, achieving results within specific time frames, and ensuring effective oversight and accountability. Until VA's NSOC establishes such elements, it remains to be seen whether the initiatives will improve its incident response capabilities. Without assurance that incidents have been effectively contained and eradicated, or the underlying weaknesses effectively mitigated, VA is at increased risk that veterans' PII and other sensitive data may be illicitly modified, disclosed, or lost. NIST guidance and VA policy both require applications to be tested prior to authorization in order to detect security weaknesses or vulnerabilities. NIST also recommends that organizations develop plans of action and milestones to address these weaknesses. Such plans provide a prioritized approach to risk mitigation and can be used by officials to monitor progress in correcting identified weaknesses. NSOC tests VA's web applications as part of VA's system authorization process and also conducts tests to validate that corrective actions have been taken to remediate identified vulnerabilities. For two high-impact web applications we reviewed, NSOC had identified four vulnerabilities that it considered high risk for each of the applications. For one of the applications, it also identified a critical vulnerability affecting the protection of PII. As of June 2014, VA had corrected six of the nine identified vulnerabilities, including the critical PII vulnerability, which it had corrected within 1 week of discovery. However, correction of one of the vulnerabilities had not yet been validated by NSOC for one of the web applications--and had been outstanding for over a year--and two had not yet been validated for the other application. Table 1 shows the status of the nine identified critical and high-risk vulnerabilities. VA did not provide evidence that it had developed plans of action and milestones for the identified vulnerabilities for which mitigation activities had not been completed. Without plans of action and milestones for correcting high-risk vulnerabilities, VA has less assurance that these weaknesses will be corrected in a timely and effective manner. This, in turn, could lead to unnecessary exposure of veterans' sensitive data that are maintained by these applications. Various tools, such as "static analysis" tools, can scan software source code, identify root causes of software security vulnerabilities, and correlate and prioritize results. NIST states that vulnerability analyses for custom software applications may require additional approaches, such as static analysis. This type of analysis can help developers identify and reduce or eliminate potential flaws. However, VA did not conduct such analyses for both of the web applications we reviewed. According to VA officials from the Office of Cybersecurity, the department began conducting source code reviews using a static analysis tool in January 2013. Although developers for both of the applications had received the scanning tool, only developers for one of the applications had begun performing source code scans at the time of our review. According to VA officials, they have drafted a policy requiring the use of static analysis tools and it is in the executive approval process. Until VA ensures that its key web applications undergo source code scanning, it risks not detecting critical security vulnerabilities. NIST guidance and VA policy both require periodic vulnerability scanning, including scanning for patch levels; assessment of risk and risk-based decisions; and tracking and verifying remedial actions, such as applying patches to identified vulnerabilities. In addition, a 2012 VA memo requires that critical patches be applied within 30 days. VA reiterated this requirement in a February 2014 memorandum on patch management and elaborated on its policy. Specifically, the 2014 memorandum states, among other things, that in cases where patches cannot be applied or impact availability, features, or functionality, the department will work with system personnel to develop short-term compensating controls and longer-term plans to migrate to newer platforms, hardware, and/or technologies where security patches can be applied and new security features enabled. VA periodically scans its network devices--predominantly workstations (e.g., laptop computers)--to identify vulnerabilities that have been identified by software vendors. The department's NSOC scans workstations across VA's network at least monthly and develops executive summaries that show, among other things, the most critical vulnerabilities, such as those requiring patches to remediate them. However, VA has not always addressed these vulnerabilities in a timely fashion consistent with department policy. As of May 2014, the 10 most prevalent critical vulnerabilities identified by VA's scans were software patches that had not been applied. Regarding these missing patches, they had been available for periods ranging from 4 to 31 months; there were multiple occurrences of each of the 10 missing patches, ranging from approximately 9,200 to 286,700; and each patch is intended to mitigate multiple potential known vulnerabilities, ranging from 5 to 51 vulnerabilities, with an average of about 30 and a total of 301 vulnerabilities. One reason that some of these vulnerabilities continued to exist is that VA decided not to apply patches for the top three vulnerabilities until further testing could determine the effect the patches would have on various applications. However, this decision was not timely. The decision memorandum was dated April 2014, even though the patches covered by the decision had been available from 3 to 10 months, exceeding the 30- day period for critical patches. In this decision memo, the department did not describe whether it had developed compensating controls to address instances where patches were not applied or discuss longer-term plans to migrate to newer platforms, hardware, and/or technologies where security patches can be applied and new security features enabled, as called for by its 2014 patch management memorandum. For the other patches, VA did not provide any documentation of decisions not to apply them. At the end of our audit, VA officials told us they had implemented compensating controls, but did not provide sufficient detail for us to evaluate their effectiveness. Without applying patches or developing compensating controls, VA increases the risk that known vulnerabilities could be exploited, potentially exposing veterans' information to unauthorized modification, disclosure, or loss. Our findings are consistent with those of VA's Office of Inspector General (OIG), which identified patch management as an issue in its fiscal year 2013 FISMA report. Specifically, the report identified significant deficiencies in configuration management controls intended to ensure that VA's critical systems have appropriate security baselines and up-to-date vulnerability patches. The OIG found that VA had unsecure web application servers, excessive permissions on database platforms, a significant number of outdated and vulnerable third-party applications and operating system software, and a lack of common platform security standards across the department. To address these issues, the OIG recommended that VA implement a patch and vulnerability management program. In its response to the report, VA stated that in February 2013 it had implemented vulnerability scanning and continued to build on and improve its patch and vulnerability program and that the OIG's recommendation should therefore be closed. However, as our findings suggest, the department has not yet effectively implemented a program to manage vulnerabilities and apply associated patches. Until it does so, it will remain at increased risk that known vulnerabilities could be exploited. In addition, the scanning procedures that VA used may not detect certain vulnerabilities. Specifically, for Windows systems, VA scanned in "authenticated" mode, but for other systems, such as Linux, its scans were performed in "unauthenticated mode." The vendor of the scanning tool used by VA recommends scanning in authenticated mode. The unauthenticated scans cannot check for certain patches, potentially allowing for multiple vulnerabilities on these systems to go undetected. This increases the risk that VA would not detect vulnerabilities and take steps to mitigate them, which could allow users to escalate privileges, crash the system, gain administrator access, or manipulate network traffic. VA also has an initiative under way to facilitate the remediation of known vulnerabilities. In May 2013, it established an organization tasked with overseeing the Service Delivery and Engineering group's process for identifying, prioritizing, and remediating vulnerabilities on VA information systems; ensuring baseline configurations and security standards are updated as new vulnerabilities are discovered and remediated; ensuring software standards are continually reviewed and updated and that installed software versions comply with these standards; identifying, collecting, analyzing, and reporting performance metrics to measure the effectiveness of the patch and vulnerability management, baseline configuration maintenance, and software standards maintenance processes; and proposing changes to improve these processes. This organization has taken initial steps to carry out its responsibilities. For example, it plans to create a database to track remediation and patch implementation. However, VA has yet to identify specific actions, priorities, and milestones for accomplishing these tasks. As noted previously, elements such as specific actions, priorities, and milestones are desirable for evaluating progress, achieving results in specific time frames, and ensuring effective oversight and accountability. Until VA establishes these elements for the new organization, it does not have assurance that these efforts will be effective. Ensuring effective security over its information and systems continues to be a challenge for VA. While the department has taken steps to respond to incidents and identify and mitigate vulnerabilities, more can be done to fully address these issues. Specifically, by not keeping sufficient records of its incident response activities, VA lacks assurance that incidents have been effectively addressed and may be less able to effectively respond to future incidents. In addition, without fully addressing an underlying vulnerability that allowed a serious intrusion to occur, increased risk exists that such an incident could recur. While VA has efforts under way to improve its incident response capabilities, until it identifies specific actions, priorities, and milestones for completing these efforts, it will be difficult to gauge its progress. Further, limitations in VA's approach to identifying and addressing vulnerabilities in key web applications, such as not developing plans of action and milestones to address identified vulnerabilities and not scanning all application source code for defects, put veterans' sensitive information at greater risk of compromise. Moreover, VA has yet to fully implement an effective program for identifying and mitigating vulnerabilities in workstations and other network devices, including applying security patches, performing an appropriate level of scanning, and identifying compensating controls and mitigation plans. These shortcomings leave its networks and devices susceptible to exploitation of known security vulnerabilities. While the department has established an organization intended to improve remediation efforts, without identifying specific actions, priorities, and milestones for accomplishing these tasks, this organization's effectiveness will be limited. To address previously identified security vulnerabilities, we are recommending that the Secretary of Veterans Affairs take the following eight actions: Update the department's standard operating procedure to require evidence associated with security incidents to be maintained for at least 3 years, consistent with NARA guidance. Fully implement the solution to address the weaknesses that led to the 2012 intrusion incident. Establish time frames for completing planned initiatives to improve incident response capabilities. Develop plans of action and milestones for critical and high-risk vulnerabilities affecting two key web applications. Finalize and implement the policy requiring developers to conduct source code scans on key web applications. Apply missing critical security patches within established time frames, or in cases where security patches cannot be applied, document compensating controls or, as appropriate, longer-term plans to migrate to newer platforms, hardware, and/or technologies where security patches can be applied and new security features enabled. Scan non-Windows network devices in authenticated mode. Identify specific actions, priorities, and milestones for accomplishing tasks to facilitate vulnerability remediation. We provided a draft of this report to VA for review and comment. In its written comments (reprinted in appendix II), VA stated that it generally agreed with our conclusions and concurred with our recommendations. VA also stated that it has already taken actions to address six of our eight recommendations and has plans in place to address the remaining two. Although we have not yet validated the actions described or determined whether they effectively address the issues raised in this report, we are concerned that the actions VA described as completed for at least two of the six recommendations may not comprehensively address the weaknesses we identified. Specifically, for our recommendations related to applying critical security patches and establishing milestones and priorities for facilitating vulnerability remediation, VA's comments focus on its monthly scans, among other things, but do not address application of patches, or identification of milestones and priorities. In this report, we recognize the importance of the monthly scans conducted by the department in accordance with NIST guidance and VA policy. While we acknowledge that VA has efforts underway to address previously identified weaknesses, until it comprehensively and effectively addresses the weaknesses, sensitive personal information entrusted to the department will be at increased risk of unauthorized access, modification, disclosure, or loss. We believe that our recommendations, if effectively implemented, should help the department improve its security posture. We intend to monitor VA's implementation of our recommendations. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 4 days from the report's date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of Veterans Affairs, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Gregory C. Wilshusen at (202) 512-6244 or Dr. Nabajyoti Barkakati at (202) 512-4499. We can also be reached by e-mail at [email protected] and [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. Our objective was to determine the extent to which selected, previously identified vulnerabilities continue to exist on Department of Veterans Affairs (VA) computer systems. To address this objective, we reviewed actions taken to address vulnerabilities that had been identified by VA's Network and Security Operations Center (NSOC). Specifically, we reviewed the details of a critical incident that NSOC had detected in which VA's network had been compromised and the department's efforts to respond to it. We selected this incident because it was highlighted in a June 2013 testimony by VA's former Chief Information Security Officer. We reviewed a detailed investigation report prepared by NSOC and interviewed center officials regarding actions taken to detect, analyze, contain, eradicate, and recover from this incident. We also reviewed an internal memorandum related to an underlying vulnerability that contributed to this incident. We compared VA's efforts to address this incident to National Institute of Standards and Technology (NIST) guidance on security controls and incident handling. We also reviewed VA's standard operating procedure for forensics analysis and compared it to guidance issued by the National Archives and Records Administration. We also reviewed a prior GAO report on agencies' (including VA's) incident response practices. Further, we interviewed NSOC officials to determine what initiatives the department has planned or under way to further improve incident response capabilities. We also reviewed vulnerabilities NSOC had identified in two key VA web applications. We selected these applications based on their processing of veterans' sensitive personally identifiable information. For these web applications, we reviewed the results of NSOC testing, particularly findings that the testers had categorized as critical or high risk, and compared the dates the vulnerabilities were identified and the dates corrective actions were validated. We also met with VA information security officials and web application developers to determine (1) if plans of actions and milestones had been developed for uncorrected vulnerabilities and (2) the extent to which the department was using tools to conduct software code reviews in order to identify root causes of software vulnerabilities. We evaluated VA actions in accordance with NIST guidance on security testing, developing plans of actions and milestones, and vulnerability analysis and VA's policy on testing applications prior to authorization. NIST, Special Publication 800-53, rev. 4. We conducted this performance audit from February 2014 to November 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings based on our audit objective. In addition to the contacts named above, Jeffrey Knott, Lon Chin, Harold Lewis, and Chris Warweg (assistant directors); Jennifer R. Franks; Lee McCracken; and Tyler Mountjoy made key contributions to this report.	In carrying out its mission to ensure the health, welfare, and dignity of the nation's veterans, VA relies extensively on information technology systems that collect, process, and store veterans' sensitive information. Without adequate safeguards, these systems and information are vulnerable to a wide array of cyber-based threats. Moreover, VA has faced long-standing challenges in adequately securing its systems and information, and reports of recent incidents have highlighted the serious impact of inadequate information security on the confidentiality, integrity, and availability of veterans' personal information. GAO was asked to review VA's efforts to address information security vulnerabilities. The objective for this work was to determine the extent to which selected, previously identified vulnerabilities continued to exist on VA computer systems. To do this, GAO reviewed VA actions taken to address previously identified vulnerabilities, including a significant network intrusion, vulnerabilities in two key web-based applications, and security weaknesses on devices connected to VA's network. GAO also reviewed the results of VA security testing; interviewed relevant officials and staff; and reviewed policies, procedures, and other documentation. While the Department of Veterans Affairs (VA) has taken actions to mitigate previously identified vulnerabilities, it has not fully addressed these weaknesses. For example, VA took actions to contain and eradicate a significant incident detected in 2012 involving a network intrusion, but these actions were not fully effective: The department's Network and Security Operations Center (NSOC) analyzed the incident and documented actions taken in response. However, VA could not produce a report of its forensic analysis of the incident or the digital evidence collected during this analysis to show that the response had been effective. VA's procedures do not require all evidence related to security incidents to be kept for at least 3 years, as called for by federal guidance. As a result, VA cannot demonstrate the effectiveness of its incident response and may be hindered in assisting in related law enforcement activities. VA has not addressed an underlying vulnerability that allowed the incident to occur. Specifically, the department has taken some steps to limit access to the affected system, but, at the time of GAO's review, VA had not fully implemented a solution for correcting the associated weakness. Without fully addressing the weakness or applying compensating controls, increased risk exists that such an incident could recur. Further, VA's policies did not provide the NSOC with sufficient authority to access activity logs on VA's networks, hindering its ability to determine if incidents have been adequately addressed. In an April 2014 report, GAO recommended that VA revise its incident response policies to ensure the incident response team had adequate authority, and VA concurred. Further, VA's actions to address vulnerabilities identified in two key web applications were insufficient. The NSOC identified vulnerabilities in these applications through testing conducted as part of the system authorization process, but VA did not develop plans of action and milestones for correcting the vulnerabilities, resulting in less assurance that these weaknesses would be corrected in a timely and effective manner. Finally, vulnerabilities identified in VA's workstations (e.g., laptop computers) had not been corrected. Specifically, 10 critical software patches had been available for periods ranging from 4 to 31 months without being applied to workstations, even though VA policy requires critical patches to be applied within 30 days. There were multiple occurrences of each missing patch, ranging from about 9,200 to 286,700, and each patch was to address an average of 30 security vulnerabilities. VA decided not to apply 3 of the 10 patches until it could test their impact on its applications; however, it did not document compensating controls or plans to migrate to systems that support up-to-date security features. While the department has established an organization to improve its vulnerability remediation, it has yet to identify specific actions and milestones for carrying out related responsibilities. Until VA fully addresses previously identified security weaknesses, its information is at heightened risk of unauthorized access, modification, and disclosure and its systems at risk of disruption. GAO is making eight recommendations to VA to address identified weaknesses in incident response, web applications, and patch management. In commenting on a draft of this report, VA stated that it concurred with GAO's recommendations.	6,021	890
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) replaced the individual entitlement to benefits under the 61-year-old Aid to Families with Dependent Children (AFDC) program with TANF block grants to states and emphasized the transitional nature of assistance and the importance of reducing welfare dependence through employment. Administered by HHS, TANF provides states with $16.5 billion each year, and in fiscal 2002, the total TANF caseload consisted of 5 million recipients. PRWORA provides states with the flexibility to set a wide range of TANF program rules, including the types of programs and services available and the eligibility criteria for them. States may choose to administer TANF directly, devolve responsibility to the county or local TANF offices, or contract with nonprofit or for-profit providers to administer TANF. Some states have also adopted "work first" programs, in which recipients typically are provided orientation and assistance in searching for a job; they may also receive some readiness training. Only those unable to find a job after several weeks of job search are then assessed for placement in other activities, such as remedial education or vocational training. While states have great flexibility to design programs that meet their own goals and needs, they must also meet several federal requirements designed to emphasize the importance of work and the temporary nature of TANF aid. For example, TANF established stronger work requirements for those receiving cash benefits than existed under AFDC. Furthermore, to avoid financial penalties, states must ensure that a steadily rising specified minimum percentage of adult recipients are participating in work or work-related activities each year. To count toward the state's minimum participation rate, adult TANF recipients in families must participate in a minimum number of hours of work or a work-related activity a week, including subsidized or unsubsidized employment, work experience, community service, job search, providing child care for other TANF recipients, and (under certain circumstances) education and training. If recipients refuse to participate in work activities as required, states must impose a financial sanction on the family by reducing the benefits, or they may opt to terminate the benefits entirely. States must also enforce a 60-month limit (or less at state option) on the length of time a family may receive federal TANF assistance, although the law allows states to provide assistance beyond 60 months using state funds. The TANF caseload includes, as did AFDC, low-income individuals with physical or mental impairments considered severe enough to make them eligible for the federal SSI program. Administered by SSA, SSI is a means- tested income assistance program that provides essentially permanent cash benefits for individuals with a medically determinable physical or mental impairment that has lasted or is expected to last at least 1 year or to result in death and prevents the individual from engaging in substantial gainful activity. To qualify for SSI, an applicant's impairment must be of such severity that the person is not only unable to do previous work but is also unable to do any other kind of substantial gainful work that exists in the national economy. Work is generally considered substantial and gainful if the individual's earnings exceed a particular level established by statute and regulations. SSA also administers the Disability Insurance program (DI), which uses the same definition of disability, but is not means-tested and requires an individual to have a sufficient work history. For both DI and SSI, SSA uses the Disability Determination Service (DDS) offices to make the initial eligibility determinations. If the individual is not satisfied with this determination, he or she may request a reconsideration of the decision with the same DDS. Another DDS team will review the documentation in the case file, as well as any new evidence, and determine whether the individual meets SSA's definition of disability. If the individual is not satisfied with the reconsideration, he or she may request a hearing before an Administrative Law Judge (ALJ). The ALJ conducts a new review and may hear testimony from the individual, medical experts, and vocational experts. If the individual is not satisfied with the ALJ decision, he or she may request a review by SSA's Appeals Council, which is the final administrative appeal within SSA. Despite recent improvements to the process, going through the entire process, including all administrative appeals, can average over 2 years. In most states, SSI eligibility also entitles individuals to Medicaid benefits. TANF recipients may apply for Medicaid benefits and are likely to qualify, but receipt of TANF benefits does not automatically qualify a recipient for Medicaid. While SSA has recently expanded policies and initiated demonstration projects aimed at helping DI and SSI beneficiaries enter or return to the workforce and achieve or at least increase self-sufficiency, its disability programs remain grounded in an approach that equates impairment with inability to work. This approach exists despite medical advances and economic and social changes that have redefined the relationship between impairment and the ability to work. The disconnect between SSA's program design and the current state of science, medicine, technology, and labor market conditions, along with similar challenges in other programs, led GAO in 2003 to designate modernizing federal disability programs, including DI and SSI, as a high-risk area urgently needing attention and transformation. The Ticket to Work and Work Incentives Improvement Act of 1999 amended the Social Security Act to create the Ticket to Work and Self- Sufficiency Program (Ticket Program). This program provides most DI and SSI beneficiaries with a voucher, or "ticket," which they can use to obtain vocational rehabilitation, employment, or other return-to-work services from an approved provider of their choice. The program, while voluntary, is only available to beneficiaries after the lengthy eligibility determination process. Once an individual receives the ticket, he or she is free to choose whether or not to use it, as well as when to use it. Generally, disability beneficiaries age 18 through 64 are eligible to receive tickets. The Ticket Program has been implemented in phases and is to be fully implemented in 2004. The Social Security Advisory Board (Advisory Board) has questioned whether Social Security's definition of disability is appropriately aligned with national disability policy. The definition of disability requires that individuals with impairments be unable to work, but then once found eligible for benefits, individuals receive positive incentives to work. Yet the disability management literature has emphasized that the longer an individual with an impairment remains out of the workforce the more likely the individual is to develop a mindset of not being able to work and the less likely the individual is to ever return to work. Having to wait for return-to-work services until determined eligible for benefits may be inconsistent with the desire of some individuals with impairments who want to work but still need financial and medical assistance. The Advisory Board, in recognizing that these inconsistencies need to be addressed, has suggested some alternative approaches. One option they discussed in a recent report is to develop a temporary program, which would be available while individuals with impairments were waiting for eligibility determinations for the current program. This temporary program might have easier eligibility rules and different cash benefit levels but stronger and more individualized medical and other services needed to support a return to work. SSA has also realized that one approach may not work for all beneficiaries, and in recent years it has begun to develop different approaches for providing assistance to individuals with disabilities. One example of these efforts is the proposed Temporary Allowance Demonstration, which would provide immediate cash and medical benefits for a specified period to individuals who meet SSA's definition of disability and who are highly likely to benefit from aggressive medical care. SSA is also in the process of developing the Early Intervention Demonstration. This demonstration project will test alternative ways to provide employment-related services to disability applicants. Although both of these demonstration projects only cover the DI program, SSA also has the authority to conduct other demonstration projects with SSI applicants and recipients. Estimates from our nationwide survey of county TANF offices indicated that almost all offices reported that they refer at least some recipients with impairments to apply for SSI. But the level of encouragement these individuals receive from their local TANF office to apply for SSI varies, with many offices telling the individual to apply for SSI and some offices helping the recipient complete the application. Because TANF offices are referring individuals to SSI, these referrals will have some effect on the SSI caseload. However, findings regarding the impact that these SSI referrals from TANF have on SSI caseload growth are inconclusive, due to data limitations. Based on estimates from our survey, 97 percent of all counties refer at least some of their adult TANF recipients with impairments to SSA to apply for SSI. As table 1 shows, 33 percent of county TANF offices said that it is their policy to refer to SSI only those adults whose impairments are identified as limiting or preventing their ability to work. However, another 32 percent of county TANF offices said that it is their policy to refer all TANF recipients identified with impairments to SSI for eligibility determinations. TANF offices reported that they rely on several methods to identify an individual's impairment and assess whether the individual could work or should be referred to SSI. Estimates from our survey indicated that all county offices rely on the applicant to disclose his or her impairment. In addition, 96 percent of all counties rely on caseworker observation, about 57 percent use a screening tool, and about 60 percent use an intensive assessment. Once recipients are identified as having impairments, TANF offices need to decide which individuals to refer to SSI. As table 2 shows, many counties rely on multiple forms of documentation or other information to make this decision, rather than referring all individuals with impairments. Specifically, 94 percent of all counties reported that they use documentation from a recipient's physician, and 95 percent reported that they use self-reported information from the recipient. While nearly all county TANF offices reported that they refer at least some individuals with impairments to SSI, the level of encouragement such individuals receive from their local TANF office appears to vary. About 98 percent of county TANF offices reported that they tell these recipients to call or go to SSA to apply for SSI. About 61 percent reported that they will also assist a recipient in completing the SSI application, and about 74 percent reported that they follow up to ensure the application process is complete. Some of the variation in the level of encouragement may be explained by the fact that some states are work first states. Officials we interviewed in four states acknowledged that they try to get all TANF recipients to work, including recipients with impairments. Therefore, while they make referrals to SSI, officials in these work first states told us that they try to encourage work more than the SSI application process. However, officials in all five of the states we visited stated that if they feel an individual has a severe impairment, they would have the individual apply for SSI. Since county TANF offices refer individuals with impairments to SSI, these referrals will have some effect on the SSI caseload. To determine the magnitude of the effect that these TANF referrals have had on SSI caseload growth, SSA would need to know who among their applicants are TANF recipients. However, SSA headquarters officials told us that the agency does not know who is referred or how people are referred because it does not collect those data. Although the SSI application specifically asks whether the applicant is receiving TANF, this information is combined with other income assistance based on need in SSA's database. Therefore, while the working age (18-64) SSI caseload has increased 33 percent over the last decade, SSA does not have an easy way to accurately determine the magnitude of the effect that the TANF referrals have had on the growth of the SSI rolls. Also, in a study funded by SSA and conducted by The Lewin Group, researchers found little, if any, evidence that TANF had increased referrals to SSI. Only one of the five states the researchers visited remarked of a perceptible increase in transitions to SSI. The authors noted that the likely reason for not finding a significant increase in referrals due to welfare reform is the fact that referrals to SSI had already been occurring under AFDC, and that the full impact of the welfare reform changes would not be known until the time limit for benefit receipt had elapsed. However, to date there have not been any studies that looked at this issue. In addition to SSA not knowing the magnitude of the effect that TANF referrals have had on SSI caseload growth, TANF officials we interviewed stated that they generally do not have historical data on SSI referrals, approvals, and denials. But officials in most states that we visited said they are in the process of improving their data collection in this respect, including tracking methods to determine the status of an SSI application, which should provide them with better data in the future. TANF offices vary in whether they make work requirements mandatory for their adult recipients with impairments awaiting SSI eligibility determinations. Even though estimates from our survey showed that 83 percent of county TANF offices reported offering noncash services to TANF recipients with impairments who are awaiting SSI eligibility determinations, these services may not be available or are not fully utilized. Reasons for this low service utilization may include exemptions from the work requirements and an insufficient number of job training or related services. Estimates from our survey showed that about 86 percent of county TANF offices have policies that always or sometimes exempt from the work requirements adult TANF recipients with impairments who are referred to SSI for eligibility determinations. Also, about 31 percent of county TANF offices consider the number of times a recipient is denied and appeals an SSI decision as a factor when deciding to exempt recipients from the work requirements. Our survey further found that 82 percent of counties reported exempting recipients, in part, on the basis of the degree to which the impairment limits the recipient's ability to work. In addition, about 69 percent of county TANF offices reported that the severity of the impairment was a major factor in their decisions to exempt people with impairments who are awaiting SSI determinations from work requirements. One TANF official we interviewed told us that the recipients' impairments were too great to participate in work activities. However, some of the state and county TANF officials we interviewed explained that they have developed alternative practices to help recipients with impairments participate in work activities. TANF officials from two of the states we visited told us that they have developed a modified work requirement for adult TANF recipients with impairments. A TANF official from one of these states said that the modified work requirements encourage individuals with impairments to work, but they do not expect that these individuals will be able to work in a full-time capacity. One county TANF official we interviewed explained that the work requirements and services provided for their recipients with impairments are very individualized, based on recommendations of the doctors who meet with the recipients. However, in all of the states and counties we visited, TANF officials said that individualized services can be costly. One state official said that his state's program does not have the funds to pay for the training needed by people with learning disabilities. The official added that when people with impairments need substantial help, there were limits as to what could be funded in a work first state. Even though about 51 percent of county TANF offices do not require adult TANF recipients awaiting SSI determinations to participate in any type of job services, education services, work experience programs, or other employment services, 83 percent of county TANF offices reported that they are still willing to provide work-related or support services to this population. One state official we interviewed reported that the services provided are the same for persons with or without impairments. Officials in this state explained that these services include transportation, child care, medical assistance, tuition assistance, vocational rehabilitation, and assistance with obtaining SSI benefits. Even though county TANF offices may be willing to offer noncash services to their recipients, among those counties that could provide us with information on service utilization, utilization of these services tended to be low. While the low utilization of services may be due to exemptions from the work requirements, service availability may also be an issue. Estimates from our survey showed that 40 percent of county TANF offices reported one of the reasons adult TANF recipients with impairments, who are awaiting SSI eligibility determinations, are not participating in work activities is that there are an insufficient number of job training or related services available for them to use. In addition, some TANF officials that we interviewed cited not only limited funding, but also their offices' own TANF policies as factors that might explain why services may not be available to recipients with impairments. For example, a state TANF official we interviewed said that state budget cuts have resulted in trimming of support services made available to recipients. Another state official explained that adult recipients with impairments who are placed in an exempted status are allowed access to medical services but not work- related support services, such as transportation, clothing, or vehicle repairs. The official further explained that those services are limited to those individuals who are in work activities. In addition, estimates from our survey showed that 50 percent of county TANF offices reported recipients' motivation to apply for SSI was one of the conditions that might challenge or hinder their offices in providing employment services. Some state and county TANF officials we interviewed also believe that one of the main reasons why there is low utilization of services is recipients' fear of jeopardizing their SSI applications. While participation in a work activity does not necessarily preclude an individual from obtaining disability benefits from SSA, estimates from our survey showed that 41 percent of county TANF offices reported that their recipients with impairments, awaiting SSI eligibility determinations, are unsure whether or not the demonstration of any work ability would hinder or disqualify their chances for SSI eligibility. State and county TANF officials we interviewed explained that recipients applying for SSI or awaiting an SSI decision fear participating in work activities. Some of the county TANF officials we interviewed explained that this population does not want to participate in work-related services for fear of jeopardizing their applications. These officials noted that compounding recipients' fears are attorneys who may be attempting to protect their clients' interests by sending TANF offices notices saying that any work activity could jeopardize their clients' SSI applications. These fears have led to TANF workers having some difficulty in getting their recipients with impairments to explore work options during the time they are applying for SSI. One state TANF official we interviewed pointed out that conversations with their recipients about work activities have generally occurred because the recipients want to volunteer for such activities. A county TANF official explained that there is a challenge in providing work services to this population, as the recipients are so focused on getting on SSI that it is difficult to get them to focus on anything else. Yet another reason for the low use of noncash service is that some of the county TANF officials we interviewed expressed some uncertainty as to how to best serve their adult TANF recipients with impairments, explaining that they are sending mixed signals when it comes to encouraging work. One county TANF official we interviewed said that on one hand, recipients are being told about using TANF services to obtain employment, and then, on the other hand, recipients are being told to apply for SSI benefits, which require an applicant to focus on his or her inability to work. Some TANF offices also allow TANF recipients with impairments to count applying for SSI as a work activity. Estimates from our survey showed that about 30 percent of county TANF offices reported that they consider the SSI application process an activity that satisfies the work requirement. Also, another county official we interviewed stated that if a client goes into an exempted status, the client must participate in at least one activity a week, but not necessarily a work activity. It can be any service the TANF office has to offer, including physical therapy or assistance in completing the SSI application. Some county TANF offices have developed interactions with SSA offices, but such interactions have been of a limited nature and have focused on the SSI application process. Estimates from our survey indicated that some TANF offices have some form of interaction with SSA. Estimates from our survey also showed that two frequently reported forms of interaction between county TANF offices and SSA include having a contact at SSA with whom to discuss cases and following up with SSA regarding applications for SSI. In describing his office's interactions with SSA, one state TANF official we interviewed said that his office, SSA, and DDS have a good working relationship, which includes cross training between the agencies and discussions concerning the SSI application process. However, estimates from our survey showed about 95 percent of county TANF offices reported that they would like to develop a relationship, or improve their relationship, with their local SSA field office with regard to adult TANF recipients applying for SSI. One state TANF official that we interviewed said that his office does not have much of a relationship with SSA. He noted that he had no contacts within SSA but would like to develop a formal relationship with DDS so that they could make faster determinations for the deferred TANF caseload. A county TANF official we interviewed said that her office's communication with SSA is largely one-sided. This TANF official explained that even though her office sends documentation that supports a recipient's SSI application, SSA does not inform them of any eligibility decisions it makes with TANF applicants. As a result, TANF staff must rely on their recipients telling them about decisions or on a computer system that indicates if an individual is receiving benefits. Finally, in all of the states we visited, TANF officials told us that they interact with SSA to assist their TANF recipients with impairments get onto SSI. Estimates from our survey also showed that 64 percent of counties reported that their interactions were TANF officials following up with SSA regarding a recipient's SSI application, and 53 percent reported having a contact at SSA to discuss cases. TANF offices identified a number of ways they would like to improve interactions with SSA, but most of these focused on making the SSI application process more efficient and not on working together to assist TANF recipients with impairments toward employment and self- sufficiency. Estimates from our survey showed about 57 percent of the county TANF offices said that they would like to receive training from SSA regarding the SSI application process and eligibility requirements, 50 percent said they would like to have a contact at SSA with whom to discuss cases, and 41 percent said they would like to have regular meetings or working groups with SSA regarding interactions and other issues related to serving low-income individuals with impairments. In addition, one TANF official we interviewed would like interactions with SSA to be improved and thinks they could be if he knew what DDS was looking for in the application process, such as what it requires for evidence. In contrast, only 6 percent of county TANF offices reported that they would like to improve interactions with SSA specifically related to providing SSA with information on employment-related services received while on TANF. Although TANF offices reported an interest in developing a close working relationship with SSA, based on their interactions with SSA, some state and county TANF officials believed that they had to take the lead in developing these relationships. For example, one TANF official we interviewed explained that he had attempted to make contact with SSA to discuss a potential partnership and address some of the county's issues with the SSI application process but received no response. The county official then wrote a letter to a top SSA regional official asking about partnering opportunities. In response, the regional official instructed the SSA area director, along with the local SSA and state DDS office, to meet with county officials. One SSA headquarters official we interviewed told us there is no SSA policy that directs or encourages their field offices to interact with TANF offices. The official also told us that SSA would consider such a partnership with TANF offices but would want assurances of what the benefits would be for SSA. In addition, the official said that the agency does not want to start up a partnership that would overly tax its already high workloads. The official further said that if it were to develop a relationship with TANF offices, SSA would then have to develop a training program and then administer it to all operations personnel. The official noted that developing and administering such a training program would not be a small task. SSA officials did state that if a TANF office makes a request for training sessions, SSA would be willing to provide training on the application process. However, about 27 percent of county TANF offices reported that they were discouraged in their attempts to establish a relationship with SSA because the local SSA field office told the TANF office that SSA did not have the time or the interest. While officials at SSA headquarters stated that they are largely unaware of any partnerships or interactions between TANF offices and local SSA field offices, some local SSA officials have found such relationships beneficial. In particular, one SSA official has found his office's relationship with the local TANF office to be a form of outreach for SSA by helping his office identify people who would qualify for SSI. He explained that his local SSA office does not always have the time or staff to conduct outreach. He further explained that TANF case managers can explain the benefits and provide assistance to the TANF recipient applying for SSI. Thus, when a letter comes from the DDS that initially denies the claim, the individual is less likely to throw it away, as he or she is more aware of the process. This could save SSA time and money as the applicant knows that he or she must appeal within a certain amount of time, thereby reducing the need to start over because of missed deadlines. While 34 percent of those county TANF offices that provide services to recipients awaiting SSI eligibility determinations reported interacting with SSA in some manner to serve adult TANF recipients with impairments, a much higher proportion reported receiving assistance from other agencies or programs. For example, as table 3 shows, 91 percent of county TANF offices reported that at least some of their recipients awaiting SSI determinations received assistance from the state vocational rehabilitation agencies, and 86 percent of all offices reported that at least some of their recipients received assistance from the state or local mental health agency. Further, in all of the states we visited, TANF offices reported working with other agencies, such as the Department of Education and the Department of Labor, to help TANF recipients with impairments find work. With the new emphasis on work and self-sufficiency taken by TANF and SSI, and the overlap in the populations served by both programs, opportunities exist to improve the way these two programs interact in order to help individuals with impairments become more self-sufficient. While some interactions between TANF offices and SSA do exist, they are often limited to how best to assist a TANF recipient with impairments become eligible for essentially permanent cash benefits under SSI. Moreover, the practice by most TANF offices of exempting individuals from work requirements while awaiting SSI eligibility determination, as well as SSA's policy of offering return-to-work services and incentives only after a lengthy eligibility process, undermines both programs' stated goals of promoting self-sufficiency. In addition, this practice runs counter to the disability management literature that has emphasized that the longer an individual with an impairment remains out of the workforce the less likely the individual is to ever return to work. In recognition of this, SSA is planning demonstration projects that will test alternative ways to provide benefits and employment supports to DI applicants. However, TANF recipients with impairments, because of their low income and assets, are more likely to apply and qualify for SSI. Moreover, TANF recipients with impairments often receive assessments of their conditions and capacity to work while on TANF. Since SSA cannot easily identify who among its applicants are TANF recipients, SSA is also unable to systematically identify the types of services that the SSI applicant may have received through TANF or know whether the SSI applicant has been assessed as having the capacity to work or not. Being able to identify the receipt of TANF benefits, as well as the noncash services received through TANF, may help SSA accomplish its mission of promoting the employment of beneficiaries with impairments. By sharing information and establishing better working relationships with TANF agencies, SSA could identify, among its applicants who are or were TANF recipients, those individuals capable of working and could then target them for employment-related services and help them achieve self-sufficiency or at least reduce their dependency on cash benefits. Although the disconnect in work requirements between TANF and SSA's disability programs and the timing of when employment-related services are provided to SSI recipients could be barriers to establishing a continuity of services, the earlier provision of employment-related services, as part of a demonstration project, could mitigate these potential barriers. While some county TANF officials we interviewed have developed working relationships with their local SSA office, other counties have not or may be unaware of the possibilities for interactions with SSA and how to go about establishing these relationships. Sharing best practices about how TANF agencies can distinguish, among the recipients they have referred to SSI, those individuals without the capacity to work from those with the capacity to work and who could benefit from employment-related services could help ensure that those individuals with work capacity be given the assistance they need to help them obtain employment. Moreover, sharing best practices for establishing useful interactions with SSA could help ensure that employment-related services could continue after the person becomes eligible for SSI. To help individuals with impairments become more self-sufficient and to address the gap in continuous work services between the TANF and SSI programs, we are recommending that SSA, as part of a new demonstration project, work with TANF offices to develop screening tools, assessments, or other data that would identify those TANF recipients with impairments who while potentially eligible for SSI may also be capable of working. Once these recipients have been identified, the TANF offices and SSA could work together to coordinate aggressive medical care and employment-related services that would help the individual obtain employment and achieve or at least increase self-sufficiency. In order to facilitate and encourage a sharing of information among TANF offices regarding the development of interactions with SSA that might increase self-sufficiency of recipients with impairments, we are recommending that HHS provide space on its Web site to serve as a clearinghouse for information regarding best practices and opportunities for TANF agencies to interact with SSA. This would allow state and county TANF officials to share information on what they are doing, what works, and how to go about establishing relationships with SSA. It would also provide states and counties with access to the research of federal agencies, state and county offices, and other researchers that they may need in order to develop a strong functional relationship with SSA and help TANF recipients with impairments move toward economic independence. HHS should be able to minimize its work and expense by using its Web site to share this information. We provided a draft of this report to HHS and SSA for comment. Both agencies generally agreed with our recommendations and indicated that they look forward to working together to help low-income individuals with impairments become more self-sufficient. Specifically, SSA stated that it would be pleased to work with HHS on the planning and design of a demonstration project. Likewise, HHS stated that it would be pleased to have its staff work with SSA to develop a process or criteria for identifying individuals who could benefit from employment services. In addition, in response to the findings of our report, SSA said it would take immediate measures to ensure that it responds to all requests from TANF offices for training on SSA's programs. Also in its comments, SSA suggested that we include in our report the fact that states may exempt up to 20 percent of their caseload from the time limits and that many states waive work requirements for persons applying for SSI. In both the draft we sent to SSA and the final version, we included a footnote explaining the time limit exemptions, and in the body of the report we discussed the issue of work requirement exemptions for persons applying for SSI. HHS' comments appear in appendix II and SSA's comments appear in appendix III. In addition, both HHS and SSA provided technical comments, which we have incorporated as appropriate. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution until 30 days after the date of this letter. At that time, we will send copies to the Secretary of HHS, the Commissioner of Social Security, appropriate congressional committees, and other interested parties. The report is also available at no charge on GAO's Web site at http://www.gao.gov. If you have any questions about this report, please contact me or Carol Dawn Petersen on (202) 512-7215. Other staff who made key contributions are listed in appendix IV. To determine the extent that Temporary Assistance for Needy Families (TANF) recipients with impairments are encouraged to apply for Supplemental Security Income (SSI), whether work requirements are imposed, the range of services provided during the period of SSI eligibility determination, and the extent that interactions exist between the SSI and TANF programs, we conducted a nationally representative survey of 600 county TANF administrators from October 14, 2003, through February 20, 2004. For the most part, TANF services are provided at the county level, so we selected a random probability sample of counties for our survey. We derived a nationwide listing of counties from the U.S. Bureau of the Census's county-level file with 2000 census data and yearly population estimates for 2001 and 2002. We selected a total sample of 600 counties out of 3,141 counties. To select this sample, we stratified the counties into two groups. The first group consisted of the 100 counties in the United States with the largest populations, using the 2002 estimates. The second group consisted of the remaining counties in the United States. We included all of the 100 counties with the largest populations in our sample to ensure that areas likely to have large concentrations of TANF recipients were represented. From the second group, consisting of all the remaining counties, we selected a random sample of 500 counties. After selecting the sample of counties, we used the American Public Human Services Association's Public Human Services Directory (2002-2003) to determine the name and address of the TANF administrator for each county. In states with regional TANF programs, we asked the regional director to fill out a questionnaire for each county in the region. We obtained responses from 527 of 600 counties, for an overall response rate of about 88 percent. The responses are weighted to generalize our findings to all county TANF offices nationwide. Sample weights reflect the sample procedure, as well as adjusting for nonresponse. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample's results at a 95 percent confidence level at an interval of plus or minus 5 percentage points. This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. In other words, we are 95 percent confident the confidence interval will include the true value of the study population. In addition to the reported sampling errors, the practical difficulties of conducting any survey may introduce other types of errors, commonly referred to as nonsampling errors. For example, differences in how a particular question is interpreted, the sources of information available to respondents, or the types of people who do not respond can introduce unwanted variability into the survey results. We included steps in both the data collection and data analysis stages for the purpose of mitigating such nonsampling errors. In addition to those named above, David J. Forgosh, Cady Summers, Megan Matselboba, Christopher Moriarity, and Luann Moy made key contributions to this report.	The nation's social welfare system has been transformed into a system emphasizing work and personal responsibility, primarily through the creation of the Temporary Assistance for Needy Families (TANF) block grant. The Supplemental Security Income (SSI) program has expanded policies to help recipients improve self-sufficiency. Given that SSA data indicate an overlap in the populations served by TANF and SSI, and the changes in both programs, this report examines (1) the extent that TANF recipients with impairments are encouraged to apply for SSI and what is known about how SSI caseload growth has been affected by such TANF cases, (2) the extent that work requirements are imposed on TANF recipients applying for SSI, and the range of services provided to such recipients, and (3) the extent that interactions exist between the SSI and TANF programs to assist individuals capable of working to obtain employment. In our nationwide survey of county TANF offices, we found that nearly all offices reported that they refer recipients with impairments to SSI, but the level of encouragement to apply for SSI varies. While almost all of the county TANF offices stated that they advise such recipients with impairments to apply for SSI, 74 percent also follow up to ensure the application process is complete, and 61 percent assist recipients in completing the application. Because TANF offices are referring individuals with impairments to SSI, these referrals will have some effect on the SSI caseload. However, due to data limitations, the magnitude of the effect these referrals have on SSI caseload growth is uncertain. While SSA can identify whether SSI recipients have income from other sources, it cannot easily determine whether this income comes from TANF or some other assistance based on need. In addition, past research has not found conclusive evidence regarding the impact that TANF referrals have on SSI caseload growth. Estimates from our survey found that although some TANF offices impose work requirements on individuals with impairments, about 86 percent of all offices reported that they either sometimes or always exempt adult TANF recipients awaiting SSI determinations from the work requirements. One key reason for not imposing work requirements on these recipients is the existence of state and county TANF policies and practices that allow such exemptions. Nevertheless, county TANF offices, for the most part, are willing to offer noncash services, such as transportation and job training, to adult recipients with impairments who have applied for SSI. However, many recipients do not use these services. This low utilization may be related to exempting individuals from the work requirement, but it may also be due to the recipients' fear of jeopardizing their SSI applications. Another reason for the low utilization of services is that many services are not necessarily available; budgetary constraints have limited the services that some TANF offices are able to offer recipients with impairments. Many county TANF offices' interactions with SSA include either having a contact at SSA to discuss cases or following up with SSA regarding applications for SSI. Interactions that help individuals with impairments increase their self-sufficiency are even more limited. In all the states we visited, we found that such interactions generally existed between TANF agencies and other agencies (such as the Departments of Labor or Education). In addition, 95 percent of county TANF offices reported that their interactions with SSA could be improved. State and county TANF officials feel they have to take the lead in developing and maintaining the interaction with SSA. One SSA headquarters official stated that SSA has no formal policy regarding outreach to TANF offices but would consider a partnership provided there is some benefit for SSA. Still, about 27 percent of county TANF offices reported that they were discouraged in their attempts to establish a relationship with SSA because staff at the local SSA field office told them that they did not have the time or the interest.	8,090	864
In our review of the 240 visa revocations, we found examples where information on visa revocations did not flow between the State Department and appropriate units overseas and within INS and the FBI. State Department officials from the Visa Office told us that when they revoke a visa in Washington, they are supposed to take the following steps: (1) notify consular officers at all overseas posts that the individual is a suspected terrorist by entering a lookout on the person into State's watch list, the Consular Lookout and Support System, known as CLASS; (2) notify the INS Lookout Unit via a faxed copy of the revocation certificate so that the unit can enter the individual into its watch list and notify officials at ports of entry; and (3) notify the issuing post via cable so that the post can attempt to contact the individual to physically cancel his visa. Information-only copies of these cables are also sent to INS's and FBI's main communications enters. State officials told us they rely on INS and FBI internal distribution mechanisms to ensure that these cables are routed to appropriate units within the agencies. Figure 1 demonstrates gaps that we identified in the flow of information from State to INS and the FBI, and within these agencies, as well as the resulting inconsistencies in the posting of lookouts to the agencies' respective watch lists. The top arrow in the diagram shows the extent of communication on visa revocations between the State Department's Bureau of Consular Affairs and State's overseas consular posts. We found that State had not consistently followed its informal policy of entering a lookout into its CLASS lookout system at the time of the revocation. State officials said that they post lookouts on individuals with revoked visas in CLASS so that, if the individual attempts to get a new visa, consular officers at overseas posts will know that the applicant has had a previous visa revoked and that a security advisory opinion on the individual is required before issuing a new visa. Without a lookout, it is possible that a new visa could be issued without additional security screening. We reviewed CLASS records on all 240 individuals whose visas were revoked and found that the State Department did not post lookouts within a 2-week period of the revocation on 64 of these individuals. The second arrow depicts the information flow on revocations between State and the INS Lookout Unit, which is the inspections unit that posts lookouts on INS's watch list to prevent terrorists (and other inadmissible aliens) from entering the United States. Officials from the INS Lookout Unit told us they had not received any notice of the revocations from State in 43 of the 240 cases. In another 47 cases, the INS Lookout Unit received the revocation notice only via a cable; however, these cables took, on average, 12 days to reach the Lookout Unit, although in one case it took 29 days. An official from the INS communications center told us that, because State's cables were marked "information only," they were routed through the Inspections division first, which was then supposed to forward them to the Lookout Unit. He told us that if the cables had been marked as "action" or "urgent," they would have been sent immediately to the Lookout Unit. In cases where the INS Lookout Unit could document that it received a notification, it generally posted information on these revocations in its lookout database within one day of receiving the notice. When it did not receive notification, it could not post information on these individuals in its lookout database, precluding INS inspectors at ports of entry from knowing that these individuals had had their visas revoked. The third arrow on the diagram shows the communication between State and INS's National Security Unit that is responsible for investigations. This broken arrow shows that the State Department did not send copies of the faxed revocation certificates or cables to the unit. Further, in cases where the INS Lookout Unit received the revocation notification from State, INS Lookout Unit officials said that they did not routinely check to see whether these individuals had already entered the United States or notify investigators in the National Security Unit of the visa revocations. Without this notification, the National Security Unit would have no independent basis to begin an investigation. In May 2003, an official from the Lookout Unit said that her unit recently established a procedure in which, upon receiving notification of a revocation, she will query the Interagency Border Inspection System to determine if the individual recently entered the country. She will then give this information to investigators in the National Security Unit, which is now part of the Bureau of Immigration and Customs Enforcement. The bottom arrow on the diagram shows the information flow on visa revocations from State to the FBI's Counterterrorism units. We found that that these units did not consistently receive information on visa revocations. FBI officials said that the agency's main communications center received the notifications but the officials could not confirm if the notifications were then distributed internally to the appropriate investigative units at the FBI or to the agency's watch list unit, known as the Terrorist Watch and Warning Unit. The Department of Justice said that to add a person to its watch list, additional information must be provided to the FBI, such as the person's full name, complete date of birth, physical descriptors, and watch list-specific classification information. The revocation notifications did not include most of this information. Our analysis shows that thirty individuals with revoked visas have entered the United States and may still remain in the country. Twenty-nine of these individuals entered before State revoked their visas. An additional person who may still be in the country entered after his visa was revoked. INS inspectors allowed at least three other people to enter the country even though their visas had already been revoked, largely due to breakdowns in the notification system. These three people have left the country. Despite these problems, we noted cases where the visa revocation process prevented possible terrorists from entering the country or cleared individuals whose visas had been revoked. For example, INS inspectors successfully prevented at least 14 of the 240 individuals from entering the country because the INS watch list included information on the revocation action or had other lookouts on them. In addition, State records showed that a small number of people reapplied for a new visa after the revocation. State used the visa issuance process to fully screen these individuals and determined that they did not pose a security threat. The INS and the FBI did not routinely attempt to investigate or locate any of the individuals whose visas were revoked and who may be in the country. Due to congressional interest in specific cases, INS investigators located four of the persons in the United States but did not attempt to locate other revoked visa holders who may have entered the country. INS officials told us that they generally do not investigate these cases because it would be challenging to remove these individuals unless they were in violation of their immigration status even if the agency could locate them. A visa revocation by itself is not a stated grounds for removal under the Immigration and Nationality Act (INA). Investigators from INS's National Security Unit said they could investigate individuals to determine if they were violating the terms of their admission, for example by overstaying the amount of time they were granted to remain in the United States, but they believed that under the INA, the visa revocation itself does not affect the alien's legal status in the United States--even though the revocation was for terrorism reasons. They and other Homeland Security officials raised a number of legal issues associated with removing an individual from the country after the person's visa has been revoked. Our report discusses these issues in detail. FBI officials told us that they did not routinely attempt to investigate and locate individuals with revoked visas who may have entered the United States. They said that State's method of notifying them did not clearly indicate that visas had been revoked because the visa holder may pose terrorism concerns. Further, the notifications were sent as "information only" and did not request specific follow-up action by the FBI. Moreover, State did not attempt to make other contact with the FBI that would indicate any urgency in the matter. The weaknesses I have outlined above resulted from the U.S. government's limited policy guidance on the visa revocation process. Our analysis indicates that the U.S. government has no specific policy on the use of visa revocations as an antiterrorism tool and no written procedures to guide State in notifying the relevant agencies of visa revocations on terrorism grounds. State and INS have written procedures that guide some types of visa revocations; however, neither they nor the FBI has written internal procedures for notifying their appropriate personnel to take specific actions on visas revoked by State Department headquarters officials, as was the case for all the revoked visas covered in our review. While State and INS officials told us they use the visa revocation process to prevent suspected terrorists from entering the United States, neither they nor FBI officials had policies or procedures that covered investigating, locating, and taking appropriate action in cases where the visa holder had already entered the country. In conclusion, Mr. Chairman, the visa process could be an important tool to keep potential terrorists from entering the United States. Ideally, information on suspected terrorists would reach the State Department before it decides to issue a visa. However, there will always be some cases when the information arrives too late and State has already issued a visa. Revoking a visa can mitigate this problem, but only if State promptly notifies appropriate border control and law enforcement agencies and if these agencies act quickly to (1) notify border control agents and immigration inspectors to deny entry to persons with a revoked visa, and (2) investigate persons with revoked visas who have entered the country. Currently there are major gaps in the notification and investigation processes. One reason for this is that there are no specific written policies and procedures on how notification of a visa revocation should take place and what agencies should do when they are notified. As a result, there is heightened risk that suspected terrorists could enter the country with a revoked visa or be allowed to remain after their visa is revoked without undergoing investigation or monitoring. State has emphasized that it revoked the visas as a precautionary measure and that the 240 persons are not necessarily terrorists or suspected terrorists. State cited the uncertain nature of the information it receives from the intelligence and law enforcement communities on which it must base its decision to revoke an individual's visa. We recognize that the visas were revoked as a precautionary measure and that the persons whose visas were revoked may not be terrorists. However, the State Department determined that there was enough derogatory information to revoke visas for these persons because of terrorism concerns. Our recommendations, which are discussed below, are designed to ensure that persons whose visas have been revoked because of potential terrorism concerns be denied entry to the United States and those who may already be in the United States be investigated to determine if they pose a security threat. To remedy the systemic weaknesses in the visa revocation process, we are recommending that the Secretary of Homeland Security, who is now responsible for issuing regulations and administering and enforcing provisions of U.S. immigration law relating to visa issuance, work in conjunction with the Secretary of State and the Attorney General to: develop specific policies and procedures for the interagency visa revocation process to ensure that notification of visa revocations for suspected terrorists and relevant supporting information are transmitted from State to immigration and law enforcement agencies, and their respective inspection and investigation units, in a timely manner; develop a specific policy on actions that immigration and law enforcement agencies should take to investigate and locate individuals whose visas have been revoked for terrorism concerns and who remain in the United States after revocation; and determine if any persons with visas revoked on terrorism grounds are in the United States and, if so, whether they pose a security threat. In commenting on our report, Homeland Security agreed that the visa revocation process should be strengthened as an antiterrorism tool. State and Justice did not comment on our recommendations. I would be happy to answer any questions you or other members of the subcommittee may have. For future contacts regarding this testimony, please call Jess Ford or John Brummet at (202) 512-4128. Individuals making key contributions to this testimony included Judy McCloskey, Kate Brentzel, Mary Moutsos, and Janey Cohen. 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.	The National Strategy for Homeland Security calls for preventing the entry of foreign terrorists into our country and using all legal means to identify; halt; and where appropriate, prosecute or bring immigration or other civil charges against terrorists in the United States. GAO reported in October 2002 that the Department of State had revoked visas of certain persons after it learned they might be suspected terrorists, raising concerns that some of these individuals may have entered the United States before or after State's action. Congressional requesters asked GAO to (1) assess the effectiveness of the visa revocation process and (2) identify the policies and procedures of State, the Immigration and Naturalization Service (INS), and the Federal Bureau of Investigation (FBI) that govern their respective actions in the process. Our analysis shows that the visa revocation process was not being fully utilized as an antiterrorism tool. The visa revocation process broke down when information on individuals with revoked visas was not shared between State and appropriate immigration and law enforcement offices. It broke down even further when individuals had already entered the United States prior to revocation. INS and the FBI were not routinely taking actions to investigate, locate, or resolve the cases of individuals who remained in the United States after their visas were revoked. In our review of 240 visa revocations, we found that (1) appropriate units within INS and the FBI did not always receive notifications of all the revocations; (2) names were not consistently posted to the agencies' watch lists of suspected terrorists; (3) 30 individuals whose visas were revoked on terrorism grounds had entered the United States and may still remain; and (4) INS and the FBI were not routinely taking actions to investigate, locate, or resolve the cases of individuals who remained in the United States after their visas were revoked. These weaknesses resulted from the U.S. government's limited policy guidance on the process. None of the agencies have specific, written policies on using the visa revocation process as an antiterrorism tool.	2,905	438
Although policies concerning compensation for deployed civilians are generally comparable across agencies, we found some issues that affect the amount of compensation these civilians receive--depending on such things as the agency's pay system or the civilian's grade/band level--and the accuracy, timeliness, and completeness of this compensation. Specifically, the six agencies included in our 2009 review provided similar types of deployment-related compensation to civilians deployed to Iraq or Afghanistan. Agency policies regarding compensation for federal employees--including deployed civilians--are subject to regulations and guidance issued by either OPM or other executive agencies, in accordance with underlying statutory personnel authorities. In some cases, the statutes and implementing regulations provide agency heads with flexibility in how they administer their compensation policies. For example, agency heads are currently authorized by statute to provide their civilians deployed to combat zones with certain benefits--such as death gratuities and leave benefits--comparable to those provided the Foreign Service, regardless of the underlying pay system of the employee's agency. However, some variations in compensation available to deployed civilians result directly from the employing agency's pay system and the employee's pay grade/band level. For example, deployed civilians, who are often subject to extended work hours, may expect to work 10-hour days, 5 days a week, resulting in 20 hours of overtime per pay period. A nonsupervisory GS-12 step 1 employee receives a different amount of compensation for overtime hours than a nonsupervisory employee who earns an equivalent salary under NSPS. Specifically, the NSPS nonsupervisory employee is compensated for overtime at a rate equivalent to 1.5 times the normal hourly rate while the GS nonsupervisory employee is compensated for overtime at a rate equivalent to 1.14 times the normal hourly rate. Further, we noted that a GS-12 step 1 employee receives a different rate of compensation for overtime hours than a GS-12 step 6 employee. Specifically, the GS-12 step 1 employee is compensated for overtime at a rate equivalent to 1.14 times the normal hourly rate, while the GS-12 step 6 employee is compensated for overtime at the normal hourly rate. Additionally, deployed civilians may receive different compensation based on their deployment status. Agencies have some discretion to determine the travel status of their deployed civilians based on a variety of factors-- DOD, for example, looks at factors including length of deployment, employee and agency preference, and cost. Generally though, deployments scheduled for 180 days or less are classified as "temporary duty" assignments, whereas deployments lasting more than a year generally result in an official "change of station" assignment. Nonetheless, when civilians are to be deployed long term, agencies have some discretion to place them in either temporary duty or change of station status, subject to certain criteria. The status under which civilians deploy affects the type and amount of compensation they receive. For example, approximately 73 percent of the civilians who were deployed between January 1, 2006, and April 30, 2008, by the six agencies we reviewed were deployed in temporary duty status and retained their base salaries, including the locality pay associated with their home duty stations. Civilians deployed to Iraq or Afghanistan as a change of station do not receive locality pay, but they do receive base salary and may be eligible for a separate maintenance allowance, which varies in amount based on the number of dependents the civilian has. The civilian's base salary also impacts the computation of certain deployment-related pays, such as danger pay and post hardship differential, as well as the computation of premium pay such as overtime. Consequently, whether a civilian's base salary includes locality pay or not can significantly affect the total compensation to which that civilian is entitled--resulting in differences of several thousand dollars. As a result of these variations, deployed civilians at equivalent pay grades who work under the same conditions and face the same risks may receive different compensation. As mentioned previously, the Subcommittee on Oversight and Investigations, House Armed Services Committee, recommended in April 2008 that OPM develop a benefits package for all federal civilians deployed to war zones, to ensure that they receive equitable benefits. But at the time of our 2009 review, OPM had not developed such a package or provided legislative recommendations. In September 2009, OPM officials stated that DOD had initiated an interagency working group to discuss compensation issues and that this group had developed some proposals for legislative changes. However, they noted, at that time, that these proposals had not yet been submitted to Congress, and they did not, according to DOD officials, represent a comprehensive package for all civilians deployed to war zones, as recommended by the Subcommittee. Furthermore, compensation policies were not always implemented accurately or in a timely manner. For example, based on our survey results, we project that approximately 40 percent of the estimated 2,100 civilians deployed from January 1, 2006, to April 30, 2008, experienced problems with compensation--including not receiving danger pay or receiving it late, for instance--in part because they were unaware of their eligibility or did not know where to go for assistance to start and stop these deployment-related pays. In fact, officials at four agencies acknowledged that they have experienced difficulties in effectively administering deployment-related pays, in part because there is no single source of guidance delineating the various pays associated with deployment of civilians. As we previously reported concerning their military counterparts, unless deployed personnel are adequately supported in this area, they may not be receiving all of the compensation to which they are entitled. Additionally, in January 2008, Congress authorized an expanded death gratuity--under the Federal Employees' Compensation Act (FECA)--of up to $100,000 to be paid to the survivor of a deployed civilian whose death resulted from injuries incurred in connection with service with an armed force in support of a contingency operation. Congress also gave agency heads discretion to apply this death gratuity provision retroactively for any such deaths occurring on or after October 7, 2001, as a result of injuries incurred in connection with the civilian's service with an armed force in Iraq or Afghanistan. At the time of our 2009 review, Labor--the agency responsible for the implementing regulations under FECA--had not yet issued its formal policy on administering this provision. Labor officials told us in May 2009 that, because of the recent change in administration, they could not provide us with an anticipated issue date for the final policy. Officials from the six agencies included in our review stated at that time that they were delaying the development of policies and procedures to implement the death gratuity until after Labor issued its policy. As a result, some of these agencies had not moved forward on these provisions when we issued our report. We therefore recommended that (1) OPM oversee an executive agency working group on compensation for deployed civilians to address any differences and if necessary make legislative recommendations; (2) the agencies included in our review establish ombudsman programs or, for agencies deploying small numbers of civilians, focal points to help ensure that deployed civilians receive the compensation to which they are entitled; and (3) Labor set a time frame for issuing implementing guidance for the death gratuity. We provided a copy of the draft report to the agencies in our review. With the exception of USAID, which stated that it already had an ombudsman to assist its civilians, all of the agencies generally concurred with these recommendations. USAID officials, however, at the time of our testimony, had not provided any documentation to support the existence of the ombudsman position. In the absence of such documentation, we continue to believe our recommendation has merit. In comments on our final report, OPM officials stated that an interagency group was in the process of developing proposals for needed legislation. However, at the time of this testimony, these officials stated that no formal legislative proposals have been submitted. In addition, some of the agencies have taken action to create ombudsman programs. Specifically, DOD and USDA officials stated that their ombudsman programs have been implemented. Additionally, Justice and State officials stated that they would take action such as developing policy and procedures for their ombudsman programs; however, at the time of this testimony, USDA, Justice, and State had not provided documentation to support their statements. Finally, the Department of Labor published an interim final rule implementing the $100,000 death gratuity under FECA in August 2009, and finalized the rule in February 2010. Although agency policies on medical benefits are similar, our 2009 review found some issues with policies related to medical treatment following deployment and with the implementation of workers' compensation and post-deployment medical screening that affect the medical benefits of these civilians. DOD and State guidance provides for medical care of all civilians during their deployments--regardless of the employing agency. For example, DOD policies entitle all deployed civilians to the same level of medical treatment while they are in theater as military personnel. State policies entitle civilians serving under the authority of the Chief of Mission to treatment for routine medical needs at State facilities while they are in theater. While DOD guidance provides for care at military treatment facilities for all DOD civilians--under workers' compensation--following their deployments, we reported that the guidance does not clearly define the "compelling circumstances" under which non-DOD civilians would be eligible for such care. Because DOD's policy was unclear, we found that confusion existed within DOD and other agencies regarding civilians' eligibility for care at military treatment facilities following deployment. Furthermore, officials at several agencies were unaware that civilians from their agencies were potentially eligible for care at DOD facilities following deployment, in part because these agencies had not received the guidance from DOD about this eligibility. Because some agencies were not aware of their civilians' eligibility for care at military treatment facilities following deployment, these civilians could not benefit from the efforts DOD has undertaken in areas such as post traumatic stress disorder. Moreover, civilians who deploy may also be eligible for medical benefits through workers' compensation if Labor determines that their medical condition resulted from personal injury sustained in the performance of duty during deployment. Our review of all 188 workers' compensation claims related to deployments to Iraq or Afghanistan that were filed with the Labor Department between January 1, 2006, and April 30, 2008, found that Labor requested additional information in support of these claims in 125 cases, resulting in increased processing times that in some instances exceeded the department's standard goals for processing claims. Twenty- two percent of the respondents to our survey who had filed workers' compensation claims stated that their agencies provided them with little or no support in completing the paperwork for their claims. Labor officials stated that applicants failed to provide adequate documentation, in part because they were unaware of the type of information they needed to provide. Furthermore, our review of Labor's claims process indicated that Labor's form for a traumatic injury did not specify what supporting documents applicants had to submit to substantiate a claim. Specifically, while this form states that the claimant must "provide medical evidence in support of disability," the type of evidence required is not specifically identified. Without clear information on what documentation to submit in support of their claims, applicants may continue to experience delays in the process. Additionally, DOD requires deploying civilians to be medically screened both before and following their deployments. However, we found that post-deployment screenings are not always conducted, because DOD lacks standardized procedures for processing returning civilians. Approximately 21 percent of DOD civilians who responded to our survey stated that they did not complete a post-deployment health assessment. In contrast, we determined that State generally requires a medical clearance as a precondition to deployment but has no formal requirement for post- deployment screenings of civilians who deploy under its purview. Our prior work has found that documenting the medical condition of deployed civilians both before and following deployment is critical to identifying conditions that may have resulted from deployment, such as traumatic brain injury. To address these matters, we recommended that (1) DOD clarify its guidance concerning the circumstances under which civilians are entitled to treatment at military treatment facilities following deployment and formally advise other agencies that deploy civilians of its policy governing treatment at these facilities; (2) Labor revise the application materials for workers' compensation claims to make clear what documentation applicants must submit with their claims; (3) the agencies included in our review establish ombudsman programs or, for agencies deploying small numbers of civilians, focal points to help ensure that deployed civilians get timely responses to their applications and receive the medical benefits to which they are entitled; (4) DOD establish standard procedures to ensure that returning civilians complete required post-deployment medical screenings; and (5) State develop post-deployment medical screening requirements for civilians deployed under its purview. The agencies generally concurred with these recommendations, with the exception of USAID, which stated that it already had an ombudsman to assist its civilians. USAID officials, however, at the time of this testimony had not provided any documentation to support the existence of the ombudsman position. In the absence of such documentation, we continue to believe our recommendation has merit. To clarify DOD's guidance concerning the availability of medical care at military treatment facilities following deployment for non-DOD civilians and to formally advise other agencies that deploy civilians of the circumstances under which care will be provided, DOD notified these agencies about its policies in an April 1, 2010 letter. Specifically, the letter identified information the department posted on its Civilian Expeditionary Workforce Web site. This information included (1) a training aid explaining the procedures for requesting access to a military treatment facility following deployment, (2) a standard form to request approval to receive treatment at a military treatment facility following deployment, and (3) frequently asked questions that DOD states provides further clarity on its policies. In addition, DOD has taken some steps to standardize procedures for ensuring civilians returning from deployment complete required post-deployment medical screenings. For example, guidance on DOD's Civilian Expeditionary Workforce Web site states that deployment out-processing will include completion of the post- deployment health assessment. On the other hand, State officials noted that they would implement post-deployment screenings in 2010; however, as of April 2010, State had not provided documentation supporting that it established such requirements. Finally, officials from some of the agencies told us that they have taken action to create ombudsman programs. Specifically, officials from DOD and USDA said that their programs have been implemented. In addition, officials from Justice and State stated that they would take action such as developing policy and procedures for their ombudsman programs; however, at the time of this testimony, USDA, Justice, and State had not provided documentation to support their statements. While each of the agencies we reviewed was able to provide a list of deployed civilians, none of these agencies had fully implemented policies and procedures to identify and track its civilians who have deployed to Iraq and Afghanistan. DOD, for example, issued guidance and established procedures for identifying and tracking deployed civilians in 2006 but concluded in 2008 that its guidance and associated procedures were not being consistently implemented across the agency. In 2008 and 2009, DOD reiterated its policy requirements and again called for DOD components to comply. The other agencies we reviewed had some ability to identify deployed civilians, but they did not have any specific mechanisms designed to identify or track location-specific information on these civilians. As we have previously reported, the ability of agencies to report location-specific information on employees is necessary to enable them to identify potential exposures or other incidents related to deployment. Lack of such information may hamper these agencies' ability to intervene quickly to address any future health issues that may result from deployments in support of contingency operations. We therefore recommended that (1) DOD establish mechanisms to ensure that its policies to identify and track deployed civilians are implemented and (2) the five other executive agencies included in our review develop policies and procedures to accurately identify and track standardized information on deployed civilians. The agencies generally concurred with these recommendations, with the exception of USAID, which stated that it already had an appropriate mechanism to track its civilians who had deployed but was consolidating its currently available documentation. We continue to disagree with USAID's position since it does not have an agencywide system for tracking civilians and believe that our recommendation is appropriate. Additionally, the other agencies are now in various stages of implementation. For example, DOD officials stated, at the time of this testimony, that they were in the process of developing a new DOD instruction that would include procedures for the department's components to track its civilians. Justice officials stated that they will establish policies and procedures while USDA officials said they would rely on State Department led offices in Iraq and Afghanistan, along with internal measures such as spreadsheets and travel authorizations, for tracking of its personnel. State Department officials noted, after talking with executive agencies including DOD, they planned to establish their own tracking mechanisms. Deployed civilians are a crucial resource for success in the ongoing military, stabilization, and reconstruction operations in Iraq and Afghanistan. Most of the civilians--68 percent of those in our review-- who deploy to these assignments volunteered to do so, are motivated by a strong sense of patriotism, and are often exposed to the same risks as military personnel. Because these civilians are deployed from a number of executive agencies and work under a variety of pay systems, any inconsistencies in the benefits and compensation they receive could affect that volunteerism. Moreover, DOD's and State's continued efforts to develop cadres of deployable civilians demonstrates that these agencies recognize the critical role that federal civilians play in supporting ongoing and future contingency operations and stabilization and reconstruction efforts throughout the world. Given the importance of the missions these civilians support and the potential dangers in the environments in which they work, agencies should make every reasonable effort to ensure that the compensation and benefits packages associated with such service overseas are appropriate and comparable for civilians who take on these assignments. It is equally important that federal executive agencies that deploy civilians make every reasonable effort to ensure that these civilians receive all of the medical benefits and compensation to which they are entitled. These efforts include maintaining sufficient data to enable agencies to inform deployed civilians about any emerging health issues that might affect them. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or Members of the Subcommittee may have at this time. 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.	The Department of Defense (DOD) and other executive agencies increasingly deploy civilians in support of contingency operations in Iraq and Afghanistan. Prior GAO reports show that the use of deployed civilians has raised questions about the potential for differences in policies on compensation and medical benefits. When these civilians are deployed and serve side by side, differences in compensation or medical benefits may become more apparent and could adversely impact morale. This statement is based on GAO's 2009 congressionally requested report, which compared agency policies and identified any issues in policy or implementation regarding (1) compensation, (2) medical benefits, and (3) identification and tracking of deployed civilians. GAO reviewed laws, policies, and guidance; interviewed responsible officials at the Office of Personnel Management (OPM); and conducted a survey of civilians deployed from the six agencies between January 1, 2006 and April 30, 2008. GAO made ten recommendations for agencies to take actions such as reviewing compensation laws and policies, establishing medical screening requirements, and creating mechanisms to assist and track deployed civilians. Seven of the agencies--including DOD-- generally agreed with these recommendations; U.S. Agency for International Development did not. This testimony also updates the actions the agencies have taken to address GAO's recommendations. While policies concerning compensation for deployed civilians are generally comparable, GAO found some issues that can lead to differences in the amount of compensation and the accuracy, timeliness, and completeness of this compensation. For example, two comparable supervisors who deploy under different pay systems may receive different rates of overtime pay because this rate is set by the employee's pay system and grade/band. While a congressional subcommittee asked OPM to develop a benefits package for civilians deployed to war zones and recommend enabling legislation, at the time of GAO's 2009 review, OPM had not yet done so. Also, implementation of some policies may not always be accurate or timely. For example, GAO estimates that about 40 percent of the deployed civilians in its survey reported experiencing problems with compensation, including danger pay. In June 2009, GAO recommended, among other things, that OPM oversee an executive agency working group on compensation to address differences and, if necessary, make legislative recommendations. OPM generally concurred with this recommendation and recently informed GAO that an interagency group is in the process of developing proposals for needed legislation. Although agency policies on medical benefits are similar, GAO found some issues with medical care following deployment and post deployment medical screenings. Specifically, while DOD allows its treatment facilities to care for non-DOD civilians after deployment in some cases, the circumstances are not clearly defined and some agencies were unaware of DOD's policy. Further, while DOD requires medical screening of civilians before and following deployment, State requires screenings only before deployment. Prior GAO work found that documenting the medical condition of deployed personnel before and following deployment was critical to identifying conditions that may have resulted from deployment. GAO recommended, among other things, that State establish post-deployment screening requirements and that DOD establish procedures to ensure its post-deployment screening requirements are completed. While DOD and State agreed, DOD has developed guidance establishing procedures for post-deployment screenings; but, as of April 2010, State had not provided documentation that it established such requirements. Each agency provided GAO with a list of deployed civilians, but none had fully implemented policies to identify and track these civilians. DOD had procedures to identify and track civilians but concluded that its guidance was not consistently implemented. Some agencies had to manually search their systems. Thus, agencies may lack critical information on the location and movement of personnel, which may hamper their ability to intervene promptly to address emerging health issues. GAO recommended that DOD enforce its tracking requirements and the other five agencies establish tracking procedures. While DOD and four agencies concurred with the recommendations and are now in various stages of implementation, U.S. Agency for International Development disagreed stating that its current system is adequate. GAO continues to disagree with this agency's position.	4,085	863
In 1995, the latest year for which complete data were available, about 65 percent (or about 647,000) of the inmates in custody in federal and state places of confinement participated in 1 or more types of work programs.These work programs included prison industries (e.g., involving the manufacture of license plates, wood products, and textiles); facility support services (e.g., doing office and administrative work, food service, laundry, and building maintenance); farming/agriculture; and public works assignments (i.e., inmates working outside the facility on road, park, or other public maintenance work). Data entry was the type of work that most often allowed inmates access to personal information. One mission of the Federal Prison Industries (FPI), a BOP component, is to employ and provide skills training to the greatest practicable number of inmates and to produce market priced quality goods in a self-sustaining manner that minimizes potential impact on private business and labor. FPI markets about 150 types of products and services to federal agencies. Some states had similar programs and provisions. For example, Alabama generally requires state departments, institutions, and political subdivisions to purchase their products and services from Alabama Correctional Industries, to the extent to which they can be supplied. In addition, only those entities can purchase Correctional Industries products. According to the Alabama Correctional Industries purpose statement, it exists primarily for the purpose of providing a work-training program for inmates of the Department of Corrections. Another important purpose is to assist all state departments, institutions, and political sub- divisions of the State to secure their requirements to the greatest possible extent. To obtain information on the assignment objectives, we surveyed BOP and state correctional industry officials by mail. We asked the officials to answer questions on correctional industry work programs in federal, state, and privately run facilities for which the federal or state government or state-appointed organizations had oversight. We limited the questionnaire to work programs associated with secure, confined facilities, including youth authorities but excluding programs associated with prerelease facilities and city and county jails. We asked if on September 30, 1998, they had inmates who, through performing (1) work on correctional industry work program contracts that were either in progress or were agreed to but the work had not been started or (2) support work for the industry work program operations, had access to personal information or only names and addresses or telephone numbers; what prison procedures, statutes, regulations, pending legislation, or other guidelines provided guidance on (1) limiting which inmates perform work involving access to personal information and (2) preventing personal information from being retained by inmates or being transferred to unauthorized inmates or other persons; what the total gross income was for the correctional industry work program and the income generated by those contracts that resulted in inmates having access to personal information in the most recently completed fiscal year; and what incidents of misuse occurred as a result of inmates having access to the information through correctional industry work programs. We received responses from BOP, 47 states, and the District of Columbia. We did not independently verify the information provided by questionnaire respondents. We did, however, compare the questionnaire responses to the results of our current literature and legal database searches. After we consolidated the data received from the questionnaire respondents in the tables included in this report, we faxed the compiled information to all of the questionnaire respondents for confirmation of the accuracy of the data displayed and made corrections as necessary. We interviewed BOP and state officials. We also contacted states' attorneys general to obtain information on (1) incidents of misuse of which they were aware and (2) state statutes or regulations, pending legislation, or other guidelines that provided guidance on work programs involving personal information. We requested comments on a draft of this report from BOP and the Correctional Industries Association, Inc. They provided written comments that are summarized at the end of this report and are reprinted in appendixes X and XI. We performed our work from June 1998 to June 1999 in accordance with generally accepted government auditing standards. Appendix I provides more details on our objectives, scope, and methodology. On September 30, 1998, about 1,400 inmates in BOP and 19 state prison systems had access to personal information through correctional industry work programs, according to the questionnaire respondents. This number accounts for (1) about one-tenth of 1 percent of all inmates in custody as of June 30, 1998, (or approximately 1.2 million) and (2) about 2 percent of all inmates participating in correctional industry work programs (approximately 61,500). Almost all of the inmates who had access to personal information were being held in federal or state-run facilities (1,332 inmates) as opposed to privately run facilities (25 inmates). The number of inmates with access to personal information in each of the 19 states ranged from 6 in New Jersey to 426 in California. The types of information to which the largest number of inmates had access were (1) names and dates of birth or (2) Social Security numbers. About 30 percent of the inmates had access to names and (1) drivers' license numbers or (2) vehicle makes and models. Appendix II shows the number of inmates in BOP and individual state prison systems that had access to personal information on September 30, 1998, and the types of information to which they had access. Most of the inmates who had access to personal information were performing work for federal, state, or local governments (93 percent) as opposed to private sector companies (7 percent). Over half of the inmates with access to personal information were involved in data entry work. Another about 25 percent of the inmates were duplicating or scanning documents. Types of information processed in these work programs included medical records; state, county, or local licenses; automobile registrations; unemployment records; student enrollment data; and accident reports. The length of time the contracts that resulted in inmates having access to personal information had been in effect ranged from less than 1 year to 19 years. About 1 quarter of the contracts had been in place from 10 to 19 years; the remainder were more recent. The reasons BOP and states most commonly identified for selecting the contracts that resulted in inmates having access to personal information were the contracts provided valuable job skills training, satisfied a need or demand for a service, were needed to provide work for more inmates, were profitable, and provided work that was relatively easy for training inmates. Questionnaire respondents from 11 states said they planned to add and/or expand existing correctional industry work programs that allow inmates access to personal information. Respondents from 29 states said they did not plan to add or expand existing work programs that would allow inmates access to personal information, and respondents from 8 states said they did not know whether their states had plans to add and/or expand existing correctional industry work programs that would allow inmates access to personal information. In response to our survey, 29 states indicated that inmates did not have access to personal information on September 30, 1998. The more commonly stated reasons were that the opportunity had not presented itself, the prisons prohibited such work programs, and public opinion limited the feasibility of implementing such work programs. BOP and each state that had work programs in which inmates had access to personal information reported that they had in place a variety of safeguards to prevent inmates from misusing personal information. In addition, BOP and most of the states in which inmates had access to personal information reported that they had prison procedures that limited which inmates could perform work that would give them access to personal information. The federal government and seven states in which inmates had access to personal information were identified as having either enacted statutes or had bills pending that related to limiting which inmates could perform work involving personal information. The safeguards most frequently reported as being used when inmates had access to personal information were close supervision; selective hiring (e.g., excluding inmates convicted of sex offenses or fraud); confidentiality agreements; and security checks at the work area exits. Other commonly used safeguards included security checks at the work area entrances, no photocopy machines in the work area, and monitored telephone calls. Appendix III provides additional information on the safeguards cited by questionnaire respondents. BOP and most of the 19 states in which inmates had access to personal information reported that they had prison procedures that placed limitations on which inmates could perform work that would give them access to personal information. Questionnaire respondents from BOP and 18 states said that they screened inmates before hiring them for work programs involving personal information. For example, one state respondent said that inmates who were convicted of rape or who have life sentences were ineligible to work on contracts where they would have access to personal information. In addition, in the course of our work, statutes or proposed legislation related to this issue were identified in seven of the states as well as the federal government in which inmates had access to personal information. A brief summary of these provisions is provided in appendix IV, table IV.1. Further, six states were identified in which inmates did not have access to personal information that had enacted statutes or introduced legislation that related to this issue. For more information on these statutes and pending bills, see appendix IV, table IV.2. Less than one-hundredth of 1 percent of the BOP's annual gross correctional industry income of $568 million was generated from its contract that allowed inmates access to personal information. For those states in which inmates had access to personal information, no more than 22 percent of any state's gross fiscal year 1998 correctional industry income was generated from these contracts; six states reported that less than 1 percent of their gross correctional industry income was earned from these contracts. In total, these states grossed about $18 million in 1998 from correctional industry work program contracts that allowed inmates access to personal information, compared to an annual gross correctional industry income of about $515 million. Appendix V provides information on the income generated from these contracts. About 5,500 inmates, in BOP and 31 state prison systems, had access to only names and addresses or telephone numbers through correctional industry work programs. Over half of these inmates were in the custody of BOP. Appendix VI presents these data by BOP and state. The types of work inmates were performing in the largest number of states in which they had this access were order fulfillment, data entry, shipping, and printing. For additional information on the types of work performed by inmates with access to only names and addresses or telephone numbers, see appendix VII. The safeguards that BOP and most states reported using when inmates had access to only names and addresses or telephone numbers were similar to those reported being used when inmates had access to personal information. The most commonly used safeguards reported by states included close supervision while working, security checks at the exits from the work areas, selective hiring, and security checks at the entrances to the work areas. For additional information on safeguards that BOP and states used when inmates had access to only names and addresses or telephone numbers, see appendix VIII. Questionnaire respondents from eight states reported a total of nine incidents in which inmates misused personal information or names and addresses or telephone numbers that they obtained from a correctional industry work program. We defined misuse of information as any action that threatened or caused injury to the physical, psychological, or financial well-being of any member of the public. Each of these incidents was associated with a different contract. Six of the incidents involved inmates contacting individuals identified through a work program by telephone or by mail (in one of these instances, the inmate in the work program passed information on an individual to another inmate, who then contacted the individual). Two incidents involved inmates using credit card numbers that they obtained through participating in a work program. The other incident involved two inmates' attempts to smuggle copies of documents out of the prison through the U.S. mail. Five of the contracts related to these incidents were terminated after the incident occurred. In three of the four other incidents, the prison responded by either adding new safeguards or reinforcing existing safeguards used on the contract. In the remaining incident, the prison's procedures remained the same. For more information on these incidents, see appendix IX. Questionnaire respondents also provided information on four additional incidents that did not meet the previously described criteria for misuse of personal information. On the basis of one or more of the following reasons, these four incidents were not included in appendix IX: no reported injury, a court finding of no wrongdoing, or termination of the inmate from the work program on the basis of an allegation or suspected wrongdoing. These incidents, however, resulted in some type of program change. The types of program changes ranged from adding or reinforcing policies and safeguards to program termination. Briefly, these incidents, as reported by the respondents, consisted of the following: An inmate was processing accident reports in a data entry work program. He told another inmate, not in the work program, about an individual involved in one of the accident reports he processed. The other inmate contacted the individual involved in the accident. The questionnaire respondent reported that nobody was harmed, safeguards did not fail, and no sanctions were taken. After this incident, the state reportedly reinforced its policies and safeguards associated with this contract. An inmate working in a data entry work program saw, reportedly by accident, a state document that had information about one of his family members. He spoke with another member of his family about the information he saw. A member of his family filed a lawsuit claiming that the inmate should not have had access to this information. The questionnaire respondent reported that the case was dismissed because the information was covered by an open record regulation whereby birth records are considered to be public records. The state, however, canceled the contract for processing this type of information. An inmate working in a telemarketing work program was accused of harassing a customer. The inmate was terminated and transferred to maximum security on the basis of the allegation alone. The state reportedly implemented additional safeguards after the alleged incident was reported. An inmate wrote a letter to an individual, and it was suspected that the inmate obtained the individual's name and address through the work program. According to the survey response, the inmate was disciplined and terminated from the work program, and a measure providing for the closer monitoring of inmates was instituted. In commenting on our report, BOP concurred with our report with one exception. BOP noted that since our survey, it changed its procedures, and no inmates in the BOP prison system have access to personal information. Since our methodology was to report on the number of inmates who had access to personal information on September 30, 1998, we did not eliminate the 25 BOP inmates who we reported as having access to personal information. (See app. X.) The Correctional Industries Association, Inc., in its comments said that our report was fair and thorough and presented the facts objectively. However, it took two exceptions with the report. First, the Association said that the information on inmates' access to personal information is presented largely out of context. We disagree. Our draft report said that of approximately 1.2 million inmates, about 1,400 in BOP and 19 state prison systems had access to personal information through correctional industry work programs. We noted that less than one-hundredth of 1 percent of BOP's and no more than 22 percent of any state's fiscal year 1998 gross correctional industry income was generated from contracts that resulted in inmates having access to personal information. Further, we pointed out that about a quarter of the contracts that resulted in inmates having access to personal information had been in place from 10 to 19 years. Second, the Association said that a benchmark is needed against which the success or failure of correctional industries to control access issues can be measured. We did not judge whether the correctional industries have succeeded or failed in their attempt to prevent the misuse of personal information to which inmates had access as the result of work programs because we are not aware of criteria by which to make such a judgment. However, given that the inmates with access to personal information are individuals who have been incarcerated for crimes, and given that the institutional settings permit work program officials to exercise close scrutiny over the inmates and work places, breaches of security and misuses of personal information are a cause for concern. (See app. XI.) As agreed, unless you announce the contents of this report earlier, we plan no further distribution until 30 days from the date of this letter. At that time, we will send copies of this report to the Honorable Janet Reno, Attorney General; the Honorable Kathleen Hawk Sawyer, Director, BOP; Ms. Gwyn Smith Ingley, Executive Director, Correctional Industries Association, Inc.; the states that responded to our survey; and other interested parties. Copies will also be made available to others upon request. The major contributors to this report are acknowledged in appendix XII. If you or your staff have any questions about the information in this report, please contact me or Brenda Bridges on (202) 512-8777. The objectives of our study were to determine the extent to which inmates in the BOP and state prison systems had access to personal information through correctional industry work programs; identify prison safeguards and procedures, statutes and regulations, and proposed legislation that addressed correctional industry work programs involving personal information; determine the extent to which contracts that provided inmates access to personal information contributed to BOP's and states' correctional industry income; determine the extent to which inmates in the BOP and state prison systems had access to only names and addresses or telephone numbers through correctional industry work programs; and identify incidents of inmates misusing information obtained through a correctional industry work program, including how safeguards failed and what, if any, changes were made as a result of the incidents. For our study, we defined correctional industry work programs as programs that produced products and services for sale to government agencies and/or to the private sector. We excluded institutional work programs, i.e., programs that would involve activities such as housekeeping, food services, day-to-day maintenance, and community service, as well as support programs in which an inmate may have inadvertently seen personal information. The scope of our study included work programs that were (1) overseen by BOP, a state government, or a state-appointed commission; (2) associated with federal, state, or privately run facilities; and (3) associated with secure, confined facilities--including youth authorities--but not programs associated with prerelease facilities or city or county jails. We defined "personal information" as information that could be used to threaten an individual's physical, psychological, or financial well-being. This information would include (1) credit card numbers (personal or business); (2) Social Security numbers; or (3) names in combination with physical descriptions or financial, medical, or motor vehicle information. We also collected data on inmates' access to "names and addresses or telephone numbers," which included a name and one or more of the following: work or home address or telephone number, name of employer, or job title but no other item that we defined as personal information. To meet the assignment objectives, we surveyed, by mail, correctional industry officials in BOP, all 50 states, and the District of Columbia. The questionnaire asked for information on the following: correctional industry work program contracts that involved personal information that were either orders-in-progress or that had been agreed to but had not yet been started on September 30, 1998; the number of inmates who had access to personal information or to names and addresses or telephone numbers through correctional industry work program contracts or support work; safeguards that were in place to prevent inmates from misusing the statutes, regulations, procedures, other guidelines, and proposed legislation that dealt with correctional industry work programs involving personal information; the gross income in the most recently completed fiscal year for the correctional industry work program overall and for those contracts that involved personal information; and incidents of misuse of information that occurred at any time as a result of inmate access to the information through a correctional industry work program. We asked questionnaire respondents for information on inmates who had access to (1) personal information or (2) names and addresses or telephone numbers, either through working on a correctional industry work program contract or through performing support work for the industry work program operations. We defined a contract as a formal or informal agreement to produce a specific product or perform a specific service. We defined inmates who were performing support work as inmates who were not associated with a specific correctional industry work program contract but who performed tasks--such as order taking, order fulfillment, manufacturing or customer support, complaint resolution, or shipping--that supported the industry work program operations. In designing our questionnaire, we received input from the Correctional Industries Association, Inc. (a nonprofit professional organization representing individuals and agencies engaged in and concerned with correctional industries) and federal and state correctional industry officials. We revised the questionnaire based on the feedback these officials provided. We made further changes based on input from correctional industry officials as a result of pilot testing the survey instrument in Maryland and Virginia. To identify questionnaire recipients, we called the contact point for each state's correctional industry program as identified in the 1998 Correctional Industries Association, Inc., Directory. We informed them of our assignment and asked whether they would be the proper recipients for the questionnaire. We asked these officials if their state had any privately run prisons that housed inmates from their state prison system or from other states' prison systems. If they had such facilities, we asked them to identify the individual who had oversight responsibilities for work programs in these facilities. To further ensure that we had a respondent for each privately run facility that met our criteria (i.e., the facility was a secure, confined facility-- including youth authorities--but not a prerelease facility or city or county jail, and any work programs in the facility would be overseen by BOP, a state government, or a state-appointed commission), we obtained a list of privately run correctional facilities from the Private Corrections Project Internet web site. We then contacted the individuals whom we had identified as overseeing work programs at privately run facilities to ensure that they had responsibility for each facility that met our criteria. If they stated that they did not have responsibility, we asked them who did and repeated this procedure until we reached the appropriate party. We mailed a total of 63 questionnaires: 1 to BOP, 1 to each state and the District of Columbia, 1 to a youth authority, 1 to a joint venture program, and 1 each to 9 privately run facilities that had been identified by the method described above. Representatives from two states, Arizona and Tennessee, informed us that they would not be participating in our survey. Ohio's representative also indicated that he would not be completing the questionnaire but told us that Ohio does not permit inmates involved in data entry to have access to credit card numbers or Social Security numbers. When we received the questionnaires, we followed-up by telephone on missing or incomplete data, consolidated the data into the tables displayed in this report, faxed the completed tables to all questionnaire respondents for confirmation of the accuracy of the data displayed, and made corrections as necessary. Questionnaire respondents were provided only with compiled data concerning their individual states. We also conducted literature and legal database searches to identify published articles, reports, studies, statutes, proposed bills, and other documents dealing with the assignment objectives. We contacted representatives from various organizations to determine what information they may have that related to our assignment objectives. These organizations included the American Correctional Association; Correctional Industries Association, Inc.; American Jail Association; American Federation of Labor and Congress of Industrial Organizations; and Union of Needletraders, Industrial and Textile Employees. We contacted each state's attorney general's office and the District of Columbia's Corporation Counsel to identify any additional (1) incidents of inmates misusing information obtained through correctional industry work programs and (2) state statutes or regulations, proposed legislation, or other guidance that dealt with correctional industry work programs involving personal information. We did not verify the completeness of the information provided. We contacted various federal agencies with investigatory responsibilities to determine if they were aware of instances of inmates misusing personal information that they obtained through correctional industry work programs. Within the Department of the Treasury, we contacted the Internal Revenue Service's Criminal Investigation Division and the U.S. Secret Service. Within the Department of Justice, we contacted the Federal Bureau of Investigation. Finally, we contacted the U.S. Postal Service and the Social Security Administration. We performed our work between June 1998 and June 1999 in accordance with generally accepted government auditing standards. Oklahoma (cont.) State agency 20 Oregon State agency 1 State agency 2 Pennsylvania Rhode Island South Carolina South Dakota Vermont Virginia Washington West Virginia Wisconsin 84 Note 1: Personal information means information that can be used to threaten an individual's physical, psychological, or financial well-being. This information would include (1) credit card numbers (personal or business); (2) Social Security numbers; or (3) names in combination with physical descriptions or financial, medical, or motor vehicle information. This table does not include inmates who had access to only names and one or more of the following: work or home address or telephone number, name of employer, or job title. For that information, see appendix VI. Note 2: States with "NR" in each category did not return a questionnaire. We received a questionnaire from Arizona's privately run facilities. These facilities did not have any inmates who had access to names, addresses, telephone numbers, or other types of personal information. A representative from Ohio's state-run facilities informed us that inmates involved in data entry work programs did not have access to credit card numbers or Social Security numbers. We did not receive any information from respondents in state-run correctional facilities in Arizona or Tennessee. Note 3: The numbers shown above represent the maximum numbers of inmates who would have had access to each type of personal information. Some inmates worked on more than one contract. Consequently, as in Oklahoma, totals are not the sum of the number of inmates shown for each contract. Also, we asked respondents for the types of personal information to which inmates had access. However, each inmate may not have had access to all of the types of personal information involved in a contract. Note 4: According to the questionnaire respondents, the data from Idaho represent the combined information from two contracts, and the data from New Hampshire were combined from five contracts. Illinois' data represent one contract situated in two geographic locations. Note 1: Personal information means information that can be used to threaten an individual's physical, psychological, or financial well-being. This information would include (1) credit card numbers (personal or business); (2) Social Security numbers; or (3) names in combination with physical descriptions or financial, medical, or motor vehicle information. Note 2: A blank means that the questionnaire respondent did not report using the safeguard in the work program. Note 3: According to the questionnaire respondents, the data from Idaho represent the combined information from two contracts, and the data from New Hampshire were combined from five contracts. Illinois' data represent one contract situated in two geographic locations. California Penal Code, Section 5071: in general, prohibits prison inmates convicted of offenses involving, for example, misuse of a computer, misuse of personal/financial information of another person, or a sex offense from performing prison employment functions that provide such inmates with access to certain types of personal informationSee also California Welfare Institutions Code, Section 219.5: (language similar to above code section-- applicable to juveniles) New York Pending Assembly Bill 4753 (1999): in general, inmates involved in correctional institution work would be prohibited from accessing, collecting, or processing certain types of personal information See also New York Pending Assembly Bill 4842 (1999): (language similar to the above bill) Wisconsin Pending Assembly Bill 31 (1999): would prohibit the Department of Corrections from entering into any contract or other agreement if, in the performance of the contract or agreement, a prisoner would have access to any personal information of individuals who are not prisoners This section also was identified by the state as requiring that such persons in prison work programs disclose that fact before taking any personal information from anyone. Percentage of FY 1998 correctional industry gross income from personal information contracts Note 1: Personal information means information that can be used to threaten an individual's physical, psychological, or financial well-being. This information would include (1) credit card numbers (personal or business); (2) Social Security numbers; or (3) names in combination with physical descriptions or financial, medical, or motor vehicle information. Note 2: Dollar amounts were rounded to the nearest thousand. Totals may not add due to rounding. Percentages were rounded to the nearest tenth. Less than $1,000. State does not have a breakdown by individual contract. Note 1: Names and addresses mean names and one or more of the following: work or home addresses or telephone numbers, names of employer, or job titles but no other item that we defined as personal information. Note 2: States with "NR" in each category did not return a questionnaire. We received a questionnaire from Arizona's privately run facilities. These facilities did not have any inmates who had access to names, addresses, telephone numbers, or other types of personal information. A representative from Ohio's state-run facilities informed us that inmates involved in data entry work programs did not have access to credit card numbers or Social Security numbers. We did not receive any information from respondents in state-run correctional facilities in Arizona or Tennessee. C = Type of work performed by inmates who had access to information through work program contracts, which is a formal or informal agreement to produce a specific product or perform a specific service. S = Type of work performed by inmates who had access to information through support work, which is not associated with a specific contract, but tasks such as order taking or shipping that supported overall industry work program operations. C/S = Inmates performed this type of work both on contracts and through support work. Inmates working in Washington's correctional facilities have access to names, work addresses, and work telephone numbers only. Wyoming failed to designate type of work performed by inmates. C C = Safeguard applied to inmates who had access to types of information through a contract, which is a formal or informal agreement to produce a specific product or perform a specific service. S = Safeguard applied to inmates who had access to types of information through performing support work, which is not associated with a specific contract, but tasks such as order taking or shipping that supported overall industry work program operations. C/S = Safeguard applied to inmates who had access to types of information as a result of employment on both contracts and through support work. Note 1: Names and addresses mean names and one or more of the following: work or home addresses or telephone numbers, names of employer, or job titles but no other item that we defined as personal information. Note 2: A blank means that the questionnaire respondent did not report using the safeguard. Note 3: This table does not include inmates who had access to names and addresses or telephone numbers and any other item(s) that we defined as personal information. See appendix III for a list of safeguards that respondents reported using for inmates who had access to personal information. IPersonal information was segmented among inmates. Surveillance mirrors, security cameras, restricted work area, raw materials/supplies control, and random strip searches were employed. Inmates working in Washington's correctional facilities had access to names, work addresses, and work telephone numbers only. Date and description of incident In 1991, while on parole an inmate used credit card numbers previously obtained from a prison telemarketing work program. In 1995, an inmate wrote a letter to a Medicare patient identified from information obtained in a data entry work program. In the mid-90s, an inmate participating in a work program provided another inmate with a name and address obtained through the work program. The second inmate wrote a letter to the individual whose name and address were provided. In about 1990, an inmate obtained information, through participating in a data entry work program, about an individual's medical expenses and wrote the individual a letter. In 1995, two inmates attempted to smuggle copies of birth certificates obtained through a work program out of prison through the U.S. mail system. The birth certificates were sent back to the prison via return mail. In 1995, an inmate continued to call a particular individual identified through a work program that telemarketed local newspaper subscriptions. Date and description of incident In 1990 or 1991, an inmate used a credit card number, obtained from a work program making motel reservations, for personal purchases. In the early 1990's, an inmate wrote a letter to an individual identified through a data entry work program and included personal information also obtained through the work program. In 1997, an inmate sent a Christmas card to an individual identified through a 1-800 information line. The individual had called for information on state parks. Mary Lane Renninger Nancy A. Briggs Geoffrey R. Hamilton David P. Alexander Stuart M. Kaufman Michael H. Little The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Pursuant to a congressional request, GAO provided information on: (1) the extent to which inmates in the Bureau of Prisons (BOP) and state prison systems had access to personal information through correctional industry work programs; (2) prison safeguards and procedures, statutes and regulations, and proposed legislation that addressed correctional industry work programs involving personal information; (3) the extent to which contracts that provided inmates access to personal information contributed to BOP's and states' correctional industry income; (4) the extent to which BOP and state prison inmates had access to only names and addresses or telephone numbers through correctional industry work programs; and (5) incidents of inmates misusing information obtained through correctional industry work programs, including how safeguards failed and what, if any, changes were made as a result of the incidents. GAO noted that: (1) on September 30, 1998, of approximately 1.2 million inmates, about 1,400 in BOP and 19 state prison systems had access to personal information through correctional industry work programs, based on the questionnaire responses from correctional industry officials; (2) of these 1,400 inmates, about 1,100 had access to names and dates of birth or Social Security numbers; (3) these inmates were performing work, such as data entry, for the federal, state, or local governments; (4) BOP and all the 19 states reported using a variety of safeguards to prevent inmates from misusing the information; (5) the safeguards cited by the largest number of states were close supervision, selective hiring (e.g., excluding inmates convicted of sex offenses or fraud), confidentiality agreements, and security checks at the exits from the work areas; (6) the federal government and seven states in which inmates had access to personal information were identified as having either enacted statutes or had bills pending that related to limiting which inmates could perform work involving personal information; (7) less than one-hundredth of 1 percent of BOP's and no more than 22 percent of any state's fiscal year 1998 gross correctional industry income was generated from contracts that resulted in inmates having access to personal information; (8) six states reported that less than 1 percent of their gross correctional industry income was earned from these contracts; (9) about 5,500 inmates in BOP and 31 state prison systems had access to only names and addresses or telephone numbers through correctional industry work program contracts or support work; (10) the three safeguards that the largest number of states and BOP reported using were similar to those used when inmates had access to personal information--close supervision, security checks at the exits from the work areas, and selective hiring; (11) questionnaire respondents described nine incidents in which inmates misused personal information or names and addresses or telephone numbers obtained from correctional industry work programs; (12) in four of the nine incidents, inmates removed information from the work areas, either physically or by memorization; and (13) in five of the incidents, the work programs were discontinued.	7,431	641
BLM's mission is to sustain the health, diversity, and productivity of the public lands for the use and enjoyment of present and future generations. It manages approximately 264 million acres of public land in 28 states--about one-eighth of the land in the United States. It also manages the subsurface mineral resources on another 300 million acres of lands administered by other government agencies or owned by private interests. Public resources managed by BLM include rangelands, timber, minerals, watersheds, wildlife habitats, wilderness and recreation areas, and archaeological and historical resources. The bureau has 210 state, district, and resource area offices that manage over 1 billion paper documents, including land surveys and surveyor notes, records of land ownership, mining claims, and oil and gas leases. According to BLM, most of the paper documents are deteriorating and becoming increasingly difficult to read. During the energy boom in the early 1980s, BLM found that it could not handle the case processing workload associated with a peak in the number of applications for oil and gas leases. It recognized that to keep up with increased demand, it needed to automate its manual records and case processing activities. Thus, in the mid-1980s, the bureau began planning to acquire an automated land and mineral case processing system. The scope and functionality of the planned system changed over the years, ranging from a system to automate paper documents and records and case processing activities to a system that would provide improved efficiency for recording, maintaining, and retrieving land description, ownership, and use information and provide geographic information system (GIS)capabilities. In 1993, BLM decided on the scope and functionality of the ALMRS/Modernization. The bureau designated it a critical system for (1) automating land and mineral records and case processing activities and (2) providing information to support land and resource management activities. The ALMRS/Modernization is expected to more efficiently record, maintain, and retrieve land description, ownership, and use information to support BLM, other federal programs, and interested parties. It is to do this by establishing a common information technology platform, integrating multiple databases into a single geographically referenced database, shortening the time to complete case processing activities, and replacing costly manual records with automated ones. The ALMRS/Modernization consists of the ALMRS IOC, geographic coordinate database (GCDB), and modernization of BLM's computer and telecommunications infrastructure and rehosting of selected management and administrative systems. These components are described more fully below. The ALMRS IOC is the flagship of the ALMRS/Modernization. With new software and upgraded hardware, it is to provide (1) support for case processing activities, including leasing oil and gas reserves, 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. ALMRS IOC is to replace various manual and ad hoc automated BLM systems currently operating on older mainframe computers. GCDB is the database that is to contain geographic coordinates and survey information for land parcels. Other databases, such as those containing land and mineral records, are to be integrated with GCDB. ALMRS IOC will tie BLM's records and land and mineral resource data to the legal descriptions of specific land parcels. The information technology modernization and rehost component consists of installing computer and telecommunications equipment and office automation applications, and converting selected management and administrative systems to a relational database system to be used throughout BLM. Some elements of the ALMRS/Modernization, such as new computer and telecommunications equipment, e-mail, and office automation, were installed at BLM offices from fiscal years 1994 through 1996. The 12 administrative applications have been rehosted and are operational. According to BLM's latest estimates, the ALMRS/Modernization is expected to cost about $594 million through fiscal year 2002, about 47 percent more than the $403 million estimate provided to the Office of Management and Budget in 1993. According to the Assistant Director for Information Resources Management (IRM), the increase is largely due to costs that were not included in the original agreement with OMB, including almost $105 million for technology refreshment. Concerned that BLM might deploy the system prematurely, the House and Senate appropriations committees in fiscal year 1996 directed BLM to (1) test, verify, and validate that ALMRS operates as specified and (2) certify to them that it performs accurately and effectively and provides the expected capabilities prior to deployment. BLM retained a contractor to conduct the independent verification and validation testing and an operational assessment, testing, and evaluation and expects to base its certification to the committees on these tests. In our March 1997 report,we stated that BLM would not be ready to deploy ALMRS until it has completed essential management plans, policies, or procedures to help ensure a successful transition and operating environment. As of February 20, 1998, BLM had not fully implemented the recommendations contained in our March 1997 report. BLM's efforts to develop a security plan and an architecture, transition plans, and operations and maintenance plans were incomplete. BLM had taken substantial action to establish a configuration management program, but it had not yet produced a credible project schedule. These management tools are essential to manage the remainder of the project, help ensure system availability and performance, and avoid security and operational problems. Security focuses on the ability to ensure the confidentiality, integrity, and availability of stored and processed data. Unsecured or poorly secured systems are highly vulnerable to external and internal attacks and unauthorized use. Security planning includes the identification of high-level security requirements, including mission, management, and technical security requirements; functional security requirements that cover users' security needs; data-sensitivity analysis to identify data requiring special protection; and a security architecture that describes the security controls and relationships among the various system components. The ALMRS/Modernization security plan should define the policies and procedures for operating and maintaining a secure environment. In our March 1997 report, we recommended that before deploying ALMRS IOC, BLM develop a system security architecture and plan, including security policies and procedures; disaster and recovery plans; and security test, evaluation, and certification plans to reduce risks to the availability and integrity of stored and processed data. BLM has not yet developed a security architecture. It has developed a security plan, finalized some policies--such as those governing user access to ALMRS/Modernization components--and has been working to complete contingency plans for the state offices and their subordinate district and area offices. Also, in October 1997, BLM conducted a risk assessment for the planned deployment of ALMRS IOC to the New Mexico State Office. In January 1998, ALMRS IOC was certified for operation in New Mexico by the Department of the Interior's Information Technology Security Manager. Our review of BLM's security plan and related documents shows that the plan is not based on a documented risk assessment of ALMRS and does not provide sufficient detail to manage the security of ALMRS and its databases. Because BLM has no documented risk assessment of the ALMRS, it has no basis for asserting that the system is secure or the plan adequately addresses the various vulnerabilities and risks attendant to a nationwide client-server system. Also, the risk assessment performed at the New Mexico State Office focused on policies, procedures, and conditions at that office but did not deal with the security of, or assess the vulnerabilities of and risks to, ALMRS. The process of deploying a major information system that people will use to do their jobs requires careful planning. Many of the 210 BLM offices nationwide that will receive ALMRS/Modernization--designed to automate many manual functions--have little or no experience implementing client-server systems. The transition from automated capabilities provided by a centrally managed mainframe system to a locally managed client-server environment requires changes in organizational roles, responsibilities, and interrelationships among the units and people using the system. A transition plan should address these issues and guide BLM in defining new operational procedures. In our March 1997 report, we recommended that before deploying ALMRS IOC, BLM develop transition plans outlining the changes in organizational roles, responsibilities, and interrelationships among the units and people using the ALMRS/Modernization system to reduce the risk associated with those changes. BLM's National Information Resources Management Center developed the ALMRS Transition/Deployment Plan, dated September 2, 1997, to be used as a guide for deploying the needed upgrades for the hardware and software and transitioning to the ALMRS/Modernization platform and ALMRS IOC. According to a senior program analyst for the ALMRS project, 4 of the 12 state offices have prepared transition plans for their operations and the offices under their jurisdictions. BLM provided a copy of the 4 state offices' plans. Our review of the ALMRS Transition/Deployment Plan showed that while the plan generally addresses transition, its primary focus is on deployment activities. BLM notes that subsequent versions of the plan will provide more transition information to help each state office make use of ALMRS in the most effective and efficient way. The Assistant Director for IRM told us that the ALMRS Transition/Deployment Plan will be updated to incorporate the recent work of user advisory teams and lessons from final ALMRS testing. Our review of the 4 state offices' plans showed that only 1 of them identified and addressed transition issues, such as how the state and subordinate offices will deal with oil and gas, mining, and solid mineral business process changes resulting from the implementation of ALMRS. Unless BLM ensures that the revised plans adequately address transition issues, BLM faces increased risks of disruptions to its work processes and impairments to its ability to (1) conduct its land and mineral management business and (2) use ALMRS most effectively. Operations and maintenance of information systems based on a client-server architecture require a large number of highly skilled people. Unlike the centrally managed legacy mainframe systems that have been supporting BLM operations, the ALMRS/Modernization will require management and technical support at each major BLM site. This support includes UNIX system managers, database administrators, user support and telecommunication specialists, and security officers. In our March 1997 report, we recommended that before deploying ALMRS IOC, BLM develop operations and maintenance plans addressing the acquisition, management, and maintenance of managerial and technical support for the ALMRS/Modernization to help ensure successful operations. BLM has developed a draft operations and maintenance plan for the National Information Resources Management Center. This plan describes the (1) routine operations and maintenance services that the National Information Resources Management Center will provide and (2) approach that will be used to provide management and technical guidance necessary for the operations and maintenance of ALMRS. The plan, however, does not address how BLM will provide for operations and maintenance functions at the major BLM sites that will be responsible for operating and maintaining ALMRS on a daily basis. This is critical because BLM will be relying on ALMRS to conduct its business and maintain its official records. The Assistant Director for IRM stated that the state offices are being contacted to ascertain whether they need additional or more specific guidance to meet these responsibilities. Due to the many sites involved and the complexities of the systems, sites will need operations and maintenance plans that clearly describe how they are to fulfill their responsibilities and how these responsibilities will be handled when there are unexpected shortages of qualified staff. Configuration management plans, policies, and procedures are a set of management controls over the composition of and changes to computer and network systems components and documentation, including software code documentation. Configuration management is essential to successfully manage complex information systems and ensure integrity throughout their life cycles. System modifications without the safeguards imposed by the discipline of configuration management could lead to undesirable consequences. For example, they could cause system failures, endanger system integrity, increase security risks, and degrade system performance. In our March 1997 report, we recommended that before deploying ALMRS IOC, BLM establish a robust configuration management plan and related policies and procedures for establishing a program focused on managing the components of and all changes to all BLM information systems, including systems not related to the ALMRS/Modernization, to ensure successful management and integrity of the ALMRS/Modernization. Our review of the latest configuration management guidance and discussions with project officials show that BLM has taken action to establish a configuration management program. BLM has developed a draft configuration management plan and associated policies and procedures and has taken action to implement them. BLM's configuration manager estimated that implementation of the configuration management program is about 85 percent complete. Since BLM's plan is still in draft and actions are not fully completed, we have not yet reviewed the configuration management program. In March 1997, we reported that in its latest schedule, BLM planned to deploy ALMRS IOC in its Arizona, Idaho, and New Mexico offices by the end of fiscal year 1997 and complete the deployment to the remaining states in fiscal year 1998. We stated that BLM might not be able to maintain this schedule because it continued to allow insufficient time between critical milestones to deal with problems that were likely to arise. At that time, BLM's own project management plans cited concern that milestones were overly optimistic, listed them as a major risk, and stated that the short time frames were influenced by BLM's desire to begin deploying the system in fiscal year 1997. We recommended that BLM fully update the project schedule, including analyzing human resource usage and task relationships to establish reliable milestones and a critical path to complete the project. Although a complete, current, and accurate project schedule is essential to adequately manage and control the hundreds of tasks remaining to complete the project, BLM has not linked available staff resources to those tasks in developing the ALMRS project schedule. BLM revised the project schedule again in September 1997 without implementing our recommendation and was not able to meet critical milestones. BLM is again revising its plans and milestones, but although it is planning to analyze human resource usage and task relationships in establishing milestones for deployment activities, it is not planning to do so for its schedule to complete, test, and certify ALMRS. Table 1 shows the acceptance testing and deployment milestones BLM is anticipating pending formal revision of its plans and schedule. According to the anticipated milestones, initiation of deployment will be about 9 months behind the schedule in place at the time of our March 1997 report. This represents more than a 2-year delay from the schedule delivered to OMB when the project was approved in 1993. BLM expected to certify to the Appropriations Committees in December 1997 that ALMRS performs accurately and effectively and provides expected capabilities after completing beta testing in November 1997 and operational assessment test and evaluation (OAT&E) in December 1997. However, this milestone was not met because numerous problems were encountered during beta testing that required correction before BLM could begin OAT&E. Also, shortly after beta testing, BLM discovered that data converted from its legacy systems for ALMRS were not reliable because of errors in the conversion software. Since then, BLM has been making corrections to resolve the software and other problems and revising final testing plans and milestones. Continuing delays in implementing ALMRS may place BLM at risk of losing information technology support for core business processes because of the imminent Year 2000 computer problem. The following problems emerged during the beta test of ALMRS. BLM encountered unexpected workstation failures and slowdowns caused by insufficient workstation memory and by problems discovered in two BLM-developed software applications that had not been sufficiently tested. BLM had not yet determined with sufficient certainty how BLM staff will use ALMRS and the expected workload that they will generate in performing their day-to-day duties. A realistic operational usage definition of ALMRS workstations is essential for the design and conduct of OAT&E. After beta testing, BLM converted data from legacy systems in the New Mexico State Office's jurisdiction to the database management system used in the ALMRS/Modernization and expanded the sample size for testing and validating the data. BLM discovered that some of the data were being converted incorrectly. BLM identified 43 software errors that resulted in missing land descriptions, incorrect associations, incomplete conversions to designated data elements, and accurate conversions being written into error files. BLM estimated that some of these errors will take up to 4 months to correct. According to the project comanager, BLM is analyzing the data conversion problems, performing further testing and validation, identifying those problems that must be corrected prior to performing OAT&E, and correcting the data conversion software. BLM also plans to reconvert and update the New Mexico database and analyze and validate the new database prior to deployment. As a result of problems found during and after beta testing, BLM slipped its schedule to allow time to correct and revise its strategy and milestones for OAT&E and independent verification and validation. In conjunction with its OAT&E and independent verification and validation contractor, BLM agreed that 12 conditions need to be satisfied before OAT&E can begin. The conditions include the completion of training manuals and aids for BLM-developed software establishment of data sharing procedures and a public room plan; establishment of a national help desk; development of a maintenance plan that delineates necessary activities for maintaining the contractor- and BLM-developed software components of ALMRS IOC; and identification of automated access and training requirements for the Mineral Management Service, another part of the Department of the Interior that uses BLM land and mineral data. At the end of our field work, most of the conditions had not been met and BLM had not made the requisite database corrections for OAT&E. BLM expected to conduct the OAT&E in March 1998, certify ALMRS IOC in April 1998, and deploy ALMRS IOC to the first state office jurisdiction in June 1998. However, the schedule estimates remain unreliable because BLM had not provided for unexpected problems or analyzed human resource usage and task relationships in establishing critical milestones in revising the project schedule, as we recommended in our March 1997 report. The recent and potential future delays in the ALMRS/Modernization program introduce the risk that BLM will lose information technology support for its core business processes because of the looming Year 2000 problem. The Year 2000 problem is rooted in the way dates are recorded and computed in many computer systems. For the past several decades, systems have typically used two digits to represent the year, such as "98" representing 1998, in order to conserve electronic data storage and reduce operating costs. With this two-digit format, the year 2000 is indistinguishable from 1900, 2001 from 1901, and so on. As a result of this ambiguity, computer systems or application programs that use dates to perform calculations, comparisons, or sorting may generate incorrect results when working with years after 1999. BLM has identified two legacy systems supporting its core business processes that are subject to the Year 2000 computer problem. These two mission-critical systems, the Case Recordation System and the Mining Claim Recordation System, are to be replaced with ALMRS IOC implementation. BLM presently uses these two systems to create and manage land and mineral case files. They capture and provide information on case type, customer, authorizations, and legal descriptions. Without these systems, BLM cannot create and record new cases, such as mining claims, or update case data. BLM's initial assessment of the two mission-critical systems shows that the older computer mainframes on which these systems run are date-dependent and may malfunction in the year 2000. These two systems are to be replaced by ALMRS before the year 2000. However, the delays in implementing ALMRS introduce the risk that BLM will be forced to continue using these two systems beyond 2000. To mitigate this risk, BLM is considering upgrading the mainframes on which these two systems run. However, BLM has not yet completed an assessment to determine what this upgrading would entail or developed a contingency plan for key business processes to be supported by these systems in the event that ALMRS is not fully deployed by the year 2000. The BLM Year 2000 Program Coordinator expects the assessment of this and the resulting contingency plan to be completed in the near future, although we were told that no deadline has been established for these actions. BLM has not fully implemented the recommendations we made in our March 1997 report. It has not yet completed essential plans for system security, transition, operations and maintenance, and configuration management, exacerbating risks that ALMRS/Modernization will not be successfully implemented and meet operational needs. BLM understands the importance of these essential tools and has been working to develop them. However, until our prior recommendations have been implemented and necessary plans have been completed, approved, and put into place, BLM will not be ready to deploy the system. Continuing delays with the ALMRS/Modernization and the looming Year 2000 computer problem place BLM at risk that core business processes will not be supported beyond January 1, 2000. To reduce the risk that BLM will lose information technology support for core business processes, we recommend that the Director of the Bureau of Land Management (1) direct that the two mission-critical systems ALMRS is to replace be fully assessed to determine what actions are needed to ensure the continued use of these systems after January 1, 2000, and (2) develop a contingency plan to take those actions in the event that ALMRS is not fully deployed by that time. In comments on a draft of this report, the BLM Director stated that he generally agrees with our observations and provided some updated information. BLM agreed with our recommendation to perform a full assessment of the two mission-critical systems to be replaced by ALMRS and develop a contingency plan to take the needed actions in the event that ALMRS is not fully deployed by the year 2000. BLM stated that it (1) has taken significant steps to implement the six recommendations in our March 1997 report and (2) will implement them before deploying the system. BLM also described some efforts that it believes are indicative of progress to date. We are sending copies of this report to the Secretary of the Interior, the Director of the Bureau of Land Management, the Director of the Office of Management and Budget, and interested congressional committees. We will also make copies available to others upon request. Should you or your staff have any questions concerning this report, please contact me at (202) 512-6253. I can also be reached by e-mail at [email protected]. Major contributors to this report are listed in appendix III. Our objectives were to assess BLM's actions to address the recommendations contained in our March 1997 report and identify the status of BLM's efforts to test, deploy, and implement ALMRS initial operating capability (IOC). To review BLM's actions to address our recommendations (develop a credible project schedule, configuration management plan, security architecture and security plan, complete transition plans, and complete operations and maintenance plans), we reviewed the ALMRS Project Office's project management and scheduling procedures; BLM's National Configuration Management Board's draft configuration management plan; BLM information technology security plans, ALMRS application security plan, and other security documentation; BLM's Operations and Maintenance plan for the National IRM Center; and BLM's Version 2.0 Transition and Deployment Plan and site-specific transition/deployment plans for New Mexico, Idaho, Arizona, and Colorado. We compared revised project milestones with past milestones and remaining project risks. We also reviewed Carnegie Mellon University's Capability Maturity Model for Software and site readiness review results. To ascertain BLM's efforts to test, deploy, and implement ALMRS IOC, we reviewed ALMRS/Modernization project documents, weekly activity reports and assessments by the independent verification and validation contractor, system integration meeting minutes, BLM's exit criteria for system certification, software problem reports, and project management schedules. We also reviewed BLM's submission to the Department of Interior's Year 2000 Master Plan and status reports on BLM's Year 2000 efforts. We attended the Department of the Interior's October 1997 quarterly review of the development project at the ALMRS/Modernization project office in Lakewood, Colorado, and observed alpha IV testing at the ALMRS/Modernization pilot site offices in Santa Fe, Albuquerque, Farmington, and Taos, New Mexico and beta testing at the ALMRS/Modernization pilot site offices in Santa Fe, Albuquerque, and Taos, New Mexico. We also reviewed the results of alpha IV and beta testing. We discussed the project with prime contractor officials; contractor officials responsible for independent verification and validation and operational assessment testing and evaluation; a senior technical analyst and the Acting Chief Information Officer at the Department of the Interior; BLM's Assistant Director and Deputy Assistant Director for IRM, and BLM's ALMRS budget analyst. We further discussed the essential management plans with ALMRS project officials responsible for project management and scheduling, configuration management, security, deployment, transition, and operations and maintenance planning; and discussed software development risks, performance problems, planned system capabilities, software problem reports, system testing, and technical complexity with project officials responsible for systems engineering, software development, and testing. We discussed BLM's Year 2000 efforts with the Bureau's Year 2000 Program Coordinator. We performed our work at Interior's information resources management headquarters in Washington, D.C.; BLM headquarters in Washington, D.C.; the ALMRS/Modernization project office in Lakewood, Colorado; the prime contractor's office in Golden, Colorado; ALMRS pilot site offices in Santa Fe, Albuquerque, Farmington, and Taos, New Mexico; and the independent verification and validation contractor's office in the ALMRS/Modernization project office in Lakewood, Colorado. The following are GAO's comments on BLM's April 13, 1998, letter. 1. This information is summarized in the "Agency Comments" section of the report. 2. In discussing BLM's comments, the Assistant Director for IRM told us that a primary reason for the increased estimated cost from $403 million to $594 million is that $105 million of technology refreshment costs were not included in the estimate provided to OMB. We revised the report to clarify this point. We also note that technology refreshment costs, as well as the other costs BLM mentioned, are properly a part of life-cycle costs and should have been included in the initially approved $403 million life-cycle estimate provided to OMB. 3. In BLM's comments on the ALMRS project schedule, it stated that GAO staff has supported placing emphasis on completing a successful pilot as opposed to meeting an artificially derived schedule. We agree that emphasis should be placed on successfully completing all testing, including the pilot test. Testing is an essential part of developing and deploying an efficient and effective system. We also agree that BLM should not try to meet artificially derived milestones. A complete, current, and accurate schedule with tasks linked to available resources is an essential tool to manage and control a large-scale project. This is the primary reason why we have addressed the project schedule in this report and in our two prior reports on ALMRS. The project schedule should have been based on tasks to be completed, resources associated with task completion, and a critical path with sufficient time allotted to deal with unanticipated problems. BLM has not done this. 4. BLM noted that the Configuration Management Plan and program were fully implemented about a month after we completed our fieldwork. As we note in the report, we did not assess the configuration management program during our review because the plan had not been completed and the program had not yet been fully implemented before the end of our fieldwork. 5. As we discuss in the report, the risk assessment performed at the New Mexico State Office focused on policies, procedures, and conditions at that office. The risk assessment did not deal with the security of, or assess the vulnerabilities of and risks to, ALMRS. In addition, until a full risk assessment of ALMRS is completed and documented, BLM has no basis for asserting that the system is secure or that the plan adequately addresses the vulnerabilities and risks attendant to a nationwide client-server system. 6. Our review of BLM's updated transition plans showed that only one of the four plans identified and addressed transition issues. As we discuss in the report, the transition from automated capabilities provided by centrally managed mainframe legacy systems to the locally-managed client server environment of ALMRS will require changes in organizational roles, responsibilities, and interrelationships among the units and people using the system. A transition plan should address these issues and guide BLM in defining new operational procedures. Our concern is that with the complexity of ALMRS and the business process changes it will require, BLM needs to ensure that its transition plans provide the necessary guidance for successful transitions in its 210 state, district, and resource area offices. 7. Operations and maintenance plans are essential for operating and maintaining ALMRS on a daily basis. BLM noted that the states will update the operations and maintenance plans for their sites. In updating their plans, the state offices will need specific information that clearly describes how they are to fulfill their day-to-day responsibilities and how these responsibilities will be fulfilled when there are unexpected shortages of qualified staff. 8. We agree. Beta testing is testing of a prerelease version of software by selected cooperating users in order to uncover problems that were not discovered during laboratory testing. According to BLM, the beta test served that purpose. As we note in our report, these problems along with data conversion errors required correction before OAT&E could begin. Beta testing was conducted in November 1997 and OAT&E was scheduled to be completed in December 1997. David G. Gill, Assistant Director Mirko J. Dolak, Technical Assistant Director Keith Rhodes, Technical Director Marcia C. Washington, Evaluator-in-Charge 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.	Pursuant to a congressional request, GAO provided a follow-up assessment of the Bureau of Land Management's (BLM) actions to address the recommendations contained in its March 1997 report, focusing on the status of BLM's efforts to test, deploy, and implement the automated land and mineral records system's (ALMRS) initial operating capability. GAO noted that: (1) BLM has not yet fully implemented GAO's recommendations to mitigate risks and help ensure a successful transition and operating environment for ALMRS; (2) specifically, BLM does not have a security architecture and sound security plan, complete transition plans, and complete operations and maintenance plans for ALMRS; (3) BLM has developed a draft configuration management plan and has been implementing a configuration management program; (4) however, BLM has not developed a credible project schedule; (5) these tools are essential to manage the remainder of the project, help ensure system availability and performance, and avoid security and operational problems; (6) during beta testing of the ALMRS initial operating capability and validation testing of converted data, BLM identified computer workstation configuration and software problems; (7) the testing also surfaced operation concerns that had not been adequately addressed, such as how ALMRS will support public information needs and data exchanges between BLM and other organizations; (8) BLM is revising its project plan and schedule to address these problems before entering the final testing and certification phase; (9) BLM may not be able to maintain the modified schedule, however, because it: (a) is being developed without analyzing human resource usage and task relationships for predevelopment activities; and (b) contains optimistic timeframes for completing activities, leaving little time to deal with unanticipated problems that are likely to arise; (10) recent and potential future delays in implementing ALMRS place BLM at risk that existing systems supporting mission-critical business processes, which are to be replaced by ALMRS, will be subject to the year 2000 computer problem; and (11) while BLM is planning to provide the upgrades necessary to allow for the continued use of these systems if ALMRS is not fully deployed by the year 2000, it has not yet completed the requisite assessment to determine how to do this.	6,797	478
The Congress wants a strong defense industrial base and has directed the Secretary of Defense to report annually on the ability of industry to support U.S. national security objectives. The Congress directed the Secretary to consider in the analysis for that report such factors as levels of spending for capital investment and research and development. In June 1993, the Department of Defense's (DOD) Inspector General criticized DOD's first report as being of limited use in helping congressional leaders make informed judgments because DOD lacked an adequate information system to carry out the assessment. Defense industry representatives also criticized that report. One common criticism was that the majority of the report's data applied to corporations rather than their defense segments. The second DOD report, released in September 1994, also concentrated on the corporate level rather than individual business units. Other studies of the effects of the spending decline have also assessed the impact at the corporate level rather than the individual business unit. Another shortcoming in many of these assessments was that they measured the severity of the decline in defense expenditures only from the peak years of the 1980s and not from other years in the cycle of defense expenditures as well. Since the World War II drawdown, defense spending has experienced three peaks associated with the Korean War, the Vietnam War, and the Reagan administration military buildup. In fiscal year 1989, defense expenditures reached their highest peacetime level since World War II, exceeding defense spending at the peak of the Korean War and almost matching spending during the Vietnam War. Defense expenditures in fiscal year 1989 were $354.1 billion, but had declined to $274.5 billion by fiscal year 1994, a reduction of $79.6 billion or 22 percent. The Clinton administration is projecting defense expenditures of $224.5 billion in fiscal year 2000, which represents a $129.6-billion, or a 37-percent, decline in defense spending since fiscal year 1989. Figure 1 shows the trend in defense expenditures after the end of World War II. Although most defense authorities agree that the post-Cold War decline in spending is significant, it is comparable to the Vietnam War drawdown. As shown in table 1, the current decline is only 2 percentage points greater than the Vietnam War drawdown, which was spread over an 8-year period, whereas the post-Cold War drawdown is currently projected over a 10-year period. However, unlike the Vietnam War drawdown, defense contractors view the current decline as permanent, not cyclical. Measured against other years, the $260.2 billion in defense spending projected for fiscal year 1995 is about 13 percent greater than the $231 billion expended during fiscal year 1976 and about 4 percent greater than the $251.4 billion expended in fiscal year 1980. Fiscal year 1976 is a significant benchmark because it represents the lowest level in peacetime defense spending since the Korean War. Fiscal year 1980 is significant because it was the year prior to the beginning of the Reagan administration defense buildup. Based on current projections, peacetime defense spending will remain above the fiscal year 1976 level until fiscal year 1998, when spending is projected to decline to $225.1 billion. According to officials of the six business units we visited, the decline in defense spending since the late 1980s has significantly affected their defense sales. We compared the peak sales by these business units during the mid-to-late 1980s with their sales in 1993 and the latest year projected.Measured from their peak sales years, we found that the business units' sales decreases ranged from 21 percent to 54 percent through 1993 and that the units were estimating decreases ranging from 50 percent to 73 percent through the latest year projected. The projected weighted average decline over the businesses was about 55 percent. Figure 2 shows the actual and projected sales decreases by business unit. Peak to latest projected year Although sales declines from the peak years are significant, several of the business units had sales that were actually lower in 1976 and 1980 than their future projections. Table 2 compares the business units' forecasted sales with their 1976 and 1980 sales. As shown, two of the business units projected their future sales to be higher than their 1976 sales, and three of the business units projected their future sales to be higher than their 1980 sales. Defense contractors have taken and are continuing to take aggressive actions to reduce spending as a result of post-Cold War sales declines. The following discussion deals with actions taken in the areas of employment levels, IR&D/B&P expenditures, capital improvements, and facilities. The six business units have made large reductions in the number of employees since their peak employment years of the mid-to-late 1980s. Through 1993, the units' workforce reductions ranged from 30 percent to 76 percent. Through the latest projected year, the units' estimated reductions ranged between 44 percent to 79 percent. Three of the units projected reductions of over 75 percent, while the other three units projected reductions ranging from 44 percent to 57 percent. Figure 3 provides an overview of actual and projected employment reductions by business unit. Unlike sales where several of the business units projected higher figures in the future than in 1976 and 1980, all of the units for which data were available projected lower employment levels in the future than they had in 1976 and 1980. Table 3 compares projected employment with the 1976 and 1980 levels. The downward employment trend at these six business units is consistent with the findings of other studies on the private sector defense industry workforce. One report, for example, showed that defense-related private employment had declined from about 3.7 million workers in 1987 to about 2.7 million workers in 1993, which represents a 26-percent employment decline over the period. According to that report, the 20 leading defense contractors had experienced an average employment reduction of 22 percent between 1987 and 1993. Other studies have projected a continuing downward trend in defense employment over the next several years. For example, a report prepared by the Logistics Management Institute for the Defense Conversion Commission estimated that private sector defense-related employment would likely decline by about 803,000 jobs, or 27 percent, from 1992 to 1997. Similar to the reductions in employment levels, the six business units had made substantial cuts in their IR&D/B&P expenditures. Between their peak spending years and 1993, these units had reduced IR&D/B&P expenditures ranging from 31 percent to 71 percent and projected reductions ranging from 41 percent to 84 percent through the latest year projected. Figure 4 shows the actual and projected reductions. Peak to latest projected year The six business units' forecasts show that they plan to spend an average of 54 percent less for IR&D/B&P than they spent during the mid-to-late 1980s. However, as shown in table 4, two of the business units projected future expenditures for IR&D/B&P to be more than they spent in 1976. Two other business units forecasted their future expenditures to be more than they spent in 1980. Several studies showed a correlation between the level of defense expenditures and the amounts contractors spend on IR&D. One study, for example, stated that the level of defense procurement directly affects IR&D activities, which are supported to a large extent by overhead charges in production contracts. The report stated that when large production runs were the rule, many companies willingly invested their own funds in IR&D because they could reasonably expect to recover their investment. Another report predicted that, with fewer defense procurements, IR&D payments would decrease and companies might not be willing to risk conducting their own IR&D. To determine whether these reports applied to the business units we visited, we compared the changes in the business units' spending levels for IR&D/B&P with changes in their sales. For four of the six business units, we found that changes in IR&D/B&P expenditures generally correlated to their sales volume. For illustration purposes, figure 5 compares the trend in one business unit's sales and its IR&D/B&P expenditures. Because of concerns that the quantity and quality of IR&D would decline as budget cuts forced the defense industry to limit overhead costs, the Congress made substantial legislative revisions to the IR&D program in fiscal years 1991 and 1992 to encourage defense contractors to continue IR&D activities. Even with these revisions, defense contractors have continued to cut their IR&D/B&P expenditures, as their defense sales have declined. The six business units we visited have significantly cut their capital expenditures from their peak spending levels in the 1980s. The units had made reductions through 1993 ranging from 52 percent to 92 percent and estimated reductions ranging from 55 percent to 85 percent through the latest projected year. The units projected a weighted average reduction of 76 percent in their capital expenditures. Figure 6 shows the actual and projected reductions in capital expenditures. Peak to latest projected year Table 5 compares the business units forecasted expenditures with their 1976 and 1980 expenditures. When 1976 was used as the base year, three business units projected higher capital expenditures in the future, but when 1980 was used as a base year, one business unit projected higher capital expenditures. Similar to IR&D/B&P expenditures, there is not a consistent trend in capital expenditures. For example, although Company A and Company C projected higher capital expenditures compared to 1976, the companies projected lower capital expenditures when compared to 1980. However, we found that changes in capital expenditures at three of the units correlated to the units' sales volume. Two business units had formal programs to limit future capital expenditures. One unit, for example, established the following four categories in which proposed capital expenditures would be approved by management: firm contractual commitments required to keep existing products operational, environmental requirements mandated by law, health and safety requirements to meet Occupational Safety and Health new product requirements for specific new products. According to a report issued in May 1989 by the Center for Strategic and International Studies, the best measure of the U.S. defense industrial base's ability to maintain its technological lead is the amount of capital spending in industry to expand capacity or improve productivity. Measured from their peak years, five of the business units had reduced their total square footage by as much as 34 percent through 1993, and five units projected reductions ranging from 6 percent to 43 percent, or an average of 26 percent, through the latest projected year. The units projected most of these reductions in their leased space. Figure 7 shows the actual and projected reductions in total square footage. Despite the past and planned reductions in space occupied, most of the units projected larger square foot usage than in 1976 and 1980. Table 6 compares the changes in the size of the business units' facilities. Three business units expected to use more square footage in the futurethan occupied in 1976; four units expected to use more space than they occupied in 1980. According to Defense Contract Management Command records, defense contractors have significantly reduced the size of their facilities through such actions as vacating and selling buildings and terminating leases. We compiled and compared information on the declines and buildups in defense expenditures since the end of World War II. We also conducted literature searches and examined various reports, assessments, and other documents to determine how defense contractors throughout the industry have been affected by reduced defense spending. The business units provided us with data on their sales, employment levels, capital expenditures, IR&D/B&P, and facilities for 1976 through the latest projected year. We focused our work on these five elements because we believed they were most representative of the impact of reduced defense spending on defense contractor business units. For three of the business units, we were unable to obtain data as early as 1976 and therefore used the earliest data available. We accepted the data provided by the business units and did not attempt to validate the data. In some cases, the organization of the business units have changed since 1976, and the units had to compile or estimate data to reflect their organization since that time. We conducted our review from March 1994 to January 1995 in accordance with generally accepted government auditing standards. We did not obtain DOD comments on this report; however, we discussed the results of our work with contractor representatives from each of the six business units. We are sending copies of this report to the Secretary of Defense, officials of the six business units, and other interested congressional committees. We will make copies available to others upon request. Please contact me at (202) 512-4587 if you or your staff have any questions concerning this report. The major contributors to this report were John K. Harper, George C. Burdette, Anne-Marie Olson, and Amy S. Parrish. David E. Cooper Director, Acquisition Policy, Technology, and Competitiveness Issues The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. 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.	Pursuant to a congressional request, GAO examined the impact of the recent decline in defense expenditures on individual business units of major defense contractors, focusing on a comparison of defense expenditures over a number of years and changes in the business units': (1) sales and employment levels; and (2) spending on independent research and development and bid and proposal (IR&D/B&P) preparation, capital improvements, and facilities. GAO found that: (1) measured from their peak years, the six business units GAO visited had experienced sales decreases ranging from 21 percent to 54 percent through 1993 and estimated declines ranging from 50 percent to 73 percent through the latest year projected; (2) the resulting employment reductions ranged from 30 percent to 76 percent through 1993 and planned reductions ranging from 44 percent to 79 percent through the latest year projected; (3) from their peak year spending levels through 1993, the six units had reduced IR&D/B&P spending ranging from 31 percent to 71 percent and projected reductions ranging from 41 percent to 84 percent through the latest year projected; (4) the six units had also reduced expenditures for capital improvements by an average of 80 percent through 1993 and, through the latest year projected, estimated an average reduction of 76 percent in these expenditures; (5) although these business units have significantly reduced spending in these areas, projections by some of the units are still higher than their: (a) 1976 levels, the lowest peacetime defense spending level since the Korean War buildup; and (b) 1980 levels, the year before the Reagan administration military buildup; (6) the defense industry has adjusted to previous spending reductions; (7) the current post-Cold War reduction is only 2 percentage points greater than the reduction after the Vietnam War and is taking place over a period that is 2 years longer; and (8) however, unlike other drawdowns, defense contractors view the current decline as permanent and have developed a variety of strategies to deal with reduced defense spending.	2,934	424
In October 1998, the EPA Administrator announced plans to create an office with responsibility for information management, policy, and technology. This announcement came after many previous efforts by EPA to improve information management and after a long history of concerns that we, the EPA Inspector General, and others have expressed about the agency's information management activities. Such concerns involve the accuracy and completeness of EPA's environmental data, the fragmentation of the data across many incompatible databases, and the need for improved measures of program outcomes and environmental quality. The EPA Administrator described the new office as being responsible for improving the quality of information used within EPA and provided to the public and for developing and implementing the goals, standards, and accountability systems needed to bring about these improvements. To this end, the information office would (1) ensure that the quality of data collected and used by EPA is known and appropriate for its intended uses, (2) reduce the burden of the states and regulated industries to collect and report data, (3) fill significant data gaps, and (4) provide the public with integrated information and statistics on issues related to the environment and public health. The office would also have the authority to implement standards and policies for information resources management and be responsible for purchasing and operating information technology and systems. Under a general framework for the new office that has been approved by the EPA Administrator, EPA officials have been working for the past several months to develop recommendations for organizing existing EPA personnel and resources into the central information office. Nonetheless, EPA has not yet developed an information plan that identifies the office's goals, objectives, and outcomes. Although agency officials acknowledge the importance of developing such a plan, they have not established any milestones for doing so. While EPA has made progress in determining the organizational structure of the office, final decisions have not been made and EPA has not yet identified the employees and the resources that will be needed. Setting up the organizational structure prior to developing an information plan runs the risk that the organization will not contain the resources or structure needed to accomplish its goals. Although EPA has articulated both a vision as well as key goals for its new information office, it has not yet developed an information plan to show how the agency intends to achieve its vision and goals. Given the many important and complex issues on information management, policy, and technology that face the new office, it will be extremely important for EPA to establish a clear set of priorities and resources needed to accomplish them. Such information is also essential for EPA to develop realistic budgetary estimates for the office. EPA has indicated that it intends to develop an information plan for the agency that will provide a better mechanism to effectively and efficiently plan its information and technology investments on a multiyear basis. This plan will be coordinated with EPA 's agencywide strategic plan, prepared under the Government Performance and Results Act. EPA intends for the plan to reflect the results of its initiative to improve coordination among the agency's major activities relating to information on environment and program outcomes. It has not yet, however, developed any milestones or target dates for initiating or completing either the plan or the coordination initiative. In early December 1998, the EPA Administrator approved a broad framework for the new information office and set a goal of completing the reorganization during the summer of 1999. Under the framework approved by the EPA Administrator, the new office will have three organizational units responsible for (1) information policy and collection, (2) information technology and services, and (3) information analysis and access, respectively. In addition, three smaller units will provide support in areas such as data quality and strategic planning. A transition team of EPA staff has been tasked with developing recommendations for the new office's mission and priorities as well as its detailed organizational and reporting structure. In developing these recommendations, the transition team has consulted with the states, regulated industries, and other stakeholders to exchange views regarding the vision, goals, priorities, and initial projects for the office. One of the transition team's key responsibilities is to make recommendations concerning which EPA units should move into the information office and in which of the three major organizational units they should go. To date, the transition team has not finalized its recommendations on these issues or on how the new office will operate and the staff it will need. Even though EPA has not yet determined which staff will be moved to the central information office, the transition team's director told us that it is expected that the office will have about 350 employees. She said that the staffing needs of the office will be met by moving existing employees in EPA units affected by the reorganization. The director said that, once the transition team recommends which EPA units will become part of the central office, the agency will determine which staff will be assigned to the office. She added that staffing decisions will be completed by July 1999 and the office will begin functioning sometime in August 1999. The funding needs of the new office were not specified in EPA's fiscal year 2000 budget request to the Congress because the agency did not have sufficient information on them when the request was submitted in February 1999. The director of the transition team told us that in June 1999 the agency will identify the anticipated resources that will transfer to the new office from various parts of EPA. The agency plans to prepare the fiscal year 2000 operating plan for the office in October 1999, when EPA has a better idea of the resources needed to accomplish the responsibilities that the office will be tasked with during its first year of operation. The transition team's director told us that decisions on budget allocations are particularly difficult to make at the present time due to the sensitive nature of notifying managers of EPA's various components that they may lose funds and staff to the new office. Furthermore, EPA will soon need to prepare its budget for fiscal year 2001. According to EPA officials, the Office of the Chief Financial Officer will coordinate a planning strategy this spring that will lead to the fiscal year 2001 annual performance plan and proposed budget, which will be submitted to the Office of Management and Budget by September 1999. The idea of a centralized information office within EPA has been met with enthusiasm in many corners--not only by state regulators, but also by representatives of regulated industries, environmental advocacy groups, and others. Although the establishment of this office is seen as an important step in improving how EPA collects, manages, and disseminates information, the office will face many challenges, some of which have thwarted previous efforts by EPA to improve its information management activities. On the basis of our prior and ongoing work, we believe that the agency must address these challenges for the reorganization to significantly improve EPA's information management activities. Among the most important of these challenges are (1) obtaining sufficient resources and expertise to address the complex information management issues facing the agency; (2) overcoming problems associated with EPA's decentralized organizational structure, such as the lack of agencywide information dissemination policies; (3) balancing the demand for more data with calls from the states and regulated industries to reduce reporting burdens; and (4) working effectively with EPA's counterparts in state government. The new organizational structure will offer EPA an opportunity to better coordinate and prioritize its information initiatives. The EPA Administrator and the senior-level officials charged with creating the new office have expressed their intentions to make fundamental improvements in how the agency uses information to carry out its mission to protect human health and the environment. They likewise recognize that the reorganization will raise a variety of complex information policy and technology issues. To address the significant challenges facing EPA, the new office will need significant resources and expertise. EPA anticipates that the new office will substantially improve the agency's information management activities, rather than merely centralize existing efforts to address information management issues. Senior EPA officials responsible for creating the new office anticipate that the information office will need "purse strings control" over the agency's resources for information management expenditures in order to implement its policies, data standards, procedures, and other decisions agencywide. For example, one official told us that the new office should be given veto authority over the development or modernization of data systems throughout EPA. To date, the focus of efforts to create the office has been on what the agency sees as the more pressing task of determining which organizational components and staff members should be transferred into the new office. While such decisions are clearly important, EPA also needs to determine whether its current information management resources, including staff expertise, are sufficient to enable the new office to achieve its goals. EPA will need to provide the new office with sufficient authority to overcome organizational obstacles to adopt agencywide information policies and procedures. As we reported last September, EPA has not yet developed policies and procedures to govern key aspects of its projects to disseminate information, nor has it developed standards to assess the data's accuracy and mechanisms to determine and correct errors. Because EPA does not have agencywide polices regarding the dissemination of information, program offices have been making their own, sometimes conflicting decisions about the types of information to be released and the extent of explanations needed about how data should be interpreted. Likewise, although the agency has a quality assurance program, there is not yet a common understanding across the agency of what data quality means and how EPA and its state partners can most effectively ensure that the data used for decision-making and/or disseminated to the public is of high quality. To address such issues, EPA plans to create a Quality Board of senior managers within the new office in the summer of 1999. Although EPA acknowledges its need for agencywide policies governing information collection, management, and dissemination, it continues to operate in a decentralized fashion that heightens the difficulty of developing and implementing agencywide procedures. EPA's offices have been given the responsibility and authority to develop and manage their own data systems for the nearly 30 years since the agency's creation. Given this history, overcoming the potential resistance to centralized policies may be a serious challenge to the new information office. EPA and its state partners in implementing environmental programs have collected a wealth of environmental data under various statutory and regulatory authorities. However, important gaps in the data exist. For example, EPA has limited data that are based on (1) the monitoring of environmental conditions and (2) the exposures of humans to toxic pollutants. Furthermore, the human health and ecological effects of many pollutants are not well understood. EPA also needs comprehensive information on environmental conditions and their changes over time to identify problem areas that are emerging or that need additional regulatory action or other attention. In contrast to the need for more and better data is a call from states and regulated industries to reduce data management and reporting burdens. EPA has recently initiated some efforts in this regard. For example, an EPA/state information management workgroup looking into this issue has proposed an approach to assess environmental information and data reporting requirements based on the value of the information compared to the cost of collecting, managing, and reporting it. EPA has announced that in the coming months, its regional offices and the states will be exploring possibilities for reducing paperwork requirements for EPA's programs, testing specific initiatives in consultation with EPA's program offices, and establishing a clearinghouse of successful initiatives and pilot projects. However, overall reductions in reporting burdens have proved difficult to achieve. For example, in March 1996, we reported that while EPA was pursuing a paperwork reduction of 20 million hours, its overall paperwork burden was actually increasing because of changes in programs and other factors. The states and regulated industries have indicated that they will look to EPA's new office to reduce the burden of reporting requirements. Although both EPA and the states have recognized the value in fostering a strong partnership concerning information management, they also recognize that this will be a challenging task both in terms of policy and technical issues. For example, the states vary significantly in terms of the data they need to manage their environmental programs, and such differences have complicated the efforts of EPA and the states to develop common standards to facilitate data sharing. The task is even more challenging given that EPA's various information systems do not use common data standards. For example, an individual facility is not identified by the same code in different systems. Given that EPA depends on state regulatory agencies to collect much of the data it needs and to help ensure the quality of that data, EPA recognizes the need to work in a close partnership with the states on a wide variety of information management activities, including the creation of its new information office. Some partnerships have already been created. For example, EPA and the states are reviewing reporting burdens to identify areas in which the burden can be reduced or eliminated. Under another EPA initiative, the agency is working with states to create data standards so that environmental information from various EPA and state databases can be more readily shared. Representatives of state environmental agencies and the Environmental Council of the States have expressed their ideas and concerns about the role of EPA's new information office and have frequently reminded EPA that they expect to share with EPA the responsibility for setting that office's goals, priorities, and strategies. According to a Council official, the states have had more input to the development of the new EPA office than they typically have had in other major policy issues and the states view this change as an improvement in their relationship with EPA. Collecting and managing the data that EPA requires to manage its programs have been major long-term challenges for the agency. The EPA Administrator's recent decision to create a central information office to make fundamental agencywide improvements in data management activities is a step in the right direction. However, creating such an organization from disparate parts of the agency is a complex process and substantially improving and integrating EPA's information systems will be difficult and likely require several years. To fully achieve EPA's goals will require high priority within the agency, including the long-term appropriate resources and commitment of senior management. 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.	Pursuant to a congressional request, GAO discussed the Environmental Protection Agency's (EPA) information management initiatives, focusing on the: (1) status of EPA's efforts to create a central office responsible for information management, policy, and technology issues; and (2) major challenges that the new office needs to address in order to achieve success in collecting, using, and disseminating environmental information. GAO noted that: (1) EPA estimates that its central information office will be operational by the end of August 1999 and will have a staff of about 350 employees; (2) the office will address a broad range of information policy and technology issues, such as improving the accuracy of EPA's data, protecting the security of information that EPA disseminates over the Internet, developing better measures to assess environmental conditions, and reducing information collection and reporting burdens; (3) EPA recognizes the importance of developing an information plan showing the goals of the new office and the means by which they will be achieved but has not yet established milestones or target dates for completing such a plan; (4) although EPA has made progress in determining the organizational structure for the new office, it has not yet finalized decisions on the office's authorities, responsibilities, and budgetary needs; (5) the agency has not performed an analysis to determine the types and the skills of employees that will be needed to carry out the office's functions; (6) EPA officials told GAO that decisions on the office's authorities, responsibilities, budget, and staff will be made before the office is established in August 1999; (7) on the basis of GAO's prior and ongoing reviews of EPA's information management problems, GAO believes that the success of the new office depends on the agency's addressing several key challenges as it develops an information plan, budget, and organizational structure for that office; and (8) most importantly, EPA needs to: (a) provide the office with the resources and the expertise necessary to solve the complex information management, policy, and technology problems facing the agency; (b) empower the office to overcome organizational challenges to adopting agencywide information policies and procedures; (c) balance the agency's need for data on health, the environment, and program outcomes with the call from the states and regulated industries to reduce their reporting burdens; and (d) work closely with its state partners to design and implement improved information management systems.	3,189	515
HUD's procurement offices annually award and administer millions of dollars worth of contracts on behalf of HUD's program offices. This process entails receiving descriptions of need, soliciting and receiving offers, awarding contracts, making necessary contract modifications, resolving disputes, and closing out completed contracts. The Office of Procurement and Contracts performs these functions for headquarters offices, and the three Administrative Service Centers (located in New York, N.Y.; Atlanta, Ga.; and Denver, Colo.) perform them for HUD's field offices. The major types of goods and services procured by headquarters include information technology hardware and software, mortgage-accounting and claims-processing services, advertising for the sale of HUD's properties, and various professional, technical, and administrative management support services. The typical goods and services purchased by the field offices include real estate management services and mortgage insurance-related activities, such as mortgage credit analyses, appraisals, and mortgage insurance endorsement processing. HUD's staffing levels decreased from 12,823 in 1993 to 9,200 in 1998. While HUD has been downsizing, its annual obligations for headquarters contracts have steadily increased. According to HUD's data systems, the annual contract obligations at HUD's headquarters grew from $213 million in fiscal year 1991 to $376 million in fiscal year 1996 (in constant 1996 dollars). No historical data are available for field office contracting activities. HUD's 2020 Management Reform Plan and supporting documents indicate that the Department's reliance on contractors to help carry out its responsibilities will remain significant. For instance, the plan calls for HUD to contract with private firms for a number of functions, including physical building inspections of public housing and multifamily insured projects; legal, investigative, audit, and engineering services; and activities to clean up the backlog of troubled assisted multifamily properties. Previously, physical inspections of multifamily projects were carried out by HUD personnel, mortgagees, and regional contractors. The plan also encompasses the potential use of contractors to manage construction under the HOPE VI program. Finally, the 2020 reforms call for transferring the Office of Housing's contract administration activities for its rental assistance programs to contract administrators. The new arrangement would be similar to the process under the Office of Public and Indian Housing's rental assistance programs. Currently, approximately 1.1 million assisted rental units are administered by the Office of Housing under contracts with project owners. The Office of Housing performs the role of contract administrator and makes monthly rent payments to owners on behalf of eligible families. Under HUD's proposal, these activities would be carried out directly by contractors (often, housing finance agencies or housing authorities) instead of HUD employees. We, HUD's Inspector General, and the National Academy of Public Administration have identified weaknesses in HUD's contracting practices. For example, our review of HUD's oversight of real estate asset management (REAM) contractors, who are responsible for safeguarding foreclosed HUD properties, found that HUD did not have an adequate system in place to assess its field offices' oversight of these contractors. Our audit work found that HUD does not have a system in place for monitoring its field offices' administration of REAM contracts. To safeguard and maintain the approximately 30,000 properties that HUD has in its inventory at any given time, HUD obtains the services of REAM contractors. These contractors are to secure and inspect the properties, report their condition to HUD, notify interested parties of HUD's ownership, perform exterior maintenance, and ensure that the properties are free of debris and hazardous conditions. REAM contractors are therefore essential to HUD's achieving its goal of returning these properties to private ownership as soon as possible, while obtaining a maximum sale price for HUD. HUD's guidance makes headquarters staff responsible for overseeing the administration of REAM contracts. Specifically, the guidance requires regional offices to ensure that field offices are monitoring REAM contractors and requires headquarters staff to review regional offices' oversight actions through regional reviews. We found, however, that headquarters staff have not been reviewing the field offices since HUD reorganized its field office structure in 1995 and eliminated the regional offices. According to HUD Single-Family Property Disposition officials, the regional offices' oversight function was never absorbed into headquarters after the regional offices were eliminated. Also, after the reorganization, HUD's guidance was not updated to ensure that the administration of REAM contracts was monitored by headquarters. In addition, HUD's field office staff are not consistently providing adequate oversight of REAM contractors. We believe this lack of oversight contributed to some of the poor property conditions--ranging from graffiti and debris to imminent safety hazards--that we saw when we visited 66 HUD properties. Such conditions can decrease the marketability of HUD's properties, decrease the value of surrounding homes, increase HUD's holding costs and, in some cases, threaten the health and safety of neighbors and potential buyers. Our report made recommendations to HUD for improving its oversight of REAM contractors. HUD's field office staff are directly responsible for overseeing REAM contractors. We found, however, that some key oversight responsibilities were not always performed by staff at the three HUD field offices we visited. For example, HUD's field staff did not always evaluate REAM contractors as required. Field office staff are supposed to evaluate the REAM contractor's performance every year in the month prior to the contract's anniversary date. This annual evaluation is used to make decisions on contract extensions and, if necessary, to act on inadequate performance. However, at all three field offices we visited, these evaluations were not always conducted or were not always completed in time to provide useful information for contract renewal decisions. For example, one of the field offices we visited has evaluated the REAM contractor's performance only once since the REAM contract was awarded in June 1995, and that evaluation was conducted several weeks after the contract had already been extended beyond the base year. Officials in that field office told us that performance evaluations were not performed because they did not have the staff resources or travel funds to visit the contractor's office. However, it should be noted that the REAM contractor's office is only 37 miles from HUD's field office. Furthermore, in the one evaluation conducted, field office staff did not convey the results of the evaluation to the REAM contractor, as required. In this evaluation, HUD cited the contractor for failing to remove debris from some properties. Our inspection of properties in this field location revealed that the debris removal problem still existed at the time of our review, more than 1 year later. One property had been shown by realtors eight times while it contained debris. In fact, a realtor noted that the only accessible entrance to the property was blocked with furniture and debris, which was the case when we visited the property. During our August 1997 inspection of 24 properties in this location, we found that most of the properties contained either interior or exterior debris. Consequently, prospective buyers were sometimes viewing properties littered with household trash, personal belongings, and other debris. In addition, HUD's field office staff did not always inspect the properties managed by REAM contractors, as suggested by HUD's guidance. Because HUD recognizes that physical inspections are the best method for monitoring the contractors' work, HUD's guidance suggests that field office staff conduct monthly physical inspections of a minimum number of properties assigned to each contractor. To help meet this target, the guidance allows the field offices to contract out for property inspection services. Without adequate on-site inspections, HUD cannot be assured that it is receiving the services for which it has paid. In two of the field offices we visited, property files contained evidence that some properties were being inspected. However, of the 42 property files we reviewed in the third field office, HUD's field office staff had not inspected any of those properties. Field office staff told us they did not get out to inspect properties because they did not have the travel funds or staff resources to do so. Subsequent to our visit, in December 1997, this field office started using contractors to make property inspections. Moreover, HUD's field office staff did not always ensure that the REAM contractors conducted property inspections and submitted appropriate reports for HUD's review. HUD's guidance requires REAM contractors to submit initial inspection reports within 5 working days of being notified that a property has been assigned, but it offers no specific guidance on the submission of routine inspection reports. The REAM contractor's submission of initial and routine inspection reports is essential for HUD to determine its marketing strategy for the properties and to mitigate potential losses to the properties. For example, the initial inspection reports, along with appraisals, are the primary tools for determining the repairs that must be made and whether the property meets certain standards that would allow it to be sold with HUD-insured financing. At the three offices we reviewed, the requirements placed on REAM contractors for submitting inspection reports and the extent to which the reports were actually submitted to the field offices varied considerably. For example, at one location, all of the property files we reviewed contained initial inspections, while in another location, 43 percent of the files contained no initial inspections. Without inspection reports, HUD is unable to readily determine whether the contractors are conducting inspections as required. At all three locations that we visited, we found instances where properties were not maintained as required by the REAM contracts. During our inspection of approximately 20 properties in each location, we identified properties that (1) were not properly secured, (2) had physical conditions that did not match those that the REAM contractor had reported to HUD, or (3) had imminent hazards. For instance, of the 66 properties we visited in all three locations, we found that approximately 39 percent were not sufficiently secured to prevent access to the property. The failure to properly secure properties can lead to trespassing, vandalism, and the property's deterioration. In fact, we visited unsecured properties that had broken windows, graffiti, and exposed walls in the bathrooms where valuable copper piping had been ripped out. In addition, we found physical conditions that did not match those that the REAM contractors had reported to the three HUD field offices we visited. For example, one property contained animal feces, fur, and personal possessions, while the contractor's inspection report indicated that the house was free of debris. If contractors do not accurately report on the condition of properties, HUD may lack vital information on which to make disposition decisions and to address safety hazards. As a result, the government may sell the property for less than it is worth or incur unnecessary holding and maintenance costs because it is not marketable. Furthermore, almost 71 percent of the properties we visited in one field office, and about 37 percent in another, contained imminent hazards, such as broken or rotting stairs. Inspection reports submitted to HUD for one property noted that the front steps were dangerous--a condition warranting immediate repair by the contractor. Nonetheless, when we inspected the property about 3 months after the contractor initially reported the problem, the stairs still had not been repaired. Other imminent hazards that we saw included a refrigerator with the door intact on a back porch and properties containing household waste, food, soiled diapers, paints, and solvents. The failure to address imminent hazards endangers would-be buyers, as well as neighbors, and puts the government at risk of litigation. On the basis of our review of files and properties in the three locations, we found that the properties were generally in better condition in the locations where staff more actively monitored the contractors' performance. We recognize, however, that the condition of the properties is not totally attributable to HUD's oversight of the contractors. Other factors can contribute to the condition of the properties, including the overall quality of the contractor's work and the susceptibility of the neighborhood to crime and vandalism. We, the Inspector General, and the National Academy of Public Administration have identified other weaknesses in HUD's contracting with respect to the Department's procurement systems, needs assessment and planning functions, and oversight of contractors' performance. Both we and the Inspector General found that HUD's ability to manage contracts has been limited because its procurement systems have not always contained accurate critical information regarding contract awards and modifications and their associated costs. Although HUD recently combined several of its procurement systems, the new system is not yet integrated with HUD's financial systems, thus limiting the data available to manage the Department's contracts. The Inspector General reported in September 1997 that (1) inadequate oversight of contractors' performance has led HUD to pay millions of dollars for services without determining the adequacy of the services provided and (2) many HUD staff had a poor understanding of their contract management roles and have not always maintained adequate documentation of their reviews of contractors. This situation limits assurances that adequate monitoring has occurred.In a May 1997 preliminary report on the contracting activities of HUD's Federal Housing Administration (FHA), the National Academy of Public Administration identified a variety of problem areas associated with the procurement process, including the fact that procurements took too long; FHA's oversight of contracted services was inadequate; and FHA sometimes used contracting techniques that limited competition. The Academy is in the process of carrying out a more in-depth review of FHA's contracting activities and is also reviewing procurement practices in other parts of HUD. In a December 1997 report, HUD's Inspector General noted that a potential reliance on contractors as a means of supplanting HUD staff may not be in the best interests of HUD and the taxpayers. The report noted that HUD relies heavily on contractors to perform studies, design systems, administer functions, and develop plans and strategies but has made little effort to date to formally evaluate the effectiveness and cost/benefits of its contracted work. HUD has recognized the need to improve its contracting processes and has begun taking actions to address weaknesses that we and the Inspector General have identified. In its latest self-assessment of management controls under the Federal Managers' Financial Integrity Act, HUD added contracting as a new material weakness. The 2020 plan also includes an effort to redesign the contract procurement process. HUD has recently appointed a chief procurement officer who will be responsible for improving HUD procurement planning and policies, reviewing and approving all contracts of over $5 million, and implementing recommendations that may result from an ongoing study of HUD's procurement practices by the National Academy of Public Administration. HUD is also establishing a contract review board, composed of the chief procurement officer and other senior HUD officials, that will be responsible for reviewing and approving each HUD program office's strategic procurement plan and reviewing the offices' progress in implementing the plans. In addition, HUD is establishing standard training requirements for the HUD staff responsible for monitoring contractors' progress and performance by including standards relating to monitoring contractors in its system for evaluating employees' performance. HUD is also planning actions to integrate its procurement and financial systems. In addition, HUD officials told us that they are planning to take actions to strengthen the Department's oversight of REAM contractors and to involve headquarters in ensuring that field staff effectively oversee the contractors' performance. Furthermore, with respect to the problems found in property disposition contracting, single-family housing officials have proposed changes that they anticipate would result in only a minimal inventory of properties and therefore only a limited need for REAM contractor services. Specifically, according to HUD Single-Family Housing Division officials, the Department plans to sell the rights to properties before they enter HUD's inventory, thus enabling them to be quickly disposed of once they become available. Although the details of these sales, which HUD refers to as "privatization sales," remain to be developed, HUD envisions that properties would be pooled on a regional basis and purchased by entities that could use their existing structures to sell the properties in the same way that the Department currently does, namely, through competitive sales to individuals. In addition, as a part of its budget request for fiscal year 1999, HUD proposed new legislation to allow the Department to take back notes when a claim is paid, rather than requiring lenders to foreclose and convey properties. HUD would then transfer the note to a third party for servicing and/or disposition. We view the actions that HUD has taken to improve its contracting procedures as positive steps. However, some key issues concerning their implementation are still being finalized, such as the precise role of the contract review board in overseeing HUD's procurement actions, and HUD's ability to have the necessary resources in place to carry out its procurement responsibilities effectively. Perhaps even more important is the extent to which these actions will lead to a change in HUD's culture, so that acquisition planning and effective oversight of contractors will be viewed by both management and staff as being intrinsic to HUD's ability to carry out its mission successfully. Mr. Chairman this concludes our statement. We would be pleased 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.	GAO discussed issues related to contracting activities at the Department of Housing and Urban Development (HUD), focusing on the: (1) extent of HUD's reliance on contractors to carry out the Department's responsibilities; (2) weaknesses in HUD's current contracting practices, particularly with respect to the oversight of property management contractors; and (3) HUD's actions to address its contracting weaknesses. GAO noted that: (1) HUD's annual obligations for headquarters contracts have steadily increased in recent years, growing from $213 million in fiscal year (FY) 1991 to $376 million in FY 1996, according to HUD's data systems; (2) furthermore, the Department will continue to rely heavily on contractors to help carry out its responsibilities under its 2020 Management Reform Plan; (3) for instance, the plan calls for HUD to contract with private firms for a number of functions, including physical building inspections of public housing and multi-family insured projects; legal, investigative, audit, and engineering services; and activities to clean up the backlog of troubled assisted multi-family properties; (4) GAO, HUD's Inspector General, and the National Academy of Public Administration have identified weaknesses in HUD's contract administration and monitoring of contractors' performance; (5) the three HUD field offices GAO visited varied greatly in their efforts to monitor real estate asset management contractors' performance, and none of the offices adequately performed all of the functions needed to ensure that the contractors meet their contractual obligations to maintain and protect HUD-owned properties; (6) GAO's physical inspection of the properties for which the contractors in each location were responsible identified problems at the properties, including vandalism, maintenance problems, and safety hazards, which may decrease the marketability of HUD's properties, decrease the value of surrounding homes, increase HUD's holding costs, and in some cases, threaten the health and safety of neighbors and potential buyers; (7) HUD has recognized the need to improve its contracting processes and has begun taking actions to address the weaknesses that GAO and the Inspector General have identified; (8) HUD has recently appointed a chief procurement officer and is also establishing a contract review board; and (9) HUD is taking steps to revise its property disposition activities which could reduce its reliance on asset management contractors.	3,902	489
Financial assistance to help students and families pay for postsecondary education has been provided for many years through student grant and loan programs authorized under title IV of the Higher Education Act of 1965, as amended. Examples of these programs include Pell Grants for low-income students, PLUS loans to parents and graduate students, and Stafford loans. Much of this aid has been provided on the basis of the difference between a student's cost of attendance and an estimate of the ability of the student and the student's family to pay these costs, called the expected family contribution (EFC). The EFC is calculated based on information provided by students and parents on the Free Application for Federal Student Aid (FAFSA). Statutory definitions establish the criteria that students must meet to be considered independent of their parents for the purpose of financial aid, and statutory formulas establish the share of income and assets that are expected to be available for the student's education. In fiscal year 2005, the Department of Education made approximately $14 billion in grants, and title IV lending programs made available another $57 billion in loan assistance. Title IV also authorizes programs funded by the federal government and administered by participating higher education institutions, including the Supplemental Educational Opportunity Grant (SEOG), Perkins loans, and federal work- study aid, collectively known as campus-based aid. Table 1 provides brief descriptions of the title IV programs that we reviewed in our 2005 report and includes two programs--Academic Competitiveness Grants and National Science and Mathematics Access to Retain Talent Grants--that were created since that report was issued. Postsecondary assistance also has been provided through a range of tax preferences, including postsecondary tax credits, tax deductions, and tax- exempt savings programs. For example, the Taxpayer Relief Act of 1997 allows eligible tax filers to reduce their tax liability by receiving, for tax year 2006, up to a $1,650 Hope tax credit or up to a $2,000 Lifetime Learning tax credit for tuition and course-related fees paid for a single student. The fiscal year 2005 federal revenue loss estimate of the postsecondary tax preferences that we reviewed was $9.15 billion dollars. Tax preferences discussed as part of our 2005 report include the following: Lifetime Learning Credit--income-based tax credit claimed by tax filers on behalf of students enrolled in one or more postsecondary education courses. Hope Credit--income-based tax credit claimed by tax filers on behalf of students enrolled at least half-time in an eligible program of study and who are in their first 2 years of postsecondary education. Student Loan Interest Deduction--income-based tax deduction claimed by tax filers on behalf of students who took out qualified student loans while enrolled at least half-time. Tuition and Fees Deduction--income-based tax deduction claimed by tax filers on behalf of students who are enrolled in one or more postsecondary education courses and have either a high school diploma or a General Educational Development (GED) credential. Section 529 Qualified Tuition Programs--College Savings Programs and Prepaid Tuition Programs--non-income-based programs that provide favorable tax treatment to investments and distributions used to pay the expenses of future or current postsecondary students. Coverdell Education Savings Accounts--income-based savings program providing favorable tax treatment to investments and distributions used to pay the expenses of future or current elementary, secondary, or postsecondary students. As figure 1 demonstrates, the use of tax preferences has increased since 1997, both in absolute terms and relative to the use of title IV aid. Postsecondary student financial assistance provided through programs authorized under title IV of the Higher Education Act and the tax code differ in timing of assistance, the populations that receive assistance, and the responsibility of students and families to obtain and use the assistance. Title IV programs and education-related tax preferences differ significantly in when eligibility is established and in the timing of the assistance they provide. Title IV programs generally provide benefits to students while they are in school. Education-related tax preferences, on the other hand, (1) encourage saving for college through tax-exempt saving, (2) assist enrolled students and their families in meeting the current costs of postsecondary education through credits and tuition deductions, and (3) assist students and families repaying the costs of past postsecondary education through a tax deduction for student loan interest paid. While title IV programs and tax preferences assist many students and families, program and tax rules affect eligibility for such assistance. These rules also affect the distribution of title IV aid and the assistance provided through tax preferences. As a result, the beneficiaries of title IV programs and tax preferences differ. Title IV programs generally have rules for calculating grant and loan assistance that give different consideration to family income, assets, and college costs in the award of financial aid. For example, Pell Grant awards are calculated by subtracting the student's EFC from the maximum Pell Grant award ($4,050 in academic year 2006-2007), or the student's cost of attendance, whichever is less. Because the EFC is closely linked to family income and circumstances (such as the size of the family and the number of dependents in school), and modest EFCs are required for Pell eligibility, Pell awards are made primarily to families with modest incomes. In contrast, the maximum unsubsidized Stafford loan amount is calculated without direct consideration of financial need: students may borrow up to their cost of attendance, minus the estimated financial assistance they will receive. As table 2 shows, 92 percent of Pell financial support in 2003-2004 was provided to dependent students whose family incomes were $40,000 or below, and the 38 percent of Pell recipients in the lowest income category ($20,000 or below) received a higher share (48 percent) of Pell financial support. Because independent students generally have lower incomes and accumulated savings than dependent students and their families, patterns of program participation and dollar distribution differ. Participation of independent students in Pell, subsidized Stafford, and unsubsidized Stafford loan programs is heavily concentrated among those with incomes of $40,000 or less: from 74 percent (unsubsidized Stafford) to 95 percent (Pell) of program participants have incomes below this level. As shown in table 3, the distribution of award dollars follows a nearly identical pattern. Many education-related tax preferences have both de facto lower limits created by the need to have a positive tax liability to obtain their benefit and income ceilings on who may use them. For example, the Hope and Lifetime Learning tax credits require that tax filers have a positive tax liability to use them and income-related phase-out provisions in 2005 that began at $45,000 and $90,000 for single and joint filers, respectively. Furthermore, tax-exempt savings are more advantageous to families with higher incomes and tax liabilities because, among other reasons, these families hold greater assets to invest in these tax preferences and have a higher marginal tax rate, and thus benefit the most from the use of these tax preferences. Table 4 shows the income categories of tax filers claiming the three tax preferences available to current students and/or their families along with the reduced tax liabilities from those preferences in 2004. The federal government and postsecondary institutions have significant responsibilities in assisting students and families in obtaining assistance provided under title IV programs but only minor roles with respect to tax filers' use of education-related tax preferences. To obtain federal student aid, applicants must first complete the FAFSA, a form which required students to complete up to 100 fields in 2006-2007. Submitting a completed FAFSA to the Department of Education largely concludes students' and families' responsibility in obtaining aid. The Department of Education is responsible for calculating students' and families' EFC on the basis of the FAFSA, and students' educational institutions are responsible for determining aid eligibility and the amounts and packaging of awards. In contrast, higher education tax preferences require students and families to take more responsibility. Although postsecondary institutions provide students and IRS with information about higher education attendance, they have no other responsibilities for higher education tax credits, deductions, or tax-preferred savings. The federal government's primary role with respect to higher education tax preferences is the promulgation of rules; the provision of guidance to tax filers; and the processing of tax returns, including some checks on the accuracy of items reported on those tax returns. The responsibility for selecting among and properly using tax preferences rests with tax filers. Unlike title IV programs, users must understand the rules, identify applicable tax preferences, understand how these tax preferences interact with one another and with federal student aid, keep records sufficient to support their tax filing, and correctly claim the credit or deduction on their return. According to our analysis of IRS data on the use of Hope and Lifetime tax credits and the tuition deduction in our 2005 report, some tax filers appear to make less-than-optimal choices among them. The apparent suboptimal use of postsecondary tax preferences may arise, in part, from the complexity of these provisions. Making poor choices among tax preferences for postsecondary education may be costly to tax filers. For example, families may strand assets in a tax-exempt savings vehicle and incur tax penalties on their distribution if their child chooses not to go to college. They may also fail to minimize their federal income tax liability by claiming a tax credit or deduction that yields less of a reduction in taxes than a different tax preference or by failing to claim any of their available tax preferences. For example, if a married couple filing jointly with one dependent in his/her first 2 years of college had an adjusted gross income of $50,000, qualified expenses of $10,000 in 2006, and tax liability greater than $2,000, their tax liability would be reduced by $2,000 if they claimed the Lifetime Learning credit but only $1,650 if they claimed the Hope credit. In our 2005 report, we found that some people who appear to be eligible for tax credits and/or the tuition deduction did not claim them. The files of about 77 percent of the tax year 2002 tax returns that we were able to review were apparently eligible to claim one or more of the three tax preferences. However, about 27 percent of those returns, representing about 374,000 tax filers, failed to use the any of them. The amount by which these tax filers failed to reduce their tax averaged $169; 10 percent of this group could have reduced their tax liabilities by over $500. Suboptimal choices were not limited to tax filers who prepared their own tax returns. A possible indicator of the difficulty people face in understanding education-related tax preferences is how often the suboptimal choices we identified were found on tax returns prepared by paid tax preparers. We estimate that about 50 percent of the returns we found that appear to have failed to optimally reduce the tax filer's tax liability were prepared by paid tax preparers. Generalized to the population of tax returns we were able to review, returns prepared by paid tax preparers represent about 223,000 of the approximately 447,000 suboptimal choices we found. Our April 2006 study of paid tax preparers corroborated the problem of confusion over which of the tax preferences to claim. Of the 9 undercover investigation visits we made to paid preparers with a taxpayer with a dependent college student, 3 preparers did not claim the credit most advantageous to the taxpayer and thereby cost these taxpayers hundreds of dollars in refunds. In our investigative scenario, the expenses and the year in school made the Hope education credit far more advantageous to the taxpayer than either the tuition and fees deduction or the Lifetime Learning credit. The apparently suboptimal use of postsecondary tax preferences may arise, in part, because of the complexity of using these provisions. Tax policy analysts have frequently identified postsecondary tax preferences as a set of tax provisions that demand a particularly large investment of knowledge and skill on the part of students and families or expert assistance purchased by those with the means to do so. They suggest that this complexity arises from multiple postsecondary tax preferences with similar purposes, from key definitions that vary across these provisions, and from rules that coordinate the use of multiple tax provisions. Twelve tax preferences are outlined in the IRS publication, Tax Benefits for Education, for use in preparing 2005 returns (the most recent publication available). The publication includes 4 different tax preferences for educational saving. Three of these preferences--Coverdell Education Savings Accounts, Qualified Tuition Programs, and U.S. education savings bonds--differ across more than a dozen dimensions, including the tax penalty that occurs when account balances are not used for qualified higher education expenses, who may be an eligible beneficiary, annual contribution limits, and other features. In addition to learning about, comparing, and selecting tax preferences, filers who wish to make optimal use of multiple tax preferences must understand how the use of one tax preference affects the use of others. The use of multiple education-related tax preferences is coordinated through rules that prohibit the application of the same qualified higher education expenses for the same student to more than one education- related tax preference, sometimes referred to as "anti-double-dipping rules." These rules are important because they prevent tax filers from underreporting their tax liability. Nonetheless, anti-double-dipping rules are potentially difficult for tax filers to understand and apply, and misunderstanding them may have consequences for a filer's tax liability. Little is known about the effectiveness of federal grant and loan programs and education-related tax preferences in promoting attendance, choice, and the likelihood that students either earn a degree or continue their education (referred to as persistence). Many federal aid programs and tax preferences have not been studied, and for those that have been studied, important aspects of their effectiveness remain unexamined. In our 2005 report, we found no research on any aspect of effectiveness for several major title IV federal postsecondary programs and tax preferences. For example, no research had examined the effects of federal postsecondary education tax credits on students' persistence in their studies or on the type of postsecondary institution they choose to attend. Gaps in the research-based evidence of federal postsecondary program effectiveness may be due, in part, to data and methodological challenges that have proven difficult to overcome. The relative newness of most of the tax preferences also presents challenges because relevant data are just now becoming available. In 2002, we recommended that Education sponsor research into key aspects of effectiveness of title IV programs, that Education and the Department of the Treasury collaborate on such research into the relative effectiveness of title IV programs and tax preferences, and that the Secretaries of Education and Treasury collaborate in studying the combined effects of tax preferences and title IV aid. In April 2006, Education's Institute for Education Sciences (IES) issued a Request for Applications to conduct research on, among other things, "evaluating the efficacy of programs, practices, or policies that are intended to improve access to, persistence in, or completion of postsecondary education." Multiyear projects funded under this subtopic are expected to begin in July 2007. As we noted in our 2002 report, research into the effectiveness of different forms of postsecondary education assistance is important. Without such information federal policymakers cannot make fact-based decisions about how to build on successful programs and make necessary changes to improve less effective programs. The budget deficit and other major fiscal challenges facing the nation necessitate rethinking the base of existing federal spending and tax programs, policies, and activities by reviewing their results and testing their continued relevance and relative priority for a changing society. In light of the long-term fiscal challenge this nation faces and the need to make hard decisions about how the federal government allocates resources, this hearing provides an opportunity to continue a discussion about how the federal government can best help students and their families pay for postsecondary education. Some questions that Congress should consider during this dialog include: Should the federal government consolidate postsecondary education tax provisions to make them easier for the public to use and understand? Given its limited resources, should the government further target title IV programs and tax provisions based on need or other factors? How can Congress best evaluate the effectiveness and efficiency of postsecondary education aid provided through the tax code? Can tax preferences and title IV programs be better coordinated to maximize their effectiveness? Mr. Chairman and Members of the Committee, this concludes our statement. We welcome any questions you have at this time. For further information regarding this testimony, please contact Michael Brostek at (202) 512-9039 or [email protected] or George Scott at (202) 512-7215 or [email protected]. Individuals making contributions to this testimony include David Lewis, Assistant Director; Jeff Appel, Assistant Director; Shirley Jones, Sheila McCoy, John Mingus, Jeff Procak, Carlo Salerno, Andrew Stephens, and Michael Volpe. The federal government helps students and families save, pay for, and repay the costs of postsecondary education through grant and loan programs authorized under title IV of the Higher Education Act of 1965, and through tax preferences--reductions in federal tax liabilities that result from preferential provisions in the tax code, such as exemptions and exclusions from taxation, deductions, credits, deferrals, and preferential tax rates. Assistance provided under title IV programs include Pell Grants for low- income students, the newly established Academic Competitiveness and National Science and Mathematics Access to Retain Talent Grants, PLUS loans, which parents as well as graduate and professional students may apply for, and Stafford loans. While each of the three grant types reduces the price paid by the student, student loans help to finance the remaining costs and are to be repaid according to varying terms. Stafford loans may be either subsidized or unsubsidized. The federal government pays the interest cost on subsidized loans while the student is in school, and during a 6-month period known as the grace period, after the student leaves school. For unsubsidized loans, students are responsible for all interest costs. Stafford and PLUS loans are provided to students through both the FFEL program and the William D. Ford Direct Loan Program (FDLP). The federal government's role in financing and administering these two loan programs differs significantly. Under the FFEL program, private lenders, such as banks, provide loan capital and make loans, and the federal government guarantees FFEL lenders a minimum yield on the loans they make and repayment if borrowers default. Under FDLP, federal funds are used as loan capital and loans are provided through participating schools. The Department of Education and its private-sector contractors jointly administer the program. Title IV also authorizes programs funded by the federal government and administered by participating higher education institutions, including the Supplemental Educational Opportunity Grant (SEOG), Perkins loans, and federal work-study aid, collectively known as campus-based aid. To receive title IV aid, students (along with parents, in the case of dependent students) must complete a Free Application for Federal Student Aid form. Information from the FAFSA, particularly income and asset information, is used to determine the amount of money--called the expected family contribution--that the student and/or family is expected to contribute to the student's education. Statutory definitions establish the criteria that students must meet to be considered independent of their parents for the purpose of financial aid, and statutory formulas establish the share of income and assets that are expected to be available for the student's education. Once the EFC is established, it is compared with the cost of attendance at the institution chosen by the student. The cost of attendance comprises tuition and fees; room and board; books and supplies; transportation; miscellaneous personal expenses; and, for some students, additional expenses. If the EFC is greater than the cost of attendance, the student is not considered to have financial need, according to the federal aid methodology. If the cost of attendance is greater than the EFC, then the student is considered to have financial need. Title IV assistance that is made on the basis of the calculated need of aid applicants is called need-based aid. Key characteristics of title IV programs are summarized in table 5 below. Prior to the 1990s, virtually all major federal initiatives to assist students with the costs of postsecondary education were provided through grant and loan programs authorized under title IV of the Higher Education Act. Since the 1990s, however, federal initiatives to assist families and students in paying for postsecondary education have largely been implemented through the federal tax code. The federal tax code now contains a range of tax preferences that may be used to assist students and families in saving for, paying, or repaying the costs of postsecondary education. These tax preferences include credits and deductions, both of which allow tax filers to use qualified higher education expenses to reduce their federal income tax liability. The tax credits reduce the tax filers' income tax liability on a dollar-for-dollar basis but are not refundable. Tax deductions permit qualified higher education expenses to be subtracted from income that would otherwise be taxable. To benefit from a higher education tax credit or tuition deduction, a tax filer must use tax form 1040 or 1040A, have an adjusted gross income below the provisions' statutorily specified income limits, and have a positive tax liability after other deductions and credits are calculated, among other requirements. Tax preferences also include tax-exempt savings vehicles. Section 529 of the tax code makes tax free the investment income from qualified tuition programs. There are two types of qualified tuition programs: savings programs established by states and prepaid tuition programs established either by states or by one or more eligible educational institutions. Another tax-exempt savings vehicle is the Coverdell Education Savings Account. Tax penalties apply to both 529 programs and Coverdell savings accounts if the funds are not used for allowable education expenses. Key features of these and other education-related tax preferences are described below, in table 6. Our review of tax preferences did not include exclusions from income, which permit certain types of education-related income to be excluded from the calculation of adjusted gross income on which taxes are based. For example, qualified scholarships covering tuition and fees and qualified tuition reductions from eligible educational institutions are not included in gross income for income tax purposes. Similarly, student loans forgiven when a graduate goes into certain professions for a certain period of time are also not subject to federal income taxes. We also did not include special provisions in the tax code that also extend existing tax preferences when tax filers support a postsecondary education student. For example, tax filers may claim postsecondary education students as dependents after age 18, even if the student has his or her own income over the limit that would otherwise apply. Also, gift taxes do not apply to funds used for certain postsecondary educational expenses, even for amounts in excess of the usual $11,000 limit on gifts. In addition, funds withdrawn early from an Individual Retirement Account are not subject to the usual 10 percent penalty when used for either a tax filer's or his or her dependent's postsecondary educational expenses. For an example of how the use of college savings programs and the tuition deduction is affected by "anti-double-dipping" rules, consider the following: To calculate whether a distribution from a college savings program is taxable, tax filers must determine if the total distributions for the tax year are more or less than the total qualified educational expenses reduced by any tax-free educational assistance, i.e., their adjusted qualified education expenses (AQEE). After subtracting tax-free assistance from qualified educational expenses to arrive at the AQEE, tax filers multiply total distributed earnings by the fraction (AQEE / total amount distributed during the year). If parents of a dependent student paid $6,500 in qualified education expenses from a $3,000 tax-free scholarship and a $3,600 distribution from a tuition savings program, they would have $3,500 in AQEE. If $1,200 of the distribution consisted of earnings, then $1,200 x ($3,500 AQEE / $3,600 distribution) would result in $1,167 of the earnings being tax free, while $33 would be taxable. However, if the same tax filer had also claimed a tuition deduction, anti-double-dipping rules would require the tax filer to subtract the expenses taken into account in figuring the tuition deduction from AQEE. If $2,000 in expenses had been used toward the tuition deduction, then the taxable distribution from the section 529 savings program would rise to $700. For families such as these, anti-double-dipping rules increase the computational complexity they face and may result in unanticipated tax liabilities associated with the use of section 529 savings programs. We used two data sets for this testimony: Education's 2003-2004 National Postsecondary Student Aid Study and the Internal Revenue Service's 2002 and 2004 Statistics of Income. Estimates from both data sets are subject to sampling errors and the estimates we report are surrounded by a 95 percent confidence interval. The following tables provide the lower and upper bounds of the 95 percent confidence interval for all estimate figures in the tables in this testimony. For figures drawn from these data, we provide both point estimates and confidence intervals.	Federal assistance helps students and families pay for postsecondary education through several policy tools--grant and loan programs authorized by title IV of the Higher Education Act of 1965 and more recently enacted tax preferences. This testimony summarizes and updates our 2005 report on (1) how title IV assistance compares to that provided through the tax code (2) the extent to which tax filers effectively use postsecondary tax preferences, and (3) what is known about the effectiveness of federal assistance. This hearing is an opportunity to consider whether any changes should be made in the government's overall strategy for providing such assistance or to the individual programs and tax provisions that provide the assistance. This statement is based on previously published GAO work and reviews of relevant literature. Title IV student aid and tax preferences provide assistance to a wide range of students and families in different ways. While both help students meet current expenses, tax preferences also assist students and families with saving for and repaying postsecondary costs. Both serve students and families with a range of incomes, but some forms of title IV aid--grant aid, in particular--provide assistance to those whose incomes are lower, on average, than is the case with tax preferences. Tax preferences require more responsibility on the part of students and families than title IV aid because taxpayers must identify applicable tax preferences, understand complex rules concerning their use, and correctly calculate and claim credits or deductions. While the tax preferences are a newer policy tool, the number of tax filers using them has grown quickly, surpassing the number of students aided under title IV in 2002. Some tax filers do not appear to make optimal education-related tax decisions. For example, among the limited number of 2002 tax returns available for our analysis, 27 percent of eligible tax filers did not claim either the tuition deduction or a tax credit. In so doing, these tax filers failed to reduce their tax liability by $169, on average, and 10 percent of these filers could have reduced their tax liability by over $500. One explanation for these taxpayers' choices may be the complexity of postsecondary tax provisions, which experts have commonly identified as difficult for tax filers to use. Little is known about the effectiveness of title IV aid or tax preferences in promoting, for example, postsecondary attendance or school choice, in part because of research data and methodological challenges. As a result, policymakers do not have information that would allow them to make the most efficient use of limited federal resources to help students and families.	5,392	524
The HUBZone program was established by the HUBZone Act of 1997 to stimulate economic development through increased employment and capital investment by providing federal contracting preferences to small businesses in economically distressed communities. These areas, which are designated based on certain economic and census data, are known as HUBZones. As of January 2009, there were approximately 9,300 firms listed in the Central Contractor Registration database as participating in the HUBZone program. To ensure HUBZone areas receive the economic benefit from the program, SBA is responsible for determining whether firms meet HUBZone program requirements. To participate in the HUBZone program, small business firms generally must meet certain criteria established by the SBA, most notably: (1) the firm must be at least 51 percent owned and controlled by one or more U.S. citizens; (2) at least 35 percent of its employees must live in a HUBZone; (3) the principal office (i.e., the location where the greatest number of qualifying employees perform their work) must be located in a HUBZone; and (4) the firm must qualify as a small business under the size standard that corresponds with its primary industry classification. In addition, once a firm receives a HUBZone contract, the firm is required to abide by certain subcontracting limitations, which for most firms is to expend at least 50 percent of the personnel costs of a contract on their own employees or employees of other qualified HUBZone small business concerns. The SBA is legally responsible for ensuring that program participants meet program requirements. If a HUBZone firm does not meet program requirements or fails to notify the SBA of material changes that affect the firm's HUBZone eligibility, the SBA may use a variety of enforcement tools against the firm. Depending on the severity of the infraction, SBA can (1) decertify and remove the firm from the list of qualified HUBZone firms, (2) suspend and/or debar the firm from all federal contracts, and/or (3) refer the firm to the Department of Justice for civil and/or criminal prosecution. In July 2008, we testified that SBA's lack of controls over the HUBZone program exposed the government to fraud and abuse. Specifically, we identified substantial vulnerabilities in SBA's application and monitoring process by demonstrating the ease of obtaining HUBZone certification. For example, by using fictitious employee information and fabricated documentation, we easily obtained HUBZone certification for four bogus firms. In addition, we also identified 10 firms from the Washington, D.C., metro area that were participating in the HUBZone program even though they clearly did not meet eligibility requirements. In June 2008, we reported that the Small Business Administration needed to take additional actions to certify and monitor HUBZone firms as well as to assess the results of the HUBZone program. Specifically, we found that the map SBA used to publicize qualified HUBZone areas was inaccurate. In addition, we found that the mechanisms that SBA used to certify and monitor HUBZone firms did not meet federal internal control standards and provided limited assurance that only eligible firms participated in the program. For example, SBA verified the information reported by firms on their application or during recertification--its process for monitoring firms--in limited instances and did not follow its own policy of recertifying all firms every 3 years. In the report, we made five recommendations designed to improve SBA's administration and oversight of the HUBZone program. We recommended that SBA correct and update its HUBZone map, develop and implement guidance to ensure more routine verification of application data, eliminate its backlog of recertifications, formalize and adhere to a specific time frame for decertifying ineligible firms, and further assess the effectiveness of the program. In responding to a draft of this report, SBA agreed with these recommendations and outlined steps that it plans to take to address them. HUBZone program fraud and abuse continues to be problematic for the federal government. We identified 19 firms in the states of Texas, Alabama, and California participating in the HUBZone program even though they clearly do not meet program requirements. Although we cannot conclude whether this is a systemic problem based on these cases, as shown in figure 1 below, the issue of misrepresentation clearly extends beyond the Washington, D.C., metropolitan area. In fiscal years 2006 and 2007, federal agencies had obligated a total of nearly $30 million to these firms for performance as the prime contractor on federal HUBZone contracts. HUBZone regulations also place restrictions on the amount of work that can be subcontracted to non-HUBZone firms. Specifically, HUBZone regulations generally require firms to expend at least 50 percent of the personnel costs of a contract on its own employees. As part of our investigative work, we found examples of service firms that subcontracted a substantial majority of HUBZone contract work to other non-HUBZone firms and thus did not meet this program requirement. When a firm subcontracts the majority of its work to other non-HUBZone firms it is undermining the HUBZone program's stated purpose of stimulating development in the economically distressed areas, as well as evading eligibility requirements for principal office and 35 percent residency requirement. According to HUBZone regulations, persons or firms are subject to criminal penalties for knowingly making false statements or misrepresentations in connection with the HUBZone program including failure to correct "continuing representations" that are no longer true. During the application process, applicants are not only reminded of the program eligibility requirements, but are required to agree to the statement that anyone failing to correct "continuing representations" shall be subject to fines, imprisonment, and penalties. Further, the Federal Acquisition Regulation (FAR) requires all prospective contractors to update the government's Online Representations and Certifications Application (ORCA), which includes a statement certifying whether the firm is currently a HUBZone firm and that there have been "no material changes in ownership and control, principal office, or HUBZone employee percentage since it was certified by the SBA." Of the 19 firms that did not meet HUBZone eligibility requirements, we found that all of them continued to represent themselves as eligible HUBZone interests to SBA. Because the 19 case examples clearly are not eligible, we consider each firm's continued representation indicative of fraud and/or abuse related to this program. Table 1 highlights 10 firms that we found to be egregiously out of compliance with HUBZone program requirements. Appendix I pro vides details on the other 9 cases that we examined. We will be referring all 19firms to SBA for further investigation and consideration for removal from the program. The following is a more detailed description of fraud and abuse from 3 of the cases that we investigated. Case Study 1: Our investigation clearly showed that this firm was being used as a front company because it was subcontracting the majority of its work to other firms. This firm is located in Fort Worth, Texas, and violated HUBZone program requirements because it did not expend at least 50 percent of personnel costs on its own employees or by using the personnel of other HUBZone firms as required by federal regulations. This firm, which consists of 8 employees, has obtained millions of dollars in HUBZone contracts to provide environmental consulting services. At the time of our investigation, company documents showed that the company was subcontracting between 71 and 89 percent of its total contract obligations to other non-HUBZone firms--in some cases, large firms. The principal admitted that her firm was not meeting contract performance requirements required by HUBZone regulations. Further, the principal stated that the firm made bids on HUBZone contracts knowing that the company would have to subcontract work to other firms after the award. The principal added that other large firms use HUBZone firms in this manner, referring to these HUBZone firms as "contract vehicles." By subcontracting the majority of its HUBZone work to non-HUBZone firms, this firm is clearly abusing its HUBZone designation and undermining the HUBZone program's stated purpose of stimulating small business development in economically distressed areas. Likewise, because the subcontracting is being conducted by non-HUBZone firms this firm is also evading eligibility requirements for principal office and the 35 percent residency requirement. This firm has been obligated over $2.3 million in HUBZone set-asides during fiscal years 2006 and 2007. Case Study 2: Our investigation demonstrated that this firm continued to misrepresent itself as HUBZone-eligible while failing to meet HUBZone requirements. This firm, which is a two-person--father and son--ground maintenance services company located in Jacksonville, Alabama, did not meet the principal office requirement, failed the 35 percent residency requirement, and served as a front company--subcontracting most of its HUBZone work to non-HUBZone firms. Our investigation found that the purported principal office was in fact a residential trailer in a trailer park. As shown in figure 2 below, the "suite number" of the principal office provided to SBA was actually the trailer number. The president of the company claimed that the trailer is the principal office and that an employee lived at that trailer. However, our investigation found that the president knowingly misrepresented and concealed material facts to a GAO investigator. We found that both employees live in non-HUBZone areas that are located about 90 miles from the trailer. Additionally, we verified that the trailer is occupied by someone not associated with the company. Further, our investigation found that neither employee lived in, nor worked at, the residential trailer since August 2007. Specifically, the U.S. Postal Service provided us a copy of the change of address form dated August 2007 that instructed the Postal Service to forward all mail from the trailer to another office in Birmingham, Alabama, which is not located in a HUBZone area. In addition, we obtained utility bill information that indicated that the last utility bill was paid by the firm in August 2007. According to DSBS, SBA most recently certified the firm at this address in April 2008. During the course of our investigation, this firm provided investigators with questionable documents in an attempt to make the residential trailer appear to be their actual principal office. As figure 3 shows, after our original interview with the president, we found that a new mailbox with the company name had been installed next to other mailboxes in the trailer park to give the perception that the firm resided at this trailer park. Despite the evidence that this firm had not paid utility bills or received mail at this location for over a year, the firm president also provided us with a "rental agreement" stating that their company was renting the trailer until June 2009. The authenticity of this "rental agreement" is highly suspicious given the evidence we gathered and our confirmation that an individual not related to the company was living in the trailer. For fiscal years 2006 and 2007, this firm received more than $900,000 in HUBZone set-aside obligations. Case Study 4: We determined that during the period of our investigation this firm represented itself as HUBZone certified while failing to meet both the 35 percent residency and principal office HUBZone eligibility requirements. This firm, which is located in Huntsville, Alabama, and provides information technology services, self-certified in ORCA in July 2008 that it was a HUBZone firm and that there had been "no material changes in ownership and control, principal office, or HUBZone employee percentage since it was certified by the SBA." The firm was certified by the SBA as a HUBZone firm in June 2002. Based on our review of payroll records and written correspondence that we received from the firm, we determined that the firm failed the 35 percent HUBZone residency requirement. These documents indicated that only 18 of 116 (16 percent) of the firm's employees who were employed in December 2007, lived in HUBZone-designated areas. To have met the 35 percent residency requirement, the firm would have needed at least 41 employees residing in HUBZone-designated areas, thus, the firm did not meet this requirement by 23 employees. In addition, we investigated the location that the firm purported to the SBA as its "principal office." Our investigation found that no employees were located at this office. Additional investigative work revealed that the firm's primary office was not located in a HUBZone. During the interview, the firm's president acknowledged that he "had recently become aware" that he was not in compliance with HUBZone requirements and was taking "corrective actions." However, the firm continued to represent itself as a HUBZone firm even after the firm's president acknowledged his company did not meet the program requirements. Based on our analysis of FPDS-NG data, between fiscal years 2006 and 2007 federal agencies obligated over $5.0 million in HUBZone awards to this firm, consisting mainly of 2 HUBZone set-aside contracts by the Department of the Navy. Our June 2008 report and July 2008 testimony clearly showed that SBA did not have effective internal controls related to the HUBZone program. In response to our findings and recommendations, SBA initiated a process of reengineering the HUBZone program. SBA officials stated that this process is intended to make improvements to the program that are necessary for making the program more effective while also minimizing fraud and abuse. To that end, SBA has hired business consultants as well as reached out to GAO in an attempt to identify control weaknesses in the HUBZone program and to strengthen its fraud prevention controls. Although SBA has initiated steps to address internal control deficiencies we identified in our June 2008 report, SBA has not yet incorporated effective controls for preventing, detecting, and investigating fraud and abuse within the HUBZone program. Internal controls comprise the plans, methods, and procedures used to meet missions, goals, and objectives and also serve as the first line of defense in safeguarding assets and preventing and detecting errors and fraud. Fraud prevention, on the other hand, requires a system of rules, which, in their aggregate, minimize the likelihood of fraud occurring while maximizing the possibility of detecting any fraudulent activity that may transpire. Fraud prevention systems set forth what actions constitute fraudulent conduct and specifically spell out who in the organization handles fraud matters under varying circumstances. The potential of being caught most often persuades likely perpetrators not to commit the fraud. Because of this principle, the existence of a thorough fraud prevention system is essential to fraud prevention and detection. As of the end of our field work, SBA does not have in place the key elements of an effective fraud prevention system. As shown in figure 4 below, a well-designed fraud prevention system (which can also be used to prevent waste and abuse) should consist of three crucial elements: (1) upfront preventive controls, (2) detection and monitoring, and (3) investigations and prosecutions. For the HUBZone program this would mean (1) front-end controls at the application stage, (2) fraud detection and monitoring of firms already in the program, and (3) the aggressive pursuit and prosecution of individuals committing fraud. In addition, as shown in figure 4, the organization should also use "lessons learned" from its detection and monitoring controls and investigation and prosecutions to design more effective preventive controls. We explain the three major fraud prevention elements in this model and how SBA is attempting to address them, in further detail below. We have previously reported that fraud prevention is the most efficient and effective means to minimize fraud, waste, and abuse. Thus, controls that prevent fraudulent firms and individuals from entering the program in the first place are the most important element in an effective fraud prevention program. The most crucial element of effective fraud prevention controls is a focus on substantially diminishing the opportunity for fraudulent access into the system through front-end controls. Preventive controls should be designed to include, at a minimum, a requirement for data validation, system edit controls, and fraud awareness training. Prior to implementing any new preventive controls, agencies must adequately field test the new controls to ensure they are operating as intended. SBA officials stated that as part of their interim process they are now requesting, from all firms that apply to the HUBZone program, documentation that demonstrates their eligibility. SBA stated that, in the past, it only requested additional information when it encountered obvious "red flags." Although requiring additional documentation has some value as a deterrent, the most effective preventive controls involve the verification of information, such as verifying a principal office location through an unannounced site visit. If SBA verified purported principal offices by conducting unannounced site visits, such as we did for our investigation, SBA would likely find similar instances of firms attempting to defraud the HUBZone program. In addressing one of our prior recommendations, the SBA issued a Desktop Manual for processing HUBZone applications. The manual provides guidance that alerts SBA staff of circumstances that warrant the need for supporting documentation. Although the Desktop Manual provides discretion to the analyst about the need to conduct a site visit, the Desktop Manual does not provide criteria when such site visits are warranted. In addition, SBA does not screen firms or individuals to ensure that they are not affiliated with prior firms that failed program eligibility reviews. As a result, an owner can change the name of a company that was removed from the HUBZone program to a new business name and be accepted back into the HUBZone program. Further, SBA did not adequately field test its interim process for processing applications. If it had done so, SBA would have known that it did not have the resources to effectively carry out its review of applications in a timely manner. As a result, SBA had a backlog of about 800 HUBZone applications as of January 2009. At that time, SBA officials stated that it would take about 6 months to process each HUBZone application--well over the 1 month goal set forth in SBA regulations. Although preventive controls are the most effective way to prevent fraud, continual monitoring is an important component in detecting and deterring fraud. Monitoring and detection within a fraud prevention program involve actions such as data-mining for fraudulent and suspicious applicants and evaluating firms to provide reasonable assurance that they continue to meet program requirements. As demonstrated in our July 2008 testimony, SBA's fraud control vulnerabilities in its application process make detection and monitoring particularly important for the HUBZone program. As a result of SBA's control vulnerabilities, there are likely hundreds and possibly thousands of firms in the HUBZone program that fail to meet program requirements. Although monitoring and detection is an important component of a fraud prevention system, we reported in June 2008 that the mechanisms SBA used to monitor HUBZone firms provided limited assurance that only eligible firms participate in the program. Specifically, we reported that a firm could be in the HUBZone program for years without being examined. In addition, although a HUBZone firm is supposed to be recertified every 3 years, we reported that more than 40 percent of the firms in the program for over 3 years had not been recertified. To address these weaknesses, SBA officials stated that during this fiscal year, they will be conducting program examinations on all HUBZone firms that received contracts in fiscal year 2007 to determine whether they still meet HUBZone requirements. In addition, SBA officials stated that as of September 2008, SBA had eliminated their backlog of recertifications. Although SBA has initiated several positive steps, SBA will need to make further progress to achieve an effective fraud monitoring program. For example, SBA has not found an effective and efficient way to verify the validity of a stated principal office during its recertification and application processes. In addition, SBA officials stated that although they modified their approach for conducting program examinations of HUBZone firms this fiscal year, they have not established a streamlined and risk-based methodology for selecting firms for program examinations going forward. Further, in order to determine whether firms meet eligibility requirements, SBA needs to incorporate an "element of surprise" into its program examinations such as using random, unannounced site visits to verify a stated principal office. Finally, SBA does not evaluate all HUBZone program requirements during program examinations; specifically, SBA does not review whether HUBZone firms are expending at least 50 percent of the personnel costs of a contract on their own personnel. As a result, as shown by several of our case studies, certain firms are allowed to act as "front" companies, whereby they subcontract the large majority of their work to non-HUBZone firms. This undermines the program's stated purpose of increasing employment opportunities, investment, and economic development in HUBZone areas. The final element of an effective fraud prevention system is the aggressive investigation and prosecution of individuals who commit fraud against the federal government. However, SBA currently does not have an effective process for investigating fraud and abuse within the HUBZone program. Although SBA's Desktop Manual for Processing HUBZone Applications states that an analyst may refer a HUBZone application to the Office of Inspector General or the Office of General Counsel, SBA has not established specific criteria or a process for referring firms that knowingly do not meet program requirements. To date, other than the firms identified by our prior investigation, the SBA program office has never referred any firms for debarment and/or suspension proceedings based on their findings from their program eligibility reviews. By failing to hold firms accountable, SBA has sent a message to the contracting community that there is no punishment or consequences for committing fraud or abusing the intent of the HUBZone program. However, as noted below, the SBA has started the debarment process on 7 of the 10 firms we found to have fraudulently or inaccurately misrepresented its HUBZone status in our earlier work. SBA has taken some enforcement steps on the 10 firms that we found did not meet HUBZone program requirements as of July 2008. According to SBA, as of January 2009, two of the firms have been removed from the program and two others are in the process of being removed. However, SBA's failure to examine some of the most egregious cases we previously identified has resulted in an additional $7.2 million in HUBZone obligations and about $25 million in HUBZone set-aside or price preference contracts to these firms. For example, a construction firm identified in our July 2008 testimony admitted that it did not meet HUBZone requirements and was featured in several national publications by name. It has continually represented itself as HUBZone certified and has received $2 million in HUBZone obligations and a $23 million HUBZone set-aside contract since our testimony. See figure 5 for a reproduction of the continual representation this firm makes on the top banner of its Web site. In the written statement for the July 2008 hearing, the Acting Administrator of SBA stated that the SBA would take "immediate steps to require site visits for those HUBZone firms that have received HUBZone contracts and will be instituting suspension and debarment proceedings against firms that have intentionally misrepresented their HUBZone status." SBA has referred 7 of these firms to its General Counsel for suspension and debarment. However, as of February 2009, according to SBA's Dynamic Small Business Web site, 7 of the 10 firms that we investigated were still HUBZone certified. Table 2 highlights the 10 firms that we noted at the July 2008 hearing that clearly did not meet the HUBZone program requirements, new HUBZone obligations and contracts these firms received, as well as the actions the SBA has taken against these firms as of January 2009. As noted in the table above, as of January 2009 SBA has conducted program evaluations on 7 of the 10 firms to determine whether the firms meet the eligibility requirements for the HUBZone program. Based on these evaluations, SBA has removed 2 firms from the HUBZone program and is in the process of providing due process to 2 additional firms to determine whether they should be removed. SBA officials stated that no action will be taken on 3 firms because SBA's program evaluations concluded that these firms met all the eligibility requirements of the HUBZone program. We attempted to verify SBA's work, but were not provided with the requested documentation to support their conclusion that the firms moved into compliance after our July 2008 testimony. SBA officials said they have not yet performed program evaluations for 3 of the most egregious firms because they are experiencing technical problems with SBA's caseload system. As such, these 3 firms remain eligible to receive HUBZone set-aside contracts. SBA is also pursuing suspension and debarment actions for 7 of these firms, and the Department of Justice considering civil actions on 5 of the 10 cases. Our work on the HUBZone program to date has shown that numerous ineligible firms have taken advantage of the opportunity to commit fraud against the federal government. The SBA has initiated steps to correct internal control deficiencies, but it still falls short in developing measures to prevent, detect, and prosecute fraud within the HUBZone program. Our work demonstrates that SBA's fraud controls lack important elements needed to screen and monitor firms which has led to HUBZone awards to firms that did not meet program requirements. For example, SBA's failure to verify principal office locations through unannounced site visits has led to firms operating their businesses from locations that are far from economically disadvantaged. In addition, a lack of oversight for monitoring all of the program requirements has allowed HUBZone firms to subcontract large portions of HUBZone work to non-HUBZone firms thereby failing to meet the program requirement that at least 50 percent of the personnel costs of a contract be expended on its own employees. Lastly, SBA's lack of enforcement within the HUBZone program has not had the effect of deterring fraudulent actors from entering or remaining in the program. Going forward, SBA must develop and incorporate effective fraud controls into its overall internal control process that will minimize fraud and abuse in the HUBZone program. To establish an effective fraud prevention system for the HUBZone program, the Administrator of the Small Business Administration should expeditiously implement the recommendations from our June 2008 report and take the following four actions: Consider incorporating a risk-based mechanism for conducting unannounced site visits as part of the screening and monitoring process. Consider incorporating policies and procedures into SBA's program examinations for evaluating if a HUBZone firm is expending at least 50 percent of the personnel costs of a contract using its own employees. Ensure appropriate policies and procedures are in place for the prompt reporting and referral of fraud and abuse to SBA's Office of Inspector General as well as SBA's Suspension and Debarment Official. Take appropriate enforcement actions on the 19 HUBZone firms we found to violate HUBZone program requirements to include, where applicable, immediate removal or decertification from the program, and coordination with SBA's Office of Inspector General as well as SBA's Suspension and Debarment Official. We received written comments on a draft of this report from SBA's Deputy Associate Administrator of the Office of Business Development and Government Contracting. In the response, SBA agreed with three of our four recommendations. SBA stated that it is in the process of re- engineering the entire HUBZone certification and eligibility process, and SBA believes that our recommendations are useful in making necessary program changes to minimize program risk and ensure that only eligible firms received HUBZone program benefits. SBA's written comments are provided in appendix II. SBA disagreed with our recommendation to consider incorporating policies and procedures into SBA's program examinations for evaluating if a HUBZone firm is complying with the performance-of-work requirements by expending at least 50 percent of the personnel costs of a contract using its own employees. SBA stated that although this requirement is included in SBA HUBZone regulations, it is not a criterion for HUBZone program eligibility but rather a mandatory contract term. SBA stated that contracting officers are required by the Federal Acquisition Regulations to insert such clauses regarding subcontracting limitations. If firms submit bids that indicate that they will not meet this requirement or fail to meet this requirement during performance of the contract, the contracting officer has the authority to reject a firm's bid or terminate the contract for default. SBA stated that it will continue to work with contracting officers to ensure that this requirement is monitored. While we recognize that contracting officers have a responsibility for monitoring the subcontracting limitation, SBA also has this responsibility. In order to receive HUBZone certification, a firm must certify to SBA that it will abide by this performance requirement, and SBA is required by statute to establish procedures to verify such certifications. In addition, verification that a firm is meeting the performance-of-work requirements is one of the subjects that SBA may review during its program examinations. Since SBA is not performing this review, it is possible that many firms may be receiving the benefits of the HUBZone program while evading the program requirements. Therefore, we continue to believe that SBA should consider incorporating policies and procedures into SBA's program examinations for evaluating if a HUBZone firm is meeting the performance-of-work requirements. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Administrator of the Small Business Administration and other interested parties. The report will also be available at no charge on GAO's Web site at www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6722 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who contributed to this report are listed in appendix III. This appendix presents summary information on 9 of 19 firms that clearly did not meet the program eligibility requirements of the HUBZone program. Table 3 shows the remaining case studies that we investigated. As with the 10 cases discussed in the body of this report, these 9 firms continued to represent themselves as eligible HUBZone interests to SBA. Because these 9 case examples clearly are not eligible, we consider each firm's continued representation indicative of fraud and/or abuse related to this program. In addition to the individual named above, Erika Axelson, Gary Bianchi, Donald Brown, Bruce Causseaux, Eric Eskew, Dennis Fauber, Craig Fischer, Robert Graves, Betsy Isom, Jason Kelly, Julia Kennon, Barbara Lewis, Olivia Lopez, Jeff McDermott, Andrew McIntosh, John Mingus, Andy O'Connell, Mary Osorno, Chris Rodgers, and Matt Valenta also provided assistance on this report.	The Small Business Administration's (SBA) Historically Underutilized Business Zone (HUBZone) program provides federal contracting assistance to small firms located in economically distressed areas, with the intent of stimulating economic development. In July 2008, GAO identified substantial vulnerabilities in SBA's application and monitoring process that demonstrated the HUBZone program is vulnerable to fraud and abuse. GAO also investigated 10 case studies of HUBZone firms in the Washington, D.C., area that misrepresented their eligibility. GAO was asked to determine (1) whether additional cases of fraud and abuse exist outside of the Washington, D.C., area; (2) what actions, if any, SBA has taken to establish an effective fraud prevention program for the HUBZone program; and (3) what actions, if any, SBA took against the 10 case study firms in GAO's July 2008 testimony. To meet these objectives, GAO identified selected HUBZone firms based on certain criteria, such as magnitude of HUBZone contracts and firm location. GAO also interviewed SBA officials and reviewed SBA data. GAO found that fraud and abuse in the HUBZone program extends beyond the Washington, D.C., area. GAO identified 19 firms in Texas, Alabama, and California participating in the HUBZone program that clearly do not meet program requirements (i.e., principal office location or percentage of employees in HUBZone and subcontracting limitations). For example, one Alabama firm listed its principal office as "Suite 19," but when GAO investigators performed a site visit they found the office was in fact trailer 19 in a residential trailer park. The individual living in the trailer had no relationship to the HUBZone firm. In fiscal years 2006 and 2007, federal agencies obligated nearly $30 million to these 19 firms for performance as the prime contractor on HUBZone contracts and a total of $187 million on all federal contracts. Although SBA has initiated steps in strengthening its internal controls as a result of GAO's 2008 testimonies and report, substantial work remains for incorporating a fraud prevention system that includes effective fraud controls consisting of (1) front-end controls at the application stage, (2) fraud detection and monitoring of firms already in the program, and (3) the aggressive pursuit and prosecution of individuals committing fraud. In addition, SBA did not adequately field test its interim process for processing applications. If it had done so, SBA would have known that it did not have the resources to effectively carry out its review of applications in a timely manner. As a result, SBA had a backlog of about 800 HUBZone applications as of January 2009. At that time, SBA's interim application process was taking about 6 months--well over its 1-month goal set forth in SBA regulations. SBA has taken some enforcement steps on the 10 firms previously identified by GAO that knowingly did not meet HUBZone program requirements. However, SBA's failure to promptly remove firms from the HUBZone program and examine some of the most egregious cases from GAO's July 2008 testimony has resulted in an additional $7.2 million in HUBZone obligations and about $25 million in HUBZone contracts to these firms. For example, a construction firm from the July 2008 testimony admitted that it did not meet HUBZone requirements and was featured in several national publications by name. It has continually represented itself as HUBZone certified and has received $2 million in HUBZone obligations and a $23 million HUBZone set-aside contract since the July 2008 testimony.	6,824	774
Mercury enters the environment through natural and man-made sources, including volcanoes, chemical manufacturing, and coal combustion, and poses ecological threats when it enters water bodies, where small aquatic organisms convert it into its highly toxic form--methylmercury. This form of mercury may then migrate up the food chain as predator species consume the smaller organisms. Through a process known as bio-accumulation, predator species may develop high mercury concentrations in their tissue as they take in more mercury than they can metabolize or excrete. Fish contaminated with methylmercury may pose health threats to those that rely on fish as part of their diet. According to EPA, mercury harms fetuses and can cause neurological disorders in children, including poor performance on behavioral tests, such as those measuring attention, motor and language skills, and visual-spatial abilities (such as drawing). In addition, populations that consume larger amounts of fish than the general population--including subsistence fishers, as well as certain Native Americans and Southeast Asian Americans--may face higher risk of exposure to contaminated fish, according to EPA. The Food and Drug Administration (FDA) and EPA recommend that expectant mothers, young children, and those nursing children avoid eating swordfish, king mackerel, shark, and tilefish and limit consumption of other potentially contaminated fish, such as tuna. These agencies also recommend checking local advisories for recreationally caught freshwater and saltwater fish. According to EPA, 45 states issued mercury advisories in 2003 (the most recent data available). Because mercury released to the atmosphere can circulate for long periods of time and be transported thousands of miles before it gets deposited, it is difficult to link mercury accumulation in the food chain with sources of mercury emissions. EPA estimates that about half of the mercury deposited in the United States is emitted by sources within this country. In 1999, the most recent year for which data were available, EPA estimated that man-made sources within the United States emitted about 115 tons of mercury. Of these emissions, the agency estimates that about 48 tons, 42 percent of the total, came from coal-fired power plants. While power plants are not required to limit their mercury emissions, EPA estimates that the plants currently capture about 27 tons of mercury each year, primarily through the use of controls for other pollutants, such as those used to control nitrogen oxides, particles, and sulfur dioxide. EPA estimates that power plants would otherwise emit about 75 tons of mercury per year. The Clean Air Act (CAA) Amendments of 1990 required EPA to study the environmental and health effects of hazardous air pollutants from coal-fired power plants and determine whether it was "appropriate and necessary" to regulate these pollutants. In 2000, EPA determined that mercury was a hazardous air pollutant and that it was appropriate and necessary to regulate mercury using the technology-based option. Under this section of the act, the emissions limit had to be at least as strict as the average emissions of the facilities with the best-controlled emissions. Because power plants did not already use controls specifically intended to control mercury, EPA analyzed the effectiveness of controls for other pollutants that capture mercury as a side benefit. This effort culminated in EPA's January 2004 proposal for a technology-based option that would reduce mercury emissions from a current level of 48 tons per year to a projected 34 tons per year (a 29 percent reduction) by 2008. At the same time, however, EPA proposed an alternate policy option that would limit mercury emissions in two phases: to 15 tons in 2018 (a 69 percent reduction from current levels), preceded by an as-yet-unspecified interim cap starting in 2010. The alternate policy option, which would rely on a cap-and-trade system similar to that currently used to control emissions that cause acid rain, differs from the technology-based option in that it would not require each facility to meet emission standards based on control technology. Instead, EPA would set a nationwide "cap" for mercury emissions from coal-fired power plants and then distribute tradable emissions allowances that represent a certain amount of the total cap. At the end of each year, each power plant would have to hold sufficient allowances for the mercury it emitted that year. Plants that reduced their emissions below the levels represented by their allowances could sell their extra allowances to other plants. In addition to its proposed mercury rule, EPA has proposed another rule for power plants, the Clean Air Interstate Rule, which is intended to reduce emissions of nitrogen oxides and sulfur dioxide beginning in 2010. EPA expects that this proposed rule would result in the installation of pollution controls that capture mercury as a side benefit, and thereby decrease mercury emissions to 34 tons per year by 2010, the same level of reduction as the technology-based option. Under the cap-and-trade option, EPA has indicated that it may establish a mercury cap for 2010 equal to the control level expected through the interstate rule. EPA postponed its decision on finalizing the interstate rule until March 2005 while the agency awaits congressional action on pending legislation, known as the Clear Skies Act, that would establish emissions caps and an allowance system similar to those in the interstate rule and the cap-and-trade mercury control option. EPA has stated a preference for achieving reductions of mercury, nitrogen oxides, and sulfur dioxide simultaneously through legislation rather than regulations. Responsibility for analyzing the economic impacts--including costs to industry and expected public health effects--of air pollution control policies rests with EPA's Office of Air and Radiation. EPA provided documentation of its economic analysis for the proposed mercury rule in three primary documents, some of which refer readers to additional documentation on the agency's Web site or in the public rule-making docket. According to EPA, the agency did not have time to assemble its economic assessment of the proposed rule in a single document prior to issuing the proposed rule. To assist in estimating costs that air quality regulations will impose on the power industry, EPA uses the Integrated Planning Model (IPM), which estimates how power plants would respond to various environmental policies. The assumptions underlying this model, such as those regarding fuel costs, the costs of pollution controls, and future electricity demand, can affect the modeling results, according to EPA officials responsible for the modeling. We identified four major shortcomings in the economic analysis underlying EPA's proposed mercury rule that limit its usefulness for informing decision makers and the public about the economic trade-offs of the two options. First, EPA did not consistently analyze each of its two mercury policy options or provide estimates of the total costs and benefits of the two options, making it difficult to ascertain which policy option would provide the greatest net benefits. Second, EPA did not document some of its analysis or provide consistent information on the anticipated economic effects of different mercury control levels under the two options. Third, the agency did not estimate the economic benefits directly related to decreased mercury emissions. Finally, the agency did not analyze some of the key uncertainties underlying its cost-and-benefit estimates. EPA's estimates of the costs and benefits of its two proposed policy options are not comparable because the agency used inconsistent approaches in analyzing the two options. As shown in table 1, EPA analyzed the technology-based option alone, while it analyzed the cap-and-trade option in combination with the interstate rule. In analyzing the technology-based option by itself, EPA estimated the rule would cost about $2 billion annually, and achieve benefits of $15 billion or more annually, yielding net benefits (benefits minus costs) of $13 billion or more annually. In contrast, EPA analyzed the effects of the cap-and-trade option in combination with the proposed interstate rule by combining the costs and benefits of the two proposed rules without separately identifying and documenting those associated with the cap-and-trade option alone. This analysis found that the two proposed rules together would impose costs of $3 billion to $5 billion or more annually, while generating annual benefits of $58 billion to $73 billion or more and annual net benefits of $55 billion to $68 billion or more. Because the estimates for the two options are not comparable, however, it is not clear which option would provide the greatest net benefits. This is particularly important in light of EPA's decision to delay finalization of the interstate rule. EPA officials responsible for the rule acknowledged the lack of comparability with its analysis of the two proposed options. These officials said the agency analyzed the cap-and-trade option alongside the interstate rule because it viewed these two proposed policies as complementary. They also said it would have been useful to analyze the technology-based option alongside the interstate rule, but the agency did not do so because of time constraints. Nonetheless, it is important for EPA to consistently analyze each policy option and provide decision makers with comparable estimates of net economic benefits. The comparability of EPA's analysis is further limited because the agency did not provide consistent information on the total costs and benefits of the two options over their entire implementation periods. Specifically, EPA provided cost-and-benefit estimates for 2010, rather than estimates of the total costs and benefits over the entire implementation period. This is important because the economic impact of the policy options could vary from year to year and because the two options have different implementation timelines. For example, under the proposed cap-and-trade option, a second level of mercury reductions would take effect in 2018, which would likely generate additional costs and benefits at that time. Thus, the estimates EPA provided for 2010 did not fully account for the expected costs and benefits over the implementation period for this option. In contrast, EPA officials said that its estimate of the technology-based option in 2010 reflects the full implementation cost because its analysis assumes that power plants would achieve compliance with the technology-based option by that date. However, without estimates of the total value of benefits and costs of each option over the entire implementation period, it is difficult to ascertain which option would generate the greatest net benefits. The economic analysis underlying the proposed mercury rule does not consistently reflect OMB's guidance to agencies in terms of adhering to the principles of full disclosure and transparency when analyzing the economic effects of regulations. Specifically, we identified two primary cases where EPA's analysis does not adhere to these principles, further limiting the usefulness of the agency's analysis in decision making and diminishing the transparency of the analysis to the public. First, while EPA provides substantial information on its analysis of the technology-based option in the documents supporting its economic analysis of the proposed rule, the agency does not do so for the cap-and-trade option. For the technology-based option, EPA provides documents that describe its findings. In contrast, the agency provides only a summary of its findings for the cap-and-trade option in the rule's preamble and refers to its findings as "rough estimates" that are based on consideration of available analysis of the interstate rule, the technology-based option, and the proposed Clear Skies legislation. EPA does not describe specifically how the agency used this analysis of other proposed rules and legislation to estimate the costs and benefits of the cap-and-trade option, and it does not identify the key analytical assumptions underlying its cost-and-benefit estimates. This lack of documentation and transparency leaves decision makers and the public with limited information on EPA's analysis of the cap-and-trade option. Second, EPA officials responsible for the economic analysis told us that they analyzed two variations of the proposed technology-based option with more stringent mercury limits than the option included in the proposal, but the agency did not include this analysis in the documents supporting its economic analysis or in the public rule-making docket. This is inconsistent with EPA's analysis of the cap-and-trade option, in which it provided a range of costs and benefits associated with different levels of stringency. This omission is also at odds with OMB guidance directing agencies to conduct their economic analysis in accordance with the principles of full disclosure and transparency. With respect to the analysis of the technology-based scenarios that the agency did not make publicly available, EPA officials said the additional modeling showed that the more stringent scenarios were not as cost-effective as the proposed technology-based option. However, EPA did not estimate the benefits of these two scenarios, thereby precluding a comparison of the net economic benefits under the proposed mercury policy options. As a result, it is unclear whether the reduction levels and implementation timelines under either proposed option represent the regulatory scenario that would provide the greatest net benefits. In January 2005, EPA officials responsible for the mercury rule said the agency does not have an obligation to analyze and document every control scenario. We recognize that OMB guidance gives agencies latitude in determining the number of regulatory alternatives to consider and that agencies must balance the thoroughness of their analysis with the practical limits of their ability to carry out analysis. Nonetheless, providing information on the costs and benefits of even a limited range of control scenarios under both proposed options would help decision makers and the public in assessing how different levels of stringency would affect overall estimates of costs and benefits. In December 2004, EPA solicited public comment on additional economic analyses the agency received from commenters on the January 2004 proposed rule, including some that relied on models, assumptions, and levels of stringency that were different from the scenarios EPA analyzed. Although EPA's analysis states that a mercury regulation would generate a variety of benefits, the agency did not estimate in monetary terms all of the benefits expected from reducing mercury emissions. Most notably, EPA did not quantify the human health benefits of decreased exposure to mercury, such as reduced incidence of developmental delays, learning disabilities, and neurological disorders. Instead, EPA estimated only some of the health benefits it anticipates would occur from decreased exposure to fine particles and discussed other impacts qualitatively. Because the two options in the proposed rule differed significantly in both the amount of mercury emission reductions and the time frames in which these reductions would occur, the lack of estimates of the mercury-specific benefits of each policy option represents a significant limitation of EPA's economic analysis. That is, to the extent that each proposed option would yield measurable mercury-specific health benefits, EPA's analysis may underestimate the total expected benefits of both options. Moreover, because the options may yield different mercury-related health benefits, the lack of estimates of these benefits makes it difficult to weigh the relative merits of the two proposed options. According to EPA, its analysis did not estimate key mercury-related health benefits because of technical, time, and resource limitations. Specifically, agency officials responsible for the analysis said the agency did not have a method for determining the extent to which mercury reductions from power plants would translate into decreased incidence of mercury-related health problems. According to EPA, estimating these benefits involves a number of complex chemical, physical, and biological processes, as well as a wide variety of human behaviors, such as fish consumption practices. Although EPA did not estimate the expected human health and other benefits of decreased exposure to mercury emissions in the analysis supporting the proposed rule, the agency did list the various human health and other benefits it expects would stem from a mercury rule. Importantly, in December 2004, the agency announced that it was revising its benefit estimates and solicited public comment on a proposed method for estimating mercury-specific benefits. According to EPA, this method would focus on (1) quantifying projected emissions from coal-fired power plants relative to other sources, (2) modeling the dispersion and deposition of mercury, (3) modeling the link between changes in mercury deposition and changes in the methylmercury concentrations in fish, (4) assessing the methylmercury exposure from consuming fish, and (5) assessing how reductions in methylmercury exposure affect human health. According to EPA officials responsible for analyzing the proposed rule's effects, the agency will consider public comments on this approach and revise its analysis before finalizing a rule. In January 2005, EPA officials responsible for the analysis agreed that providing monetary estimates of mercury-specific benefits would enhance their analysis, and said that the agency might have sufficient information to estimate some, but not all, of the expected human health benefits of reducing mercury emissions. OMB guidance under Executive Order 12866 stipulates that agencies should analyze and present information on uncertainties with their cost-and-benefit estimates. According to EPA officials responsible for the economic analysis, the agency's cost model is generally sensitive to assumptions about future electricity demand and fuel prices, as well as the availability, cost, and performance of pollution controls. Because these assumptions involve long-term projections, they also involve a substantial amount of uncertainty. EPA conducted a limited uncertainty analysis of natural gas prices and electricity demand growth on the cost estimates by examining the impact of alternative projections and concluded that its cost estimates were not particularly sensitive to changes in these variables. However, EPA did not assess how the distribution of estimated benefits and costs would differ given changes in its assumptions about the availability, cost, and performance of mercury control technologies, even though the agency believes that these assumptions could affect its economic modeling. Furthermore, EPA's December 2004 notice for additional public comment on the mercury proposal highlighted the uncertainty surrounding the ability of its computer model to estimate mercury control costs, primarily because of the power industry's limited experience with implementing mercury controls. This notice solicited public comment on, among other things, the assumptions in its economic modeling related to the cost, availability, and performance of mercury control technologies. According to senior EPA officials responsible for analyzing the mercury proposal, changes in these assumptions could have a sizable impact on the agency's cost-and-benefit estimates. This acknowledgment of key uncertainties in its economic modeling highlights the need to determine how they could affect the overall cost-and-benefit estimates for each proposed option. In addition, EPA did not analyze the key uncertainties surrounding its benefit estimates. For example, EPA used economic data from its earlier assessment of the proposed Clear Skies legislation to approximate the impact of emissions reductions that would be expected under the mercury rule. According to EPA, the agency used this approach--referred to as a "benefits-transfer approach"--because time and resource constraints prevented it from performing new research to measure the value of health impacts under a mercury rule. OMB's September 2003 guidance, which applies to economically significant final rules issued after January 1, 2005, states that although such an approach can provide a quick and low-cost means of obtaining monetary values, the method may be characterized by uncertainty and potential biases of unknown magnitude and should be treated as a last-resort option. Furthermore, EPA's economic analysis states that the benefits analysis has many sources of uncertainty, including those associated with emissions data, air quality modeling, and the effect of emissions on human health. The agency did not, however, formally assess the impact of these uncertainties. In January 2005, EPA officials responsible for the proposed mercury rule acknowledged this limited analysis of key uncertainties and said that the agency plans to conduct a more formal assessment of these uncertainties prior to issuing a final rule, as directed by OMB's September 2003 guidance. This guidance directs agencies to assess the sources of uncertainty in their regulatory analyses and the way in which cost-and-benefit estimates may be affected under plausible assumptions. Furthermore, in cases where the annual economic effects total $1 billion or more, the guidance states that agencies should provide a formal quantitative assessment of the key uncertainties about costs and benefits. Because EPA estimates that regulating mercury emissions would have significant economic impacts totaling billions of dollars per year, it is important for the agency to have a credible basis for selecting a policy that will maximize the return on this investment. However, EPA's initial economic analysis of the two policies it is considering has a number of shortcomings. Specifically, because EPA did not analyze and document the economic effects of each policy option by itself--as well as in combination with the interstate rule--over their varying full implementation periods, the results cannot be meaningfully compared. In addition, EPA did not document the analysis supporting the cap-and-trade option or provide consistent information on the economic impacts of different mercury control levels for the two options, limiting the transparency and usefulness of the analysis. Further, without monetary estimates of the human health benefits of mercury emissions reductions--a primary purpose of a mercury regulation--over the full implementation period of each option or, at a minimum, a qualitative comparison of these benefits, EPA's analysis does not provide decision makers with a strong basis for comparing the net benefits under each option. Finally, because EPA did not analyze some of the key analytical uncertainties that could affect its estimates of net benefits, the agency could enhance its economic analysis by further evaluating these uncertainties and how they could affect its overall findings. Unless EPA conducts and documents further economic analysis, decision makers and the public may lack assurance that the agency has evaluated the economic trade-offs of each option and taken the appropriate steps to identify which mercury control option would provide the greatest net benefits. To improve the usefulness of the agency's economic analysis for informing decision makers and the public, and to help ensure consistency with OMB guidance for economic analysis, we recommend that, as the agency revises its economic analysis prior to selecting a mercury control option, the EPA Administrator take the following four actions: Analyze and fully document the economic effects of each policy option by itself, as well as in combination with the interstate rule, over their full implementation periods. Ensure that the agency documents its analysis supporting the final rule and consistently analyzes the effect that different levels of mercury control would have on cost-and-benefit estimates under each policy option. Include monetary estimates, where possible, of the human health benefits of reductions in mercury emissions from power plants or, at a minimum, provide qualitative information on how these benefits are likely to compare under the two options over a consistent time frame, reflecting full implementation of both options. Further analyze uncertainties surrounding estimates of costs and benefits, as directed by OMB guidance, and evaluate how these uncertainties could affect overall estimates of the rule's impacts. We provided EPA with a draft of this report for review and comment. In commenting on the draft report, the Assistant Administrator for Air and Radiation said that, prior to issuing a final mercury regulation by March 15, 2005, EPA will conduct additional analysis that will largely address the findings and recommendations identified in our report. EPA's letter is included as appendix II. As agreed with your offices, unless you publicly announce the contents of this letter earlier, we plan no further distribution until 7 days from the report date. At that time, we will send copies of the report to the EPA Administrator and other interested parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Key contributors to this report are listed in appendix III. Congressional requesters asked us to assess the usefulness of the economic analysis underlying EPA's proposed mercury rule for decision making. To respond to this objective, we, among other things, reviewed EPA's analysis of the proposed rule's economic effects using standard economic principles, OMB guidance, Executive Order 12866, and the Unfunded Mandates Reform Act of 1995. We also discussed the analysis with senior officials within EPA's Office of Air and Radiation responsible for developing the proposed rule and analyzing its economic effects. In doing this work, we did not independently estimate the costs or benefits of the mercury control options, evaluate EPA's process for developing the options, or assess legal issues surrounding the extent to which the options comply with the provisions of the Clean Air Act or its amendments. We took several steps to assess the validity and reliability of computer data underlying EPA's estimates of economic impacts discussed in our findings, including reviewing the documentation and assumptions underlying EPA's economic model and assessing the agency's process for ensuring that the model data are sufficient, competent, and relevant. We also discussed these assumptions and procedures with agency officials responsible for the modeling data. (For the background section of this report, we obtained data on mercury emissions. Because they are used for background purposes only, we did not assess their reliability.) We assessed compliance with internal controls related to the availability of timely, relevant, and reliable information. Our concerns about EPA data and analysis are discussed in the body of this report. We performed our work between May 2004 and February 2005 in accordance with generally accepted government auditing standards. In addition to the individuals named above, Tim Guinane and Michael Hix made key contributions to this report. Kate Cardamone, Jessica Fast, Cynthia Norris, Judy Pagano, Janice Poling, and Amy Webbink also made important contributions.	Mercury is a toxic element that can cause neurological disorders in children. In January 2004, the Environmental Protection Agency (EPA) proposed two options for limiting mercury from power plants, and plans to finalize a rule in March 2005. The first would require each plant to meet emissions standards reflecting the application of control technology (the technology-based option), while the second would enable plants to either reduce emissions or buy excess credits from other plants (the cap-and-trade option). EPA received over 680,000 written comments on the proposal. EPA is directed by statute and executive order to analyze the costs and benefits of proposed rules, and the agency summarized its analysis underlying the two options in the proposal. In this context, GAO was asked to assess the usefulness of EPA's economic analysis for decision making. In doing so, GAO neither independently estimated the options' costs and benefits nor evaluated the process for developing the options or their consistency with the Clean Air Act, as amended. GAO identified four major shortcomings in the economic analysis underlying EPA's proposed mercury control options that limit its usefulness for informing decision makers about the economic trade-offs of the different policy options. First, while Office of Management and Budget (OMB) guidance directs agencies to identify a policy that produces the greatest net benefits, EPA's analysis is of limited use in doing so because the agency did not consistently analyze the options or provide an estimate of the total costs and benefits of each option. For example, EPA analyzed the effects of the technology-based option by itself, but analyzed the effects of the cap-and-trade option alongside those of another proposed rule affecting power plants, the Clean Air Interstate Rule (the interstate rule), without separately identifying the effects of the cap-and-trade option. As a result, EPA's estimates are not comparable and are of limited use for assessing economic trade-offs. EPA officials said they analyzed the cap-and-trade option alongside the interstate rule because the agency views the two proposed rules as complementary. Nonetheless, to provide comparable estimates, EPA would have to analyze each option alone and in combination with the interstate rule. Second, EPA did not document some of its analysis or provide information on how changes in the proposed level of mercury control would affect the cost-and-benefit estimates for the technology-based option, as it did for the cap-and-trade option. Third, EPA did not estimate the value of the health benefits directly related to decreased mercury emissions and instead estimated only some secondary benefits, such as decreased exposure to harmful fine particles. However, EPA has asked for comments on a methodology to estimate the benefits directly related to mercury. Fourth, EPA did not analyze some of the key uncertainties underlying its cost-and-benefit estimates.	5,386	593
Since the 1960s, the United States has used geostationary and polar- orbiting satellites to observe the earth and its land, ocean, atmosphere, and space environments. Geostationary satellites maintain a fixed position relative to the earth from a high orbit of about 22,300 miles in space. In contrast, polar-orbiting satellites circle the earth in a nearly north-south orbit, providing global observation of conditions that affect the weather and climate. As the earth rotates beneath it, each polar-orbiting satellite views the entire earth's surface twice a day. Both types of satellites provide a valuable perspective of the environment and allow observations in areas that may be otherwise unreachable. Used in combination with ground, sea, and airborne observing systems, satellites have become an indispensable part of monitoring and forecasting weather and climate. For example, geostationary satellites provide the graphical images used to identify current weather patterns and provide short-term warning. Polar-orbiting satellites provide the data that go into numerical weather prediction models, which are a primary tool for forecasting weather days in advance--including forecasting the path and intensity of hurricanes. These weather products and models are used to predict the potential impact of severe weather so that communities and emergency managers can help prevent and mitigate its effects. Federal agencies are currently planning and executing major satellite acquisition programs to replace existing geostationary and polar satellite systems that are nearing the end of their expected life spans. However, these programs have troubled legacies of cost increases, missed milestones, technical problems, and management challenges that have resulted in reduced functionality and major delays to planned launch dates over time. We and others--including an independent review team reporting to the Department of Commerce and the department's Inspector General--have raised concerns that problems and delays with environmental satellite acquisition programs will result in gaps in the continuity of critical satellite data used in weather forecasts and warnings. According to officials at NOAA, a polar satellite data gap would result in less accurate and timely weather forecasts and warnings of extreme events, such as hurricanes, storm surges, and floods. Such degradation in forecasts and warnings would place lives, property, and our nation's critical infrastructures in danger. The importance of having such data available was highlighted in 2012 by the advance warnings of the path, timing, and intensity of Superstorm Sandy. Given the criticality of satellite data to weather forecasts, concerns that problems and delays on the new satellite acquisition programs will result in gaps in the continuity of critical satellite data, and the impact of such gaps on the health and safety of the U.S. population, we concluded that the potential gap in weather satellite data is a high-risk area. We added this area to our High-Risk List in 2013 and it remained on the High-Risk List in 2015. NOAA operates a two-satellite geostationary satellite system that is primarily focused on the United States (see figure 1). The GOES-R series is the next generation of satellites that NOAA is planning; the satellites are planned to replace existing weather satellites. The ability of the satellites to provide broad, continuously updated coverage of atmospheric conditions over land and oceans is important to NOAA's weather forecasting operations. NOAA is responsible for GOES-R program funding and overall mission success, and has implemented an integrated program management structure with the National Aeronautics and Space Administration (NASA) for the GOES-R program. Within the program office, there are two project offices that manage key components of the GOES-R system. NOAA has delegated responsibility to NASA to manage the Flight Project Office, including awarding and managing the spacecraft contract and delivering flight-ready instruments to the spacecraft. The Ground Project Office, managed by NOAA, oversees the Core Ground System contract and satellite data product development and distribution. The program estimates that the development for all four satellites in the GOES-R series will cost $10.9 billion through 2036. In 2013, NOAA announced that it would delay the launch of the GOES-R and S satellites from October 2015 and February 2017 to March 2016 and May 2017, respectively. Since 2012, we have issued three reports on the GOES-R program that highlighted management challenges and the potential for a gap in backup satellite coverage. In these reports, we made 12 recommendations to NOAA to improve the management of the GOES-R program. These recommendations included improving satellite contingency plans, addressing shortfalls in defect management, and addressing weaknesses in scheduling practices. The agency agreed with these recommendations. As of October 2015, the agency implemented 4 of these recommendations and is working on the remaining 8 recommendations. For example, NOAA improved its geostationary satellite contingency plan and improved its risk management processes. Also, while NOAA has made progress by improving selected practices, it has not yet fully implemented our recommendation to address multiple weaknesses in its scheduling practices. For example, the agency included subcontractor activities in its core ground schedule, but has not yet provided details showing a realistic allocation of resources. We have ongoing efforts to assess the agency's progress in addressing the open recommendations. In addition to the geostationary satellite constellation, for over 40 years, the United States has operated two separate operational polar-orbiting meteorological satellite systems: the Polar-orbiting Operational Environmental Satellite series, which is managed by NOAA, and the Defense Meteorological Satellite Program (DMSP), which is managed by the Air Force. Currently, there is one operational Polar-orbiting Operational Environmental Satellite (called the Suomi National Polar- orbiting Partnership, or S-NPP) and two operational DMSP satellites that are positioned so that they cross the equator in the early morning, midmorning, and early afternoon. In addition, the government relies on data from a European satellite, called the Meteorological Operational satellite, or Metop. Figure 2 illustrates the current operational polar satellite constellation. A May 1994 Presidential Decision Directive required NOAA and the Department of Defense (DOD) to converge the two satellite programs into a single satellite program--the National Polar-orbiting Operational Environment Satellite System (NPOESS)--capable of satisfying both civilian and military requirements. However, in the years after the program was initiated, NPOESS encountered significant technical challenges in sensor development, program cost growth, and schedule delays. Faced with costs that were expected to reach about $15 billion and launch schedules that were delayed by over 5 years, in February 2010, the Director of the Office of Science and Technology Policy announced that NOAA and DOD would no longer jointly procure NPOESS; instead, each agency would plan and acquire its own satellite system. Specifically, NOAA would be responsible for the afternoon orbit, and DOD would be responsible for the early morning orbit. When this decision was announced, NOAA and NASA began planning for a new satellite program in the afternoon orbit--called JPSS. In 2010, NOAA established a program office to guide the development and launch of the S-NPP satellite as well as the two planned JPSS satellites, known as JPSS-1 and JPSS-2. NOAA's current life cycle cost baseline for the JPSS program is $11.3 billion through fiscal year 2025. The current anticipated launch dates for JPSS-1 and JPSS-2 are March 2017 and December 2021, respectively. More recently, NOAA has also begun planning the Polar Follow-On program, which is to include the development and launch of a third and fourth satellite in the series. These satellites are planned to be nearly identical to the JPSS-2 satellite. Since 2012, we have issued three reports on the JPSS program that highlighted technical issues, component cost growth, management challenges, and key risks. In these reports, we made 11 recommendations to NOAA to improve the management of the JPSS program. These recommendations included addressing key risks and establishing a comprehensive contingency plan consistent with best practices. The agency agreed with these recommendations. As of October 2015, the agency has implemented 2 recommendations and was working to address the remaining 9 recommendations. Specifically, NOAA established contingency plans to mitigate the possibility of a polar satellite data gap and began tracking completion dates for key risk mitigation activities. NOAA also took initial steps to improve its scheduling practices, contingency plans, and assessment of the potential for a gap. We have ongoing work reviewing the agency's efforts to fully implement these open recommendations, and plan to issue our report in spring 2016. As previously noted, we have issued a series of reports on the GOES-R program that highlighted schedule delays, management challenges, and the potential for a gap in backup satellite coverage. In these reports, we found that technical issues had caused a series of delays to major program milestones, which in turn had the potential to affect the GOES-R satellite's launch readiness date. In 2012 and 2013, we made recommendations to NOAA to strengthen its scheduling practices. While the agency is making progress on these recommendations, they have not yet been fully implemented. Most recently, in December 2014, we reported that the GOES-R program had made significant progress in developing its first satellite, including completing testing of the satellite instruments. However, we also reported that even though NOAA had delayed the launch of the GOES-R satellite from October 2015 to March 2016, the program continued to experience schedule delays that could affect the new launch date. Specifically, the program had delayed multiple key reviews and tests, with delays ranging from 5 to 17 months. We also reported that the program's actions to mitigate its schedule delays introduced further risks, which could increase the extent of the delays. For example, the program attempted to mitigate delays in developing detailed plans for ground-based data operations by performing system development while concurrently working on the detailed plans. In addition, the program compressed its testing schedule by performing spacecraft integration testing 24-hours-a-day, 7-days-a- week. As we reported previously, methods such as conducting planning and development work concurrently and compressing test schedules are activities that increase the risk of further delays because there could be too little time to resolve any issues that arise. At the time of our report, program officials acknowledged that they could not rule out the possibility of further delays, and that these delays could affect the planned March 2016 launch date. Other entities, including a NOAA standing review board and the Department of Commerce's Inspector General, shared these concerns. In late 2014, NOAA's standing review board noted that the program's plan for the remaining integration and testing activities was very aggressive, and that additional failures and subsequent rework could threaten the then-expected planned launch date in early 2016. In May 2015, the Inspector General expressed concerns about the program's lagging progress and reported that the program needed to proactively address testing risks in order to maintain its launch schedule. Based on information collected during our ongoing work, these prior concerns about the program schedule were warranted. The program continued to experience poor schedule performance as it moved through integration and testing. Program data show that the program lost more than 10 days of schedule reserve each month, on average, between July 2013 and July 2015. When asked about this poor schedule performance, program officials stated several reasons, including the complexity of the satellite build, the difficulties faced as part of a first-time build, and that the testing schedule was extremely aggressive. The monthly loss in margin occurred even though the program introduced steps designed to minimize a loss in reserves, such as switching to round-the-clock testing, eliminating selected tests, and implementing process and management changes. In October 2015, program officials reported that schedule performance improved for the month of September. In August 2015, NOAA decided to delay the planned launch date of the first GOES-R satellite from March 2016 to October 2016. While previously reported schedule delays contributed to this decision by decreasing the overall amount of available schedule reserves, program officials noted several other reasons for this decision. These reasons included finding debris in the solar array drive assembly that required them to replace the component, needing additional spacecraft repair and rework after testing was completed, and resolving disconnects in the expected duration of tasks at the launch site. NOAA also considered the likelihood of future delays in thermal vacuum testing, which is considered to be one of the more difficult environmental tests. NOAA officials stated that they chose the new launch date because it was the next available launch slot at the Kennedy Space Center and was consistent with expectations on when the GOES-R satellite would be ready to launch. Based on findings from our ongoing work, recent events have increased the risk of achieving the October 2016 launch date. In September 2015, NOAA identified a new technical issue in a component that helps regulate and distribute the satellite's power supply. To try to address this issue, the GOES program replaced the component on the GOES-R satellite with the same component from GOES-S, the next satellite in the series. The program has experienced delays as a result of the need to replace and retest this component, and it is not yet clear that this switch will address the problem. According to a recent NOAA review of the program, this issue, along with several other issues discovered in testing, has put the new October 2016 launch date at risk. In late 2015, NOAA officials plan to reassess the schedule leading up to the planned launch date. Program officials stated that if GOES-R does not launch in October 2016, another launch slot would likely be available by May 2017. NOAA's policy for geostationary satellites is to have two operational satellites and one backup satellite in orbit at all times. Three viable GOES satellites--GOES-13, GOES-14, and GOES-15--are currently in orbit. Both GOES-13 and GOES-15 are operational satellites, with GOES-13 covering the eastern United States (GOES-East in figure 1, on page 4) and GOES-15 covering the western United States (GOES-West in figure 1). GOES-14 is currently in an on-orbit storage mode and is available as a backup for the other two satellites should they experience any degradation in service. As we previously reported, this backup policy proved useful on two previous occasions when the agency experienced problems with one of its operational satellites, and was able to move its backup satellite into place until the problems had been resolved. Based on ongoing work, we found that NOAA recently decided to change its assumptions about the lifespan of the currently operational GOES satellites. The satellites were originally designed to have a 7-year life, consisting of 5 operational years and 2 years in storage. NOAA officials stated that, in April 2015, the agency revised its expectations for the total life for the GOES-13, GOES-14, and GOES-15 satellites to 10 years (including both operational and storage years). On October 21, 2015, the Deputy Assistant Administrator for Systems in NOAA's National Environmental Satellite, Data, and Information Service informed us that the decision to change the lifespan was based on an analysis performed in 2005 that showed a 3-year extension was reasonable. At that time, NOAA chose to continue to depict the shorter lifespan due to its judgment of overall risk. The Deputy Assistant Administrator stated that in spring 2015, NOAA determined that it had sufficient history and performance on the GOES-13 and 15 satellites to begin reflecting the 10-year lifespan in its planning documents. This change had the effect of increasing the expected life of GOES-13 and GOES-15 from the previous estimate, and slightly decreasing the expected life of GOES-14. Figure 3 shows the original and extended estimates of the useful lives of the geostationary satellite constellation. If NOAA had not made the decision to extend its expectation of the useful life of GOES-15, the recent delay in the GOES-R launch could have put NOAA at risk of a coverage gap in early 2017. With the change in assumptions, NOAA officials now expect that there will be coverage of the GOES-East and West satellite positions through 2019 regardless of when the GOES-R series of satellites are available. However, the risk of a gap in backup satellite coverage remains. In December 2014, we reported that the geostationary satellite constellation was at risk of a gap in backup coverage, based on the GOES-R launch date of March 2016. This risk is increased by moving the launch date to October 2016 or later. The GOES-13 satellite, which has experienced issues with 4 of 11 subsystems and had previously been taken offline twice, is still expected to reach the end of its useful life in mid-2016. If GOES-R were to launch in October 2016, and then undergo a 6-month on-orbit checkout period, it would begin operations in April 2017, close to a year after the expected end of GOES-13's useful life. Figure 4 shows the backup gap based on current assumptions of satellite life. Any further delays in the GOES-R launch date would increase this gap in backup coverage, which could mean a gap in coverage if one of the primary operational satellites were to fail. NOAA now faces a series of significant decisions on the development, launch, and maintenance of its GOES-R series satellites. Based on our ongoing work, these decisions include the following: Determine how to manage schedule risks to ensure GOES-R launches on schedule. NOAA and the GOES program continue to experience issues in completing integration and testing of the GOES-R satellite. NOAA officials have stated that the program was still losing about 10 reserve days per month through August 2015. As of September 2015, the program had 113 days of schedule reserve, which is 43 days more than suggested by NASA's guidelines. Program officials expect the monthly loss of schedule reserve to decrease because they are using more realistic estimates of how long tasks will take based on past performance. However, given the potential for a gap in backup coverage leading up to the time that GOES-R is in orbit and operational, NOAA continues to look for ways to minimize remaining schedule risks on the GOES-R satellite. As previously noted, we made recommendations to NOAA in 2012 and 2013 to improve schedule management practices; these recommendations remain open today. Timely implementation of our recommendations could help to mitigate program risks. Determine when GOES-S should be launched. NOAA's current plans to launch GOES-R in October 2016 and to launch GOES-S in May 2017 would allow 7 months between launch dates. However, NOAA officials would prefer to maintain a 14-month interval between the launch dates of these two satellites. Officials have stated that this interval is necessary due to the limited number of qualified personnel that work to develop both satellites, the need to rebuild the hardware planned for GOES-S that will now be used on GOES-R, and to allow adequate time for test and checkout of the GOES-R satellite before launching GOES-S. In late 2015 or early 2016, NOAA plans to conduct a detailed schedule analysis on GOES- S development. From this analysis, NOAA plans to decide whether to move the GOES-S planned May 2017 launch date to a later time. Decide the appropriate spacing of the GOES-T and GOES-U satellite launches to ensure satellite coverage and minimize costs. In addition to GOES-R and GOES-S, NOAA has established planned launch dates for the final two satellites in the GOES-R series. GOES- T is planned for launch in April of 2019, and GOES-U is planned for launch in October 2024. Key questions exist about the optimal timing for these later satellites. Program officials believe that it would be best to develop and launch the GOES-T satellite as soon as possible to sustain NOAA's policy of having two operational satellites and one spare satellite on-orbit and to obtain the enhanced functionality these satellites offer. NOAA officials are considering options related to delaying the development of the GOES-U satellite or developing it and putting it into storage. Alternatively, delaying the development of GOES-T and GOES-U could result in cost efficiencies. For example, if the GOES-R and S satellites last for a minimum of 10 years, NOAA could be in the position of storing GOES-U on the ground for an extended time. NOAA officials stated that they would consider a later launch date for GOES-U depending on the health of the satellite system when it is due to launch. Storing satellites on the ground is costly and requires maintenance to ensure the satellites function once finally launched. Delaying the development of GOES-U would both reduce storage costs and delay annual costs associated with these satellites' development. Moving forward, thoroughly assessing the relative costs and benefits of various launch scenarios will be important. In December 2014, we reported that the JPSS program had completed significant development work on the JPSS-1 satellite and had remained within its cost and schedule baselines. However, we noted that the program had encountered technical issues on a key component that led to cost growth and a very tight schedule. We also noted that while the program reduced its estimate of a near-term gap in satellite data, this gap assessment was based on incomplete data. We recommended that NOAA update its assessment of potential polar satellite data gaps to include more accurate assumptions about launch dates. We also assessed NOAA's efforts to improve its satellite contingency plan and to implement mitigation activities. Specifically, we reported that while NOAA improved its polar satellite contingency plan by identifying mitigation strategies and actions, the contingency plan had shortfalls when compared to best practices. For example, the plan did not include an assessment of available mitigation alternatives based on their cost and impact. Moreover, NOAA was not providing consistent or comprehensive reporting of its progress on all mitigation projects. As a result, NOAA had less assurance that it was adequately prepared to deal with a gap in polar satellite coverage. We recommended that NOAA revise the polar satellite contingency plan to, among other things, include an assessment of available alternatives based on their costs and potential impacts, and ensure that the relevant entities provide monthly and quarterly updates on the progress on all mitigation projects and activities. We currently have ongoing work for your Committee assessing NOAA's efforts to address each of these recommendations, and we plan to report our results by spring 2016. Based on our ongoing work, NOAA and the JPSS program continue to make progress towards the launch of the JPSS-1 satellite as a replacement for the currently on-orbit S-NPP satellite. Since 2013, the program's life cycle cost baseline through 2025 has remained stable at $11.3 billion, and the launch date has remained set for March 2017. While the launch date has not changed, the JPSS program has experienced technical issues that have affected internal schedule deadlines. For example, the expected completion date of the Advanced Technology Microwave Sounder instrument was recently delayed from March 2015 to November 2015, due to foreign object debris in a key subsystem. NOAA has also experienced delays in completing a needed upgrade that will allow the JPSS ground system to provide command, telemetry, and data processing for more than one JPSS-class satellite, a capability that will become necessary when both S-NPP and JPSS-1 are in orbit. In addition to these ongoing technical issues, there is the possibility of conflicts with the GOES-R program for both resources and facilities as both programs complete testing at the NOAA Satellite Operations Facility. NOAA officials stated that they are aware of this issue and are taking steps to mitigate needs for common resources. We previously reported that NOAA is facing a potential near-term gap in polar data between the expected end of useful life of the S-NPP satellite and the launch of the JPSS-1 satellite. As of December 2014, NOAA officials stated that a 3-month gap was likely based on an analysis of the availability and robustness of the polar constellation. However, we reported that several factors could cause a gap to occur sooner and last longer--potentially up to several years. For example, if S-NPP were to fail today--exactly 4 years after its launch--the agency would face a gap of about 23 months before the JPSS-1 satellite could be launched and put into operation. Concerns about a near-term gap will remain until the JPSS-1 satellite is launched and operational. Further, if JPSS-1 fails on launch, there could be a gap until JPSS-2 is launched and operational in mid-2022. In April 2015, based on an updated analysis of its performance over time, NOAA decided to extend the expected life of the S-NPP satellite. Specifically, NOAA officials estimated that S-NPP would last as long as 9 years, up from its initial estimate of 5 years. Should S-NPP last for 9 years, it could alleviate a potential near-term gap. NOAA provided us with an assessment of the S-NPP satellite's availability over time, and we have ongoing work analyzing the assessment. Figure 5 shows the original and extended estimates of the useful lives of the S-NPP and first two JPSS satellites. While NOAA's changes in assumptions on how long S-NPP will last may lessen the likelihood of a near-term data gap, our ongoing work shows that the JPSS program continues to face key risks which could increase the possibility of a gap. Risks to the currently on-orbit satellite: The S-NPP satellite continues to experience isolated performance issues. For example, a mechanical component that facilitates the collection of sounding data on the S-NPP Advanced Technology Microwave Sounder instrument experienced electrical currents that were higher than expected in early 2015. While program officials believe that the issue has been addressed, the JPSS program is carrying it as a risk because it could affect the satellite's useful life. There is also a risk that space debris could collide with S-NPP, which will not factor into NOAA availability calculations until its 2015 analysis is complete. Risks to satellites in development: As discussed above, the JPSS program is currently dealing with technical issues on both the flight and ground components of the JPSS-1 satellite which have caused schedule delays and decreased the remaining margin to launch. In addition, NOAA switched to a new spacecraft contractor beginning with the JPSS-2 satellite. With a new contractor, it may be more difficult to apply lessons learned from issues in JPSS-1 development if similar issues arise on JPSS-2. Moving forward, NOAA also faces decisions on timing the development and launch of the remaining satellites in the JPSS program. The design life of the JPSS satellites is 7 years and NOAA plans, beginning with JPSS-2, to launch a new satellite every 5 years in order to achieve a robust constellation of satellites. However, NOAA officials stated that they expect the satellites to last 10 years or more. If the satellites last that long, then there could be unnecessary redundancy. If they do not, then there is an increased potential for future gaps in polar satellite coverage, as there will be several periods in which only one satellite is on orbit. Similar to its geostationary program, evaluating the costs and benefits of different launch scenarios to ensure robust coverage while decreasing unnecessary costs will be important. In summary, we have made multiple recommendations to NOAA to improve management of the GOES-R and JPSS satellite programs and to address weaknesses in contingency plans in case of a gap in satellite coverage. NOAA has addressed about a quarter of our recommendations to date; it is important that the agency expedite its efforts to address the remaining ones in order to reduce existing risks and strengthen its programs. NOAA recently decided to delay the GOES-R satellite launch until October 2016 and to change its assumption for how long the currently operational satellites will last. Even with the new assumption that existing satellites will last longer, the risk remains that there will be a gap in backup satellite coverage that lasts for almost a year. The agency is now facing important decisions on how to achieve the new launch schedule and how to space out future satellites to ensure satellite coverage while minimizing costs. Regarding the JPSS program, NOAA continues to make progress developing and testing the JPSS-1 satellite as it moves toward a March 2017 launch date. Moreover, NOAA decided to extend its expectation for how long the current satellite will last. However, there is the potential for a coverage gap should the currently on-orbit satellite not last until the launch and calibration of the JPSS-1 satellite is completed. According to NOAA officials, it is also possible that JPSS-1 and -2 will last longer than anticipated. Moving forward, reconsidering development and launch calendars to ensure robust satellite coverage while decreasing unnecessary costs will be important. Chairmen Bridenstine and Loudermilk, Ranking Members Bonamici 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 have any questions on matters discussed in this testimony, please contact David A. Powner at (202) 512-9286 or at [email protected]. Other contributors include Colleen Phillips (assistant director), Christopher Businsky, Shaun Byrnes, Kara Lovett Epperson, Rebecca Eyler, and Torrey Hardee. 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.	NOAA is procuring the next generation of polar and geostationary weather satellites to replace aging satellites that are approaching the end of their useful lives. GAO has reported that gaps in polar satellite coverage and in backup coverage for geostationary satellites are likely in the near future. Given the criticality of satellite data to weather forecasts, concerns that problems and delays on the new satellite programs will result in gaps in the continuity of critical satellite data, and the impact such gaps could have on the health and safety of the U.S. population, GAO added mitigating weather satellite gaps to its High-Risk List in 2013 and it remained on the list in 2015. GAO was asked to testify, among other things, on the cause and impact of a recent launch delay on the GOES-R program, and the status and key remaining challenges on the JPSS program. To do so, GAO relied on prior reports issued from 2012 to 2015 as well as on ongoing work on both programs. That work included analyzing progress reports and interviewing officials. The National Oceanic and Atmospheric Administration's (NOAA) $10.9 billion Geostationary Operational Environmental Satellite-R (GOES-R) program recently delayed the planned launch of the first satellite in the new series from March 2016 to October 2016. Based on its ongoing work, GAO found that the decision to delay the launch was due to poor schedule performance over the last few years (losing more than 10 days a month on average), recent technical issues with key components, and little schedule margin as the program entered integration testing. The October 2016 launch date may also be delayed if additional technical challenges arise or if schedule performance remains poor. NOAA recently changed assumptions about the expected lifespan of existing GOES satellites from 7 to 10 years based on the longevity of prior satellites. However, the analysis supporting this change is over 10 years old. Even with this extension, NOAA may fall short of its policy of having 2 operational satellites and 1 backup satellite in orbit. The agency faces an 11 month gap in backup coverage until GOES-R is operational, during which time there would be only 2 operational satellites (see figure). Any further delays in the GOES-R launch date could exacerbate that gap. NOAA is now facing important decisions on when to launch the remaining satellites in the GOES-R series to maximize satellite coverage while minimizing development and storage costs. Based on its ongoing work, GAO found that NOAA's $11.3 billion Joint Polar Satellite System (JPSS) program is making progress toward the planned launch of the JPSS-1 satellite in March 2017. However, the program has experienced technical issues that have affected internal schedule deadlines, such as an issue with debris in an instrument's subsystem that delayed its delivery by approximately 8 months, and faces key risks in the remainder of development. NOAA is also facing the risk of a potential near-term gap in polar data prior to the launch of the JPSS-1 satellite. Similar to the decision on the GOES satellites, in April 2015, NOAA revised its assumptions about the expected life of the satellite that is currently in-orbit by adding up to 4 years, which would reduce the chance of a near-term gap. However, risks to the performance and health of the on-orbit satellite, and to development of the JPSS2 satellite could increase the risk of a gap. Also, NOAA faces key decisions on timing the development and launch of the remaining JPSS satellites to ensure satellite continuity while balancing the possibility that satellites could last much longer than anticipated. GAO is not making any new recommendations in this statement, but--since 2012--has made 23 recommendations to NOAA to strengthen its satellite acquisition programs and contingency plans. The department agreed with GAO's recommendations and is taking steps to implement them. To date, NOAA has implemented 6 recommendations and is working to address the remaining 17. Timely implementation of these recommendations will help mitigate program risks.	6,505	860
DOE invests in a wide range of civilian R&D programs that are managed by five program offices within the Office of the Under Secretary for Science and Energy, or by ARPA-E, which reports directly to the Secretary of Energy. These offices have the goal of enhancing U.S. security and economic growth through transformative scientific and technological innovation, and through market solutions to overcome science, energy, and environmental challenges that the United States faces. These program offices and ARPA-E fund R&D that is conducted by DOE national laboratories, universities, industry, nonprofit organizations, state governments, and other federal laboratories. Each program office and ARPA-E may fund R&D at any of the national laboratories. For example, the Office of Science funds civilian R&D at all 17 of DOE's national laboratories, including the national laboratories sponsored by the National Nuclear Security Administration (NNSA). Similarly, national laboratories may receive funding from any of the program offices and ARPA-E, as well as from other governmental agencies and nongovernmental entities. The five program offices and ARPA-E fund and oversee civilian R&D that aligns with their missions, as described below: The Office of Electricity Delivery and Energy Reliability's mission is to strengthen, transform, and improve U.S. electricity infrastructure and to provide leadership to ensure that U.S. energy delivery systems are secure, resilient, and reliable. The office does not oversee a national laboratory but it is supported by staff located at the Office of Fossil Energy's National Energy Technology Laboratory. The Office of Energy Efficiency and Renewable Energy's mission is to create and sustain American leadership in the transition to a global clean energy economy. The office oversees the National Renewable Energy Laboratory in Colorado. The Office of Fossil Energy's primary mission is to ensure reliable fossil energy resources for clean, secure, and affordable energy while enhancing environmental protection. The office oversees the National Energy Technology Laboratory--with locations in Oregon, Pennsylvania, and West Virginia--which is the only DOE national laboratory operated by the government rather than a contractor. The Office of Nuclear Energy's primary mission is to advance nuclear power as a resource capable of meeting the nation's energy, environmental, and national security needs by resolving technical, cost, safety, proliferation resistance, and security barriers. The office oversees the Idaho National Laboratory. The Office of Science's mission is to deliver scientific discoveries and major tools that transform our understanding of nature and advance the energy, economic, and national security in the United States. This office is the nation's single largest funding source for basic research in the physical sciences, and supports research in energy sciences, advanced scientific computing and other fields. The office oversees 10 of DOE's national laboratories. ARPA-E's mission is to sponsor high-potential, high-impact energy technologies that are considered too early for private-sector investment. ARPA-E does not oversee a national laboratory. Of the five program offices noted above, four consist of several types of offices that manage and oversee DOE's R&D investments; these four are the offices of Energy Efficiency and Renewable Energy, Fossil Energy, Nuclear Energy, and Science. First, each of these program offices has a headquarters office in the Washington, D.C. area that includes senior leadership and that may include offices that provide support across the program office, such as policy development and oversight, budget, public relations and congressional outreach, and technical assistance programs as well as other administrative and support units. According to DOE officials, the extent to which staff functions are centralized in headquarters offices varies across program offices. Second, the program offices include research offices, generally collocated with headquarters offices, that manage particular scientific areas and research portfolios and provide strategic direction for these areas. For example, the Office of Science includes six research offices that steward different scientific areas. Third, the program offices have site offices--collocated with each national laboratory--that manage the laboratory contracts, oversee federal facilities at the laboratories and, in some cases, manage financial assistance awards to universities and industry, as well as other contracts. ARPA-E and the other program office--the Office of Electricity Delivery and Energy Reliability--make smaller R&D investments, have significantly fewer staff, and do not oversee a national laboratory. As a result, they are organized differently from the other four program offices. According to an ARPA-E official, all ARPA-E staff are located at a central office, and research projects are organized around individual program directors. In the case of the Office of Electricity Delivery and Energy Reliability, the office has one suboffice that is dedicated to research and development; other suboffices are dedicated to regulatory or coordination functions. Figure 1 lists ARPA-E and the five program offices we reviewed, along with research offices and site offices within those program offices. Figure 2 shows the locations of the 13 national laboratories that primarily conduct civilian R&D under the oversight of the program offices we reviewed. This figure does not include the 4 other DOE national laboratories that may also conduct civilian R&D for the offices we reviewed. Of the 13 national laboratories that primarily focus on civilian R&D for DOE, 12 are owned by the federal government and are operated by management and operating (M&O) contractors. The R&D funded by DOE is carried out under the department's direction and is managed by scientists, engineers, and others employed by the laboratory contractor. The remaining national laboratory--the National Energy Technology Laboratory--is operated by DOE. Therefore, the scientists and engineers who conduct the R&D at this laboratory are primarily federal employees. In addition to M&O contracts that DOE enters into for the operation of the national laboratories, DOE program offices and ARPA-E provide financial assistance--primarily grants and cooperative agreements--to support R&D at universities, industry, and other entities. Under the Federal Grant and Cooperative Agreement Act, an agency is to use a grant agreement when the principal purpose of the relationship is to transfer a thing of value to the recipient to carry out a public purpose authorized by law, and substantial involvement by the agency is not expected. For grants, an agency's involvement is essentially administrative, and includes standard federal stewardship responsibilities such as reviewing performance to ensure that the objectives, terms, and conditions of the grant are met. In contrast, cooperative agreements differ from grants in that an agency expects to be substantially involved in the project through tasks such as reviewing and approving one stage of a project before work can begin on a subsequent stage. The three program offices we selected for detailed review--the offices of Energy Efficiency and Renewable Energy, Nuclear Energy, and Science--use various activities to oversee DOE civilian R&D investments in national laboratories, universities, industry, and other entities: these investments totaled $7.36 billion in obligations in fiscal year 2015. The activities these three offices used included activities to: identify research priorities and help determine where to invest in R&D, help ensure that national laboratories conduct R&D in alignment with DOE priorities and that M&O contractors manage the research and federally owned properties at the laboratories safely and efficiently, and help ensure that universities, industry, and other entities are meeting research goals as defined in financial assistance agreements. For all investments, including those in DOE's national laboratories, universities, industry, and other entities, the three selected program offices engage in activities to obtain input from multiple sources to identify research priorities and to help inform where DOE invests in R&D. To help identify specific research priorities, these three program offices review objectives established in the DOE strategic plan and other DOE documents, such as the Quadrennial Energy Review and the Quadrennial Technology Review. These DOE documents are in turn influenced by national policies such as the President's Climate Action Plan of 2013. For example, one of the objectives of DOE's strategic plan is to advance sustainable hydropower technologies in order to help double renewable energy generation in the United States between 2012 and 2020, a goal of the President's Climate Action Plan. Additionally, the program offices hold scientific and technical workshops with the scientific community--scientists and researchers in universities, industry, and government--to help identify priority research areas that, if supported, could contribute to overcoming barriers to advancing particular energy technologies. For example, the Office of Nuclear Energy sponsored a series of workshops in 2015 that sought to identify ideas for advancing nuclear energy technologies. Furthermore, the program offices have established federal advisory committees that provide expert input on particular knowledge gaps or infrastructure needs at the national laboratories. For example, in 2014 a panel of the federal advisory committee for the High Energy Physics research office issued a long-term plan for supporting particle physics, including recommending upgrades at a number of accelerator facilities, such as at the Fermi National Accelerator Laboratory. DOE program offices also engage in other activities to help develop research priorities, such as attending conferences, regularly reviewing published literature, regularly meeting with national laboratory staff, and engaging with interagency working groups. In addition, according to DOE officials, new ideas often come from the scientific community in the form of proposals submitted in response to solicitations from the program offices. To help ensure that DOE civilian R&D investments in national laboratories ($5.14 billion in obligations in fiscal year 2015) align with DOE priorities, and that M&O contractors manage research and federally owned properties safely and efficiently, the offices of Energy Efficiency and Renewable Energy, Nuclear Energy, and Science carry out three broad types of activities for their respective national laboratories. We identified these activities through reviews of DOE documents and interviews with officials from DOE's program offices and site offices. First, the three program offices conduct planning activities to help ensure that DOE investments in the laboratories support national R&D priorities. For example, the program offices require that each M&O contractor that operates a national laboratory develop a long-term strategic plan for its laboratory. The DOE program offices and the relevant site office staff review the plans and provide feedback to the laboratory contractor. These plans can identify the laboratory's vision for the future, core capabilities, major initiatives, and laboratory infrastructure needs, among other things. The three program offices conduct this process with their laboratories on an annual basis. Complementary to this, program offices may also develop their own strategic planning documents. For example, within the Office of Energy Efficiency and Renewable Energy, research offices develop strategic "roadmaps" that establish a vision with broad and long- range goals to provide overall program direction. Some offices also develop multi-year program plans, which are operational guides for how research offices will manage their activities. Second, research offices and site offices conduct various oversight activities of the new and ongoing R&D projects and scientific facilities that DOE invests in at the national laboratories. As of the beginning of fiscal year 2016, the offices of Energy Efficiency and Renewable Energy, Nuclear Energy, and Science supported and oversaw 32 designated user facilities that were primarily located at national laboratories. A designated user facility is a federally sponsored research facility available for external use to advance science or technology. These facilities are open to researchers and scientists without regard to nation of origin or institutional affiliation. Potential users may be allocated time in the facilities after a merit review of the proposed work. Users of the facilities are not charged a fee if they publish research results in open literature; for proprietary work that is not disclosed publicly, the user is charged full cost recovery. Each of these designated user facilities represents a significant investment of federal funds. For example, according to DOE documents, the Advanced Photon Source, one of four designated user facilities at the Argonne National Laboratory in fiscal year 2015, was completed in 1995 at a cost of $812 million. Since then, DOE has funded more than $100 million in upgrades. The facility produces x-rays that allow scientists to conduct research on the structure and function of materials--for example, to aid in the development of new pharmaceuticals. Research offices solicit research proposals from national laboratories. This proposal solicitation helps the offices determine where to invest DOE funds. The national laboratories submit work proposals for new and ongoing projects, and research office staff review these proposals and hold merit reviews--often with outside experts-- to help determine which laboratory projects to invest in. According to information provided by the Office of Science, research offices conduct in-depth merit reviews for new laboratory work proposals, and most research offices review about one-third of ongoing laboratory projects each fiscal year; these reviews generally consist of three or more individual peer reviewers. For example, according to the Basic Energy Sciences research office, which is one of the Office of Science's six research offices, in fiscal year 2015 research office staff reviewed approximately 132 of 395 ongoing laboratory projects, in addition to 64 new work proposals. Research office staff monitor project performance. These staff conduct this monitoring through other periodic reviews, site visits, and regular meetings or phone calls with laboratory management and project staff, according to DOE officials. DOE officials told us that a significant portion of research office activities involved overseeing the large number of ongoing projects at the national laboratories. For example, according to information provided by the Office of Science, in fiscal year 2015, its research office staff oversaw more than 1,600 new or ongoing projects that received $3.67 billion in obligations that fiscal year. Project size, risk, technological maturity, and other factors can influence how often research office staff review these laboratory projects or meet with project staff. For example, according to officials in the Office of Nuclear Energy, contractors must submit quarterly project reports, and the office holds formal monthly reviews in which laboratory projects are evaluated against performance metrics. Likewise, for Office of Science construction projects, research offices collaborate with site office staff and review projects to ensure they meet their technical, cost, scope and schedule milestones, according to DOE officials. Site offices ensure that laboratory M&O contractors meet contract requirements. For example, one such requirement is that the contractor have a contractor assurance system to oversee its performance and to self-identify and correct potential problems. Each M&O contractor must establish a contractor assurance system that includes management systems and processes to generate the information needed to manage and improve the contractors own performance. Site office staff are responsible for reviewing, monitoring, and assessing the effectiveness of the system to ensure it is working and meets contract requirements. A contractor assurance system also allows site office staff to monitor the contractors own internal assessments and reviews, thereby reducing the number of reviews that the site office otherwise might conduct. For example, Argonne site office officials told us that the Argonne National Laboratory M&O contractor self-identified and corrected a radiation inventory problem at a laboratory building and kept site office staff informed of laboratory actions. Site office staff conduct independent and joint reviews. These staff conduct their own independent reviews, as well as joint reviews with contractor staff, of laboratory facilities to ensure federal properties are being managed safely and efficiently. For example, according to information provided by the Golden Field Office, in fiscal year 2015, site office staff conducted 366 safety and health reviews at the National Renewable Energy Laboratory. Examples of these reviews include construction project safety inspections; laboratory inspections, readiness verifications, compliance visits, and risk assessments of the laboratory safety and health programs; and assessment of lab performance. Site office staff also conducted hundreds of other reviews in areas such as environmental oversight, physical and cyber-security, and financial oversight. Site offices are responsible for administering the M&O contracts. This responsibility includes taking actions such as modifying the contract to add funding for laboratory work or to incorporate new applicable directives from DOE and the Office of Management and Budget. According to site office staff we interviewed, the incorporation of new directives into an M&O contract is an ongoing effort that requires coordination with the contractor and often negotiation about the terms added to the contract. For example, according to officials at one site office, to address a new DOE order that called for particular safety management procedures at DOE facilities, officials tailored the contract so that the new contract language would apply to only the scientific user facility with the highest risk at the laboratory--this action reduced the number of safety management procedures required of the contractor while complying with the new order. Site offices must have specific staff to oversee construction and upgrades. These staff--referred to as federal project directors-- oversee the construction of any new scientific facilities or upgrades to existing facilities. These federal project directors also may be assigned from a site office or from the Office of Science's Integrated Support Center to a project site other than a national laboratory. For example, according to DOE officials, a federal project director at the Integrated Support Center is responsible for overseeing construction of the Facility for Rare Isotope Beams at Michigan State University, a $730 million project. Site offices may conduct other activities to provide centralized support to other site offices and the larger program office. Areas of support include intellectual property and other legal services, procurement, human resources, information technology, and safety and security. Within the Office of Science, many of these activities are provided by the Integrated Support Center. The Idaho Operations Office and the Golden Field Office provide many of these services to the Office of Nuclear Energy and the Office of Energy Efficiency and Renewable Energy, respectively. Third, at the end of each fiscal year, program offices use a performance evaluation and measurement plan to assess each laboratory contractor's scientific, technological, managerial, and operational performance. The plan is developed collaboratively by the responsible program office, including the site office, and the laboratory M&O contractor before each fiscal year, and it helps form the basis for the evaluation of the laboratory contractor at the end of the year. Research office staff are responsible for evaluating laboratory mission-related areas of the plan, including the contractor's ability to deliver science and technology to meet DOE missions. Site office staff evaluate the contractor's operations at the laboratory, including the use of the contractor assurance system, according to DOE documents and officials. Results from this performance evaluation inform the contractor's award fee determination as well as the possibility of earning additional years on the contract through an award term extension. The offices of Energy Efficiency and Renewable Energy, Nuclear Energy, and Science use various processes to help oversee DOE's civilian R&D investments in universities, industry, and other entities ($2.22 billion in obligations in fiscal year 2015). Research office staff in these three program offices develop solicitations--also referred to as funding opportunity announcements--for R&D proposals from universities, industry, and other entities. They then conduct or manage merit reviews of submitted proposals, an activity that generally includes independent reviews from technical, subject matter experts. Research office staff identify and recruit teams of experts for these merit reviews. According to DOE officials, program managers take these expert reviews into consideration, along with factors such as portfolio balance and available funds, before making funding recommendations to DOE leadership. According to data provided by DOE, research office staff in the five program offices and ARPA-E conducted or managed more than 6,600 proposal reviews--with reviews consisting of as many as 3 or 4 individual reviewers--to select 1,691 new financial assistance awards in fiscal year 2015. In addition to overseeing new proposals from universities and industry, research office staff oversee thousands of projects that were awarded in previous years, also known as continuing awards. As shown in table 1 below, in fiscal year 2015, DOE research offices oversaw 4,921 continuing awards (projects). Research offices may oversee projects differently, depending on factors such as the maturity of the science or technology, the size and complexity of the work, the size and makeup of the awardees (single institution vs. multi-institution), and the risk of the project, according to DOE officials. Research office staff tailor the level of oversight to the size, scope, and complexity of the project to ensure awardees are meeting research goals as defined in the proposal award agreement. Office of Science officials told us they generally receive annual reports from awardees and have annual project reviews for small financial assistance awards. These officials told us that for larger and more complex grants and cooperative agreements, there may be significantly more oversight, such as through a greater frequency of meetings and progress reports. The Office of Energy Efficiency and Renewable Energy and the Office of Nuclear Energy, which primarily invest in applied research and development projects, typically use cooperative agreements instead of grants, as cooperative agreements allow substantial federal involvement in the projects to help ensure that projects meet specific program office technology goals. These program offices may use a range of oversight activities to help ensure projects succeed. For example, according to Office of Energy Efficiency and Renewable Energy officials, program and project managers follow guidance that requires quarterly project reviews, annual site visits, frequent in-person meetings, and bi-annual peer reviews of the entire project portfolio--a more active management and oversight level than required for small grants. In addition, all financial assistance projects in the Office of Energy Efficiency and Renewable Energy are required to meet certain milestones, and projects that do not meet these milestones could lose funding. To complement project oversight by research office staff, site office staff provide administrative support for financial assistance awards. Specifically, the Golden Field Office in the Office of Energy Efficiency and Renewable Energy, the Idaho Operations Office in the Office of Nuclear Energy, and the Integrated Support Center in the Office of Science administer awards through activities such as preparing solicitations, negotiating award terms with recipient institutions, and closing out awards, among other things. According to information provided by these program offices, in fiscal year 2015, the offices managed $1.82 billion in obligations for thousands of new and continuing financial assistance awards. DOE officials indicated that financial assistance awards that did not receive obligations also required support. For example, according to information provided by the Office of Energy Efficiency and Renewable Energy, in addition to managing obligations for new and continuing financial assistance awards in fiscal year 2015, the Golden Field Office administered another 1,625 awards that had previously received obligations as well as awards that were completed and were in the process of closing out. From fiscal year 2011 to fiscal year 2015, DOE staffing levels for oversight of civilian R&D investments declined by 11.0 percent, while obligations for the civilian R&D that the staff oversaw increased by 3.8 percent. The obligations for staff costs of DOE oversight of civilian R&D increased by 2.4 percent overall from fiscal year 2011 to fiscal year 2015, and these costs varied among the five program offices and ARPA-E. DOE obligations for staff costs decreased 4.0 percent over this period when adjusted for inflation. From fiscal year 2011 to fiscal year 2015, DOE staffing levels for oversight of civilian R&D--including staff in the five DOE program offices and ARPA-E--declined from 2,937 to 2,613 full-time equivalent employees, a decrease of 11.0 percent. Four of the five DOE program offices accounted for the entire decline in staffing levels. In contrast, ARPA-E staffing levels increased over this period as the agency expanded (see fig. 3 below). Appendixes I and II present further data on staffing levels in the five program offices and ARPA-E, as well as data on staff costs and R&D obligations. According to information provided by DOE, a number of factors contributed to staffing level declines. For example, according to information provided by the Office of Energy Efficiency and Renewable Energy, the completion of projects associated with the American Recovery and Reinvestment Act (ARRA) resulted in a reduction in staff brought on board to manage these projects. Other offices attributed changes in staffing to causes such as budgetary pressures and voluntary separation programs. One site office we visited reported that as employees left or retired, the office did not fill open billets; instead, the office spread the responsibilities among remaining staff. Office reorganizations also contributed to staffing declines. For example, Office of Science officials reported to us that the office consolidated many of its support functions, including human resources and legal services, which resulted in a 10 percent reduction in staff over several years, with further reductions planned for fiscal year 2016. As staff levels decreased overall, the five DOE program offices and ARPA-E were responsible for overseeing and implementing civilian R&D obligations that increased from $7.09 billion in fiscal year 2011 to $7.36 billion in fiscal year 2015, an increase of 3.8 percent. Civilian R&D obligations from the program offices changed by varying degrees over this period, ranging from a decrease of 23.3 percent in the Office of Electricity Delivery and Energy Reliability (a decrease of 28.1 percent when adjusted for inflation) to an increase of 8.8 percent in the Office of Nuclear Energy (an increase of 1.9 percent when adjusted for inflation). ARPA-E's civilian R&D obligations experienced a more than 100-fold increase because the agency, which was founded and initially funded in 2009, grew significantly during the period under review. Total obligations for staff costs to oversee DOE's civilian R&D investments increased from $632.9 million in fiscal year 2011 to $647.9 million in fiscal year 2015--an increase of 2.4 percent during the period under review (a decrease of 4.0 percent when adjusted for inflation). Staff costs include salaries and benefits, travel, support services, and other costs, such as contributions to DOE's working capital fund for common administrative services such as building occupancy and network and telephone services. The extent of the change in staff costs varied among the five DOE program offices and ARPA-E from fiscal year 2011 to fiscal year 2015. Over this period, the change in obligations for staff costs in DOE's five program offices ranged from a decrease of about 8 percent each at the Offices of Nuclear Energy and Science (a decrease of about 14 percent when adjusted for inflation), to an increase of 16.0 percent at the Office of Electricity Delivery and Energy Reliability (an increase of 8.8 percent when adjusted for inflation). ARPA-E's obligations for staff costs more than doubled and staff levels increased. The overall increase in obligations for staff costs would have been greater if DOE had received the full amount it requested in appropriations, according to DOE officials. According to these officials, while staff costs are determined by DOE offices based on staffing plans and estimated staffing needs, the appropriations provided by Congress establish an upper limit to staff costs and may not represent DOE budget requests for the program offices and ARPA-E. For example, in fiscal year 2015, DOE requested $189.4 million for staff costs for the Office of Science and was appropriated $183.7 million. Of the $647.9 million that DOE obligated for staff costs in fiscal year 2015, $179.9 million (27.8 percent) was for headquarters office staff, $173.5 million (26.8 percent) was for research office staff, and $294.6 million (45.5 percent) was for site office staff, as shown in table 2 below. For further information about the functions performed by these staff, see appendix I. The obligations for total staff costs as a percentage of total obligations (R&D and non-R&D obligations) varied among the program offices and ARPA-E (see fig. 4). For example, in fiscal year 2015, the percentage ranged from 3.6 percent in the Office of Science to 21.4 percent in the Office of Electricity Delivery and Energy Reliability. Staff costs as a percentage of total obligations across all the program offices and ARPA-E was 7.6 percent in fiscal year 2015. DOE officials did not identify discrete causes for variations in obligations for staff costs as a percentage of R&D obligations, but we identified several factors that can contribute to such variations through our discussions with DOE officials and a review of DOE documents. These factors include: The extent to which an office uses cooperative agreements instead of grants. As discussed above, cooperative agreements are to be used when an agency anticipates that substantial federal involvement in performance or project activities may be necessary. DOE officials said that cooperative agreements may incur higher staff costs than grants because of this increased involvement. According to DOE officials, program offices that invested primarily in applied R&D typically used cooperative agreements. The extent to which an office supports non-R&D activities. Obligations for non-R&D activities, such as regulatory support, come out of staff costs and may have limited or no corresponding R&D obligations, thus increasing staff costs' share of the total. For example, the Office of Electricity Delivery and Energy Reliability issues permits for construction of electrical transmission lines that cross national boundaries, and the office coordinates with the Department of Homeland Security on electrical grid issues in emergency planning. In fiscal year 2015, 64.5 percent of the office's total obligations were for R&D activities ($86.5 million of $134.1 million in total obligations); in contrast, 36.7 percent of obligations for staff costs was to oversee R&D ($10.5 million of $28.7 million obligated in staff costs). Other factors unique to certain offices. For example, ARPA-E obligations for staff costs in fiscal year 2015 included support for 52 federal staff as well as 49 support services contractors, a greater proportion of contractors than in the five program offices. In addition, fiscal year 2015 obligations for staff costs in the Office of Energy Efficiency and Renewable Energy supported ARRA projects, even though there were no R&D obligations for these projects during this period. In particular, program office staff continued to manage and close out ARRA awards until the end of fiscal year 2015. We provided a draft of this report to DOE for its review. DOE provided written comments, which we have reprinted in appendix III. DOE also provided technical comments, which we incorporated as appropriate throughout our report. In its written comments, DOE stated that it generally agreed with the summarized statements in the draft report. In addition, DOE stated that its program offices and ARPA-E are structured differently to address their unique mission needs and oversight responsibilities, and that it is not appropriate to make staff comparisons across the different offices as staff functions vary. We believe that side-by-side analyses of the number of staff and staff functions across the DOE program offices and ARPA-E are appropriate as we requested similar data from all of the DOE program offices and ARPA-E. Moreover, where we did compare data, we did not draw conclusions from the comparisons, and we explained the differences in office structures to provide context. For further context, we added clarifications and details as suggested to us by DOE officials. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Program office and Advanced Research Projects Agency-Energy (ARPA- E) activities to oversee civilian research and development (R&D) investments were split among staff in headquarters offices, research offices, and site offices, where the staff performed various functions. The role of the site offices is to manage the management and operating (M&O) contracts with laboratories and oversee federal facilities. The composition of site office staff varies depending on the characteristics of the laboratory and the responsibilities of the individual site office; this composition can range from contracting officers to federal project directors and environmental, health, and safety inspectors. For example, the Idaho Operations Office is responsible for 331 federal properties at the Idaho National Laboratory, including overseeing the safety and management of 17 nuclear facilities and the storage of nuclear materials. DOE guidelines require a risk determination for such facilities that in turn dictates the number of federal representatives who are assigned to conduct health and safety oversight at each facility. These factors contributed to the Idaho Operations Office having 44 environmental, health, safety, and quality staff, out of 188 total staff. In contrast, the Office of Energy Efficiency and Renewable Energy reported that it had a similar number of total staff at the Golden Field Office and the National Energy Technology Laboratory but fewer environmental, health, safety, and quality staff. In addition, site offices also include other staff who indirectly support oversight. For example, the Golden Field Office, the Idaho Operations Office, and the Integrated Support Center include significant numbers of staff who provide contract and finance support or information technology support, or who are intellectual property lawyers (see table 4). To learn about staffing levels and costs associated with Department of Energy's (DOE) offices that oversee research and development (R&D) investments, we developed a data collection instrument that we sent to the five program offices and the Advanced Research Projects Agency- Energy (ARPA-E). The data collection instrument asked for information on program office obligations for R&D, obligations for federal staff, and the composition of program office staffs. The DOE program offices provided the data in the tables below. The tables below show data by program office and ARPA-E from fiscal year 2011 to fiscal year 2015, including obligations for R&D provided to (1) the national labs and (2) universities and private industry, as well as the number of full-time equivalent staff in each office and staff costs. Advanced Research Projects Agency-Energy (ARPA-E) In addition to the contact named above, Joseph Cook (Assistant Director), Matthew J. Ambrose, and David Messman made key contributions to this report. Also contributing to this report were Camilo Flores, Justin S. Fisher, Richard Johnson, Mae Liles, Cynthia Norris, and Dan C. Royer.	In fiscal year 2015, five DOE program offices and ARPA-E invested $7.36 billion for civilian R&D in DOE national laboratories as well as in universities, industry, and other entities. These civilian R&D investments (investments not related to nuclear security) supported diverse science and energy research areas, including energy efficiency, renewable energy, and nuclear energy. The five program offices and ARPA-E also obligated funds for staff to oversee these R&D investments--referred to as staff costs in this report--and include federal staff salaries and benefits, travel, support services, and other costs. GAO was asked to review DOE's oversight of its civilian R&D investments. This report discusses (1) the activities selected DOE offices use to oversee investments in civilian R&D, and (2) staffing levels and costs associated with DOE oversight of civilian R&D. GAO obtained staffing and obligations data from the five DOE program offices and ARPA-E that funded civilian R&D for fiscal years 2011-2015, the most recent years for which data was available; examined DOE policies, plans, and guidance; and interviewed DOE officials. GAO selected three of the five program offices for detailed review because they oversee nearly 90 percent of DOE's civilian R&D investments and 12 of the 13 national laboratories that primarily conduct civilian R&D. GAO used a broad definition of oversight, including any activity that directly or indirectly supported DOE's R&D mission. In commenting on a draft of this report, DOE generally agreed with GAO's findings. Three Department of Energy (DOE) program offices that GAO selected for detailed review--the offices of Energy Efficiency and Renewable Energy, Nuclear Energy, and Science--use various activities to oversee civilian research and development (R&D) investments. Activities to identify research priorities . The program offices obtain input from multiple sources to help determine the areas in which DOE invests in research at its national laboratories, as well as in universities and industry. For example, the Office of Nuclear Energy sponsored workshops in 2015 that sought to identify ideas for advancing nuclear energy technologies. Activities to oversee investments at national laboratories . The program offices require that the laboratories they oversee develop strategic plans to help ensure DOE investments in these laboratories support national R&D priorities. They also monitor and review individual laboratory R&D projects. For example, in fiscal year 2015, the Office of Science oversaw over 1,600 new or ongoing laboratory projects that received $3.67 billion in obligations. Finally, the program offices annually assess each laboratory contractor's scientific, technological, managerial, and operational performance. Activities to oversee investments in universities, industry, and other entities . To help determine where DOE invests in civilian R&D, the program offices review R&D proposals from universities, industry, and other entities. According to data provided by DOE, in fiscal year 2015 the three program offices conducted or managed more than 5,600 proposal reviews--with each review including as many as 3 to 4 individual reviewers--and selected 1,490 proposals for new financial assistance awards. The program offices then monitored and periodically reviewed the awarded proposals. Staffing levels for oversight of civilian R&D decreased by 11.0 percent from fiscal year 2011 to fiscal year 2015 in five DOE program offices--those noted above, plus two others that oversee a smaller percentage of DOE's civilian R&D investments--and in the Advanced Research Projects Agency-Energy (ARPA-E). At the same time, obligations for staff costs and civilian R&D investments increased by 2.4 percent and 3.8 percent, respectively, without adjusting for inflation (obligations declined slightly when adjusted for inflation). Staffing levels and costs changed to varying degrees among the offices and ARPA-E. For example, staff costs increased in three of the offices and ARPA-E but decreased in the other two offices. Obligations for staff costs made up 7.6 percent of total obligations (R&D and non-R&D obligations) in fiscal year 2015; they also varied among program offices and ARPA-E, ranging from 3.6 percent to 21.4 percent.	7,162	866
The White House Data Base was developed in 1994 to facilitate contacts with individuals and organizations who are important to the Presidency. It replaced a number of existing data bases with a single system which was intended to be easy to use and provide a greater level of service to a variety of users. The system has been operational since August 1995. Among other things, the data base is used for developing invitation lists for White House events and for providing information to help prepare thank you notes, holiday cards, and other correspondence. As such, the information contained on the data base ranges from names, addresses, phone numbers, social security numbers, contributor information, and dates of birth to individual relationships to the First Family and political affiliations. According to the White House, the data base contains personal information on about 200,000 individuals. In developing the data base, the White House used a widely accepted approach--Joint Application Development. Under this approach, users meet with programmers in a more intensive design session than usual--with the goals of eliminating rewrites of user interfaces and paving the way for faster application development. Development of the data base began with a series of technical interviews with potential users to determine, among other things, the sources of the data for the data base and the extent to which the data would be shared with nonfederal entities or individuals. Once these interviews were concluded, design and development elements were pursued on several fronts. First, potential users were asked to review functional aspects of the system and provide feedback. Second, the system architecture was developed and implemented based on detailed requirements and joint design elements provided by the customers and others. The data base operates on and is accessible through the White House's local area network, or LAN. While more than 1,600 users are authorized to access the LAN, less than 150 users have been given access to the data base and even fewer actually use the data base. The products supporting the White House LAN, operating system, and data base system are widely used in the government and commercial sectors. The LAN uses version 3.12 of Novell's network operating system. The data base runs on Microsoft's Windows NT operating system using Sybase's System 10 data base management system. Sybase's System 10 is a relational data base management system, which is a system that allows both end-users and application programmers to store data in, and retrieve data from, data bases that are perceived as a collection of relations or tables. The data base is comprised of 125 tables. Data is input to and retrieved from these tables using simple screens and drop-down menus. Sybase's System 10 is built with published and readily available interface specifications. It is open to the extent that anyone can write a program that will connect to the server. This is unlike traditional proprietary data base management systems, which could be accessed only with vendor-supplied tools or programs written with vendor-specific languages and compilers. In developing the data base, the White House acquired well-established, commercially available products and created a system that users we interviewed were generally satisfied with. However, as I will discuss in more detail, the design of the data base limits system performance. Further, the system--while having in place some internal controls--needs additional controls to assure the integrity and accuracy of data. As noted earlier, data base users primarily use the data base as a tool for maintaining contact with individuals and organizations important to the Presidency. Users told us that they were generally satisfied with the system. Less than 100 White House staff actually use the system, and only about 25 make moderate to heavy use (relative to other users) of the system--with the heaviest users representing the White House Social Office, Personal Correspondence Office, and Outreach Office, as well as system administrators. We examined user accounts and interviewed those staff making heavy use of the system in terms of amount of data both input to and read from the system. These included two staff in the Social Office, one in the Outreach Office, two on the Personal Correspondence staff, the data base data administrator, and a Sybase system administrator. We also interviewed four other business users and a system administrator who represent less heavy users of the system. Social Office personnel use the system to assist in developing invitation lists and planning state dinners and other events. Personal Correspondence personnel use the data base to help compose letters for the President. In doing so, they retrieve information from the data base on addresses, names of family members, White House events attended, and how the correspondent knows the President. The Outreach user we interviewed entered data into the data base for use in generating lists of holiday card recipients. Many users supplement the data base with information from manually accessed address lists. All those users we interviewed who had used the prior systems believed that the new system was better, and--for some users--the system is critical to their ability to complete their tasks. System administrators--who account for about 10 percent of all people who have accessed the data base--manage the system and maintain data base information. For example, they perform system backups, troubleshoot, and perform routine maintenance in the normal course of managing the system. The individual components supporting the data base--the network, server, and data base engine--are individually well-regarded and could be considered to be leading edge components for business applications similar to those run by the White House. However, the strength of the individual system components has been diminished by the design of the data base itself. Specifically, in developing the system, the White House attempted to meet all user requirements for a large array of potential information needs. Rather than take advantage of the relational data base capabilities of Sybase, the designers established a one-to-one relationship between the logical and physical attributes of the data base resulting in 125 tables. The data base operates more as an index sequential data base where relationships between and among data elements have to be established across many tables. This contributes to increased system overhead (requires the system to process additional steps) and thus taxes the performance capabilities of the system. Because the data base has relatively few users and is an improvement over what users had been using, individual users have probably not been affected by the data base design. However, if demand increased, system performance could unnecessarily degrade. In order to minimize performance impact, system administrators have made compromises which affect the data base's internal controls. First, system administrators told us that turning on the internal audit trail, which I will discuss later, would seriously slow down system performance; and that to turn on the audit trail would take several staff weeks of programming effort to minimize the impact on overall system performance. Second, system administrators have chosen not to use the referential integrity capability that Sybase offers because of performance issues. Referential integrity is critical to any data base to assure that necessary checks are in place to limit inappropriate data input and assure that output is accurate. For the White House Data Base, referential integrity is implemented through the application itself. Because of the complexity of the application structure, it is difficult to assure that all edit checks are in place and work properly across the application. We found that some checks are not operational which in turn leads to a higher probability of inaccurate information being input or retrieved from the system. Good business systems operate in a controlled environment to ensure that data within these systems is accurate, that data output is reliable, and that data integrity is assured so that only authorized users have access to the data and that such access is appropriate to their needs. To provide such assurance, an organization needs well-articulated policies and procedures, good training, and an ability to ensure compliance with established processes and procedures. For the government, these concepts are embodied in the Office of Management and Budget's Circular A-130 which lays out the need for policies, rules of behavior governing system use, training, and the need to incorporate good controls. Circular A-130 states that accountability is normally accomplished by identifying and authenticating users and subsequently tracing actions on the system to the user who initiated them. As a system containing sensitive information on up to 200,000 individuals, and, as a system that is important to meet the work needs of several White House offices, data base users and managers need to apply the principles of A-130 to system operations. We found that the White House has taken several positive steps to create a controlled environment. For example: Personalized training is available to all users. Users are required to sign a document stating that they will take measures to protect information including establishing and protecting passwords, logging out when leaving their computers, and reporting unauthorized access to the system. Password access is required to enter the system and a warning screen appears to inform the user that information within the data base is for official use only. The data base has an effective defense against outside intruders or "hackers" breaking into the system. Controls have been established within the system to limit access to certain portions of the data base to only those with a need to know. Additionally, only a limited number of users have authority to print reports. Even with these processes in place, we found that the data base requires additional measures before data integrity and operational effectiveness can be assured. For example: Users do not have well-documented processes and procedures for how and when to use the data base. Written documentation, reinforced with training and operational processes, would provide a better basis for assuring system managers that the data base was being used effectively and that all users were appropriately keeping the data base current. While users were trained individually by system administrators or other users, only one user out of the nine business users that we interviewed reported having a users manual. None of these users reported having training concerning the security of the system. Such guidance can help ensure that users are familiar with the system and are entering information correctly. In talking with users we found that most everyone could navigate the system adequately; however, we also found that some duplicate information on individuals was being entered into the system and that some information was being entered into the wrong field. This causes some data base tables to contain more information than necessary and slows down the processing of information. Although the data base has established security policies, procedures necessary to make them effective have not been well-documented. For example, the system does not require frequent changes in passwords. Only one of the applications users we interviewed has changed their password since the system was initiated. Although controls exist to limit printing of reports, any user having general netware printing capability can print the screen contents. Additionally, all users have the ability to download screen content onto an electronic notebook which could then be mailed electronically to a third party. None of the users we interviewed stated that they were aware of this capability. Additionally, White House officials told us that every month they review a sample of outgoing e-mail traffic to identify inappropriate use of the electronic mail system and to comply with records management requirements. Most importantly, there is no audit trail. Although Sybase 10 has this capability, we were told it has not been turned on because it would inhibit system performance. The Sybase audit capability would allow system administrators to monitor and react to attempts to log on and log off the system; execution of update, delete, and insert operations; restarts of the system; execution of system administration commands; and changes to system tables. Without this feature, data base administrators are limited in their ability to ensure that users are properly accessing and using the system. Mr. Chairman and Members of the Subcommittee this completes my testimony. I will be happy to answer any questions you may have. The first copy of each GAO report and testimony is free. 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Pursuant to a congressional request, GAO reviewed the White House database, focusing on its users and operational components. GAO noted that: (1) users are generally satisfied with the database as a tool for maintaining information important to the Presidency; (2) fewer than 100 White House staff use the database, and the 25 heaviest users represent three White House offices and systems administrators; (3) the Social Office uses the database to develop invitation lists and plan state dinners and other events, the Personal Correspondence Office uses the database to help compose Presidential letters, and the Outreach Office uses the database for generating lists of holiday card recipients; (4) these users believe that the database is critical in performing their tasks, but the database's design is limited because it does not employ certain relational database capabilities; (5) because of additional processing steps, system performance will degrade if demand increases; (6) systems administrators have made compromises to minimize performance impacts that affect data integrity and audit trails; (7) the White House has taken actions to ensure a controlled environment by providing personalized user training, requiring signed ethics documents and passwords, providing anti-hacker defense systems, and limiting user access; and (8) to ensure data integrity and operational effectiveness, the White House needs to document systems security policies and procedures, limit report printing, and establish an audit trail for systems administrators to monitor database operations.	2,710	290
Most of the funding in DOD's fiscal year 1997 aircraft investment strategy is for the procurement of new aircraft such as the F/A-18E/F, F-22, and Joint Strike Fighter (JSF), while some is for the retrofit or remanufacture of existing aircraft, such as the AV-8B and the Longbow Apache. Table 1 describes the 17 aircraft programs and their estimated procurement funding requirements and appendix I provides details on these programs. DOD is pursuing these aircraft programs at a time when the federal government is likely to be faced with significant budgetary pressure for the foreseeable future. This pressure comes from efforts to balance the budget, coupled with funding demands for such programs as Social Security, Medicare, and Medicaid. Consequently, there is likely to be limitations on all discretionary spending, including defense spending, for the long term. This report addresses the availability of funding to support DOD's aircraft investment strategy as planned prior to the Quadrennial Defense Review, but does not address specific aircraft requirements. Our previous reports have questioned the need for and timing of a number of DOD's aircraft procurements. (A listing of prior reports is provided at the end of this report.) DOD asserts that its aircraft modernization programs are affordable as planned. On June 27, 1996, DOD officials testified before House Subcommittees that its overall aircraft investment plans were within historical norms and affordable within other service priorities. The officials further explained that the historical norms referred to were based on the aircraft funding experience of the early 1980s. Our review indicated that using the early to mid-1980s, the peak Cold War defense spending years, as a historical norm for future aircraft investments is not realistic in today's budgetary and force structure environment. As shown in figure 1, DOD's overall appropriations, expressed in fiscal year 1997 dollars, have decreased significantly from their high point in fiscal year 1985, and the amounts appropriated in recent years are at, or near, the lowest point over the past 24 years. As shown in figure 1, our review of aircraft procurement funding data from fiscal years 1973 through 1996, showed that funding for DOD's aircraft purchases as a percentage of DOD's overall budget fluctuated in relation to the changes in DOD's overall budget. Funding for aircraft purchases increased significantly as DOD's overall funding increased in the early 1980s and decreased sharply as the defense budget decreased in the late 1980s and early 1990s. In contrast, DOD's planned aircraft investment strategy does not follow this pattern and calls for significantly increased funding for aircraft purchases during a period when DOD's overall funding is expected to remain stable in real terms. Funding for DOD's aircraft purchases was at its highest point, both in dollar terms and as a percentage of the overall DOD budget, during the early to mid-1980s. Figure 2 shows the 24-year funding history for DOD's aircraft purchases from fiscal years 1973 through 1996. During that period, DOD spending on aircraft purchases fluctuated somewhat but averaged about 4.8 percent of the overall DOD budget. From fiscal years 1982 through 1986, DOD used from 6.0 percent to 7.7 percent of its overall annual funding on aircraft purchases. In contrast, since fiscal year 1973, the next highest level of annual aircraft funding was 5.5 percent in fiscal year 1989 and, in 12 other years, the funding was less than 4.5 percent of the overall DOD funding. Therefore, a long-term average would be more appropriate than early 1980's historical norms as a benchmark for an analysis of funding patterns, and its use would even out the high aircraft procurement funding of the early 1980s and the lower funding of the post-Vietnam and post-Cold War eras. However, such a benchmark should not be used as a threshold for spending on aircraft purchases because it may not reflect the changed nature of the defense requirements and U.S. strategy that occurred with the end of the Cold War. If DOD's aircraft investment strategy is implemented as planned and the defense budget stabilizes at DOD's currently projected fiscal year 2003 level (about $247 billion in constant fiscal year 1997 dollars), DOD's projected funding for aircraft purchases will exceed the historical average percentage of the defense budget for aircraft purchases in all but 1 year between fiscal year 2000 and 2015. For several years, it will approach the highest historical percentages of the defense budget for aircraft purchases. Those high percentages were attained during the peak Cold War spending of the early to mid-1980s. In fiscal year 1996, DOD spent $6.8 billion, or 2.6 percent of its overall budget, on aircraft purchases. To implement its aircraft investment strategy, DOD expects to increase its annual spending on aircraft purchases significantly from current levels and to sustain those higher levels for the indefinite future. For example, as shown in figure 4, DOD's annual spending on aircraft purchases is projected to increase about 94 percent from the fiscal year 1996 level to $13.2 billion by fiscal year 2002. Also, for 15 of the next 20 fiscal years beginning in fiscal year 1997, DOD's projected spending for aircraft purchases is expected to equal or exceed $11.9 billion annually. For 3 years during this period, DOD's projected annual spending on aircraft purchases will exceed $16 billion (6.5 percent of the budget) and for 1 of those years, it will exceed $18 billion (7.3 percent of the budget). In the current security and force structure environment, the need for that level of additional funding has not been made clear by DOD. Furthermore, other than stating that overall procurement funding in general will be increased, DOD has not identified specific reductions elsewhere within the procurement account or within the other major accounts to offset the significant proposed increases in aircraft procurement funding. Because the overall level of defense funding is expected to be stable, at best, any proposed increase in spending for a particular account or for a project will have to be offset elsewhere within the budget. Historically, acquisition programs almost always cost more than originally projected. Figure 4 is a conservative projection of DOD's aircraft funding requirements because no cost growth beyond current estimates is considered. Research has shown that unanticipated cost growth has averaged at least 20 percent over the life of aircraft programs. For at least one current program, it appears the historical patterns will be repeated. In January 1997, DOD reported that the procurement cost of the F-22 was expected to increase by over 20 percent and devised significant initiatives to offset that growth. We reported about this potential cost growth in June 1997 and concluded that the initiatives to offset the cost growth were optimistic. In addition, the projected funding requirements shown in figures 3 and 4 may be understated because they do not include any projected funding for other aircraft programs that have not been approved for procurement. For example, potential requirements exist to replace the KC-135, C-5A, F-15E, F-117, EA-6B, S-3B, and other aircraft. Adding any of these requirements to DOD's aircraft investment strategy would further complicate the funding problems. The amount of funding likely to be available for national defense in the near term has been projected by both the President and the Congress. Both have essentially agreed that the total national defense budget will not increase measurably in real terms through fiscal year 2002. While the Congress has not expressed its sentiments regarding the defense budget beyond fiscal year 2002, last year DOD's long-term planning for its aircraft investment strategy assumed a real annual growth factor of 1 percent. Accordingly, procurement funding to accomplish the aircraft modernization programs was partially dependent on some level of real growth in the defense budget. However, because of commitments to balance the federal budget by both the President and the Congress, it appears likely that the defense budget will stabilize at current levels or decrease further, rather than increase as DOD's aircraft investment plans have assumed. According to DOD officials, the long-term planning now assumes no real growth in the defense budget. The impact of this change on DOD's aircraft programs is not yet clear. DOD plans to increase overall funding for procurement programs over the next few years, and the aircraft programs are expected to be a prime beneficiary of that increased funding. DOD expects to increase procurement spending to a level of approximately $61.2 billion per year, from the current level of about $44.3 billion per year, while keeping overall defense spending at current levels, at least through fiscal year 2002. Of the $39.0 billion cumulative increase in procurement spending that is expected through fiscal year 2002, about $17.7 billion is projected to be used for DOD's aircraft investment strategy. To increase procurement funding while keeping overall defense spending at current levels, DOD anticipates major savings will be generated from infrastructure reductions and acquisition reform initiatives, as well as increased purchasing power through significantly lower inflation projections. We found, however, that there are unlikely to be sufficient savings available to offset DOD's projected procurement increases. DOD's planned procurement funding increase was partially predicated on base closure savings of $17.8 billion (then-year dollars) through fiscal year 2001, a component of infrastructure, and shifting this money to pay for additional procurement. In 1996, however, we found no significant net infrastructure savings between fiscal year 1996 and 2001 because the proportion of infrastructure in the DOD budgets was projected to remain relatively constant through fiscal year 2001. Therefore, through fiscal year 2001, DOD will have less funds available than expected for procurement from its infrastructure reform initiatives. In addition, our ongoing evaluation of acquisition reform savings on major weapon systems suggests that the amount of such savings that will be available to increase procurement spending is uncertain. Our work shows that the savings from acquisition reform have been used by the very programs generating the savings to fund other needs. This raises concern as to whether the latest acquisition reform initiatives will provide savings to realize modernization objectives for other weapons systems within the time frames envisioned. Without the level of savings expected from infrastructure reductions and acquisition reform, DOD will face difficult choices in funding its modernization plans. Finally, based on changes in future inflation factors, DOD calculated in its 1997 future years defense plan (FYDP) that its purchases of goods and services from fiscal years 1997 through 2002 would cost about $34.7 billion (then-year dollars) less than it had planned in its 1996 FYDP. The "inflation dividend" allowed DOD to include about $19.5 billion in additional programs in fiscal years 1997-2001 and permitted the executive branch to reduce DOD's projected funding by $15.2 billion over the same time period. However, using different inflation estimates, CBO calculated the cost reduction at only $10.3 billion, or $24.4 billion less than DOD's estimate. Because DOD's projected funding was reduced by $15.2 billion, CBO's estimate indicates that DOD's real purchasing power, rather than increasing, may be reduced by about $5 billion. If true, then DOD may have to make adjustments in its programs. We recently raised an issue on the Air Force's F-22 air superiority fighter that further complicates the situation. In estimating the cost to produce the F-22, the Air Force used an inflation rate of about 2.2 percent per year for all years after 1996. However, in agreeing to restructure the F-22 program to address the recently acknowledged $15 billion (then-year dollars) program cost increase, the Air Force and its contractors used an inflation rate of 3.2 percent per year. Increasing the inflation rate by 1 percent added billions of dollars to the F-22 program's estimated cost. We are concerned that the higher inflation rates could have a significant budgetary impact for other DOD acquisition programs. Similar increases on other major weapon programs would add billions of dollars to the amounts needed and further jeopardize DOD's ability to fund its modernization plans. The basis for DOD's projections of total annual procurement funding is the cumulative annual funding needs of multiple weapons programs, each of which has typically been based on optimistic assumptions about procurement quantities and rates. Accordingly, DOD's projections of total annual procurement funding have been consistently optimistic. DOD's traditional approach to managing affordability problems is to reduce procurement quantities and extend production schedules without eliminating programs. Such actions normally result in significantly increased system procurement costs and delayed deliveries to operational units. We recently reported that the costs for 17 of 22 full-rate production systems we reviewed increased by $10 billion (fiscal year 1996 dollars) beyond original estimates through fiscal year 1996 due to stretching out the completion of the weapons' production. We found that DOD had inappropriately placed a high priority on buying large numbers of untested weapons during low-rate initial production to ensure commitment to new programs and thus had to cut by more than half its planned full-rate production for many weapons that had already been tested. We also found that actual production rates were, on average, less than half of originally planned rates. Primarily because of funding limitations, DOD has reduced the annual full-rate production for 17 of the 22 proven weapons reviewed, stretching out the completion of the weapons' production an average of 8 years (or 170 percent) longer than planned. Our work showed that DOD develops weapon system acquisition strategies that are based on optimistic projections of funding that are rarely achieved. As a result, a significant number of DOD's weapon systems are not being procured at planned production rates, leading to program stretchouts and billions of dollars of increased costs. If DOD bought weapons at minimum rates during low-rate initial production, more funds would be available to buy proven weapons in full-rate production at more efficient rates and at lower costs. If DOD's assumptions regarding future spending for its aircraft programs do not materialize, DOD may need to (1) reduce funding for some or all of the aircraft programs; (2) reduce funding for other procurement programs; (3) implement changes in infrastructure, operations, or other areas; or (4) increase overall defense funding. In other words, the likelihood of program stretchouts and significantly increased costs is very real. As the Nation proceeds into the 21st century faced with the prospect of a constrained budget, we believe DOD needs to take action now to address looming affordability problems with its aircraft investment strategy. Action needs to be taken now because, if major commitments are made to the initial procurement of all the planned aircraft programs (such as the F/A-18E/F, F-22, JSF, and the V-22) over the next several years, a significant imbalance is likely to result between funding requirements and available funding. Such imbalances have historically led to program stretchouts, higher unit costs, and delayed deliveries to operational units. Further, this imbalance may be long-term in nature, restricting DOD's ability to respond to other funding requirements. DOD needs to reorient its aircraft investment strategy to recognize the reality of a constrained overall defense budget for the foreseeable future. Accordingly, instead of continuing to start aircraft procurement programs that are based on optimistic assumptions about available funds, DOD should determine how much procurement funding can realistically be expected and structure its aircraft investment strategy within those levels. DOD also needs to provide more concrete and lasting assurance that its aircraft procurement programs are not only militarily justified in the current security environment but clearly affordable as planned throughout their entire procurement. The key to ensuring the efficient production of systems is program stability. Understated cost estimates and overly optimistic funding assumptions result in too many programs chasing too few dollars. We believe that bringing realism to DOD's acquisition plans will require very difficult decisions because programs will have to be terminated. While all involved may agree that there are too many programs chasing too few dollars, and could probably agree on the need to bring stability and executability to those programs that are pursued, it will be much more difficult to agree on which programs to cut. Nevertheless, the likelihood of continuing fiscal constraints and reduced national security threats should provide additional incentives for real progress in changing the structure and dominant culture of DOD's weapon system acquisition process. Therefore, we recommend that the Secretary of Defense, in close consultation with the defense and budget committees of the Congress, define realistic, long-term projections of overall defense funding and, within those amounts, the portion of the annual procurement funding that can be expected to be made available to purchase new or significantly improved aircraft. In developing the projections, the Secretary should consider whether the historical average percentage of the total budget for aircraft purchases is appropriate in today's security and budgetary environment. We also recommend that the Secretary reassess and report to the Congress on the overall affordability of DOD's aircraft investment strategy in light of the funding that is expected to be available. The Secretary should clearly identify the amount of funding required by source, including (1) any projected savings from infrastructure and acquisition reform initiatives and (2) any reductions elsewhere within the procurement account or within the other major accounts. We further recommend that the Secretary fully consider the availability of long-term funding for any aircraft program before approving the procurement planned for that system. In commenting on a draft of this report, DOD partially concurred with our recommendations and stated that it is fully aware of the investment challenge highlighted in this report. DOD stated that its recent Quadrennial Defense Review addressed the affordability of the modernization programs that it believes are needed to meet the requirements of the defense strategy. The Quadrennial Defense Review recommended reductions in aircraft procurement plans. However, even to modernize the slightly smaller force that will result from the Quadrennial Defense Review, DOD believes that procurement funding must also rise to about $60 billion annually by fiscal year 2001, from about $44 billion in fiscal year 1997. Recognizing that overall defense budgets are not likely to increase substantially for the foreseeable future, DOD indicated that the additional procurement funds would be created by continuing efforts to reduce the costs of defense infrastructure and to fundamentally reengineer its business practices. Our recent reviews of DOD's previous initiatives to reduce the costs of defense infrastructure and reengineer business practices indicate that the amount and availability of savings from such initiatives may be substantially less than DOD has estimated. If the projected savings do not materialize as planned, or if estimates of the procurement costs of weapon systems prove to be too optimistic, DOD will need to rebalance the procurement plans to match the available resources. This action would likely result in further program adjustments and extensions. Concerning aircraft procurement projections, we continue to believe that a clearer understanding of DOD's long-term budgetary assumptions--including specific, realistic projections of funding availability and planned aircraft procurement spending--is necessary to determine the overall affordability of DOD's aircraft investment strategy. Without this information, neither DOD nor the Congress will have reasonable assurances that the long-term affordability of near-term procurement decisions has been adequately considered. We gathered, assembled, and analyzed historical data on the overall defense budget, the services' budget shares, the procurement budgets, and the aircraft procurement budgets. Much of this data was derived from DOD's historical FYDP databases. We did not establish the reliability of this data because the FYDP is the most comprehensive and continuous source of current and historical defense resource data. The FYDP is used extensively for analytical purposes and for making programming and budgeting decisions at all DOD management levels. In addition, we reviewed historical information and studies--ours, CBO, and others--on program financing and affordability. We also gathered, assembled, and analyzed DOD-generated data on its aircraft programs and supplemented that, where necessary, with data from CBO. We reviewed DOD's detailed positions on the affordability of its aircraft modernization programs, as presented to the Congress in a June 1996 hearing. We followed up with DOD and service officials on key aspects of that position. Our analysis included tactical aircraft, bombers, transports, helicopters, other aircraft purchases and major aircraft modification programs. This approach removes any cyclical effects on the investment in aircraft by allowing us to view the overall amount invested, as well as the major subcomponents of that investment. We focused on procurement figures and excluded research and development costs because we could not forecast what development programs DOD will undertake over the course of the next 20 to 30 years. We used DOD's projections for the costs of these aircraft programs (except for the JSF costs, which are CBO projections based on DOD unit cost goals) and did not project cost increases, even though cost increases have occurred in almost all previous aircraft procurement programs. All dollar figures are in constant 1997 dollars, unless otherwise noted. The National Defense Authorization Act for Fiscal Year 1997 required DOD to conduct a Quadrennial Defense Review. As part of the review, DOD assessed a wide range of issues, including the defense strategy of the United States and the force structure required. As a result, DOD may reduce the quantities procured of some weapons programs. The details of how DOD plans to implement the recommendations of the Quadrennial Defense Review will not be available until the fiscal year 1999 budget is submitted to the Congress. Our analysis, therefore, does not take into account the potential effect of implementing the recommendations of the Quadrennial Defense Review. We performed our work from March 1996 to July 1997 in accordance with generally accepted government auditing standards. As agreed with your offices, we plan no further distribution of this report until 30 days from its issue date unless you publicly announce its contents earlier. At that time, we will send copies to other congressional committees; the Secretaries of Defense, the Army, the Navy, and the Air Force; the Commandant of the Marine Corps; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others upon request. Please contact me at (202) 512-4841 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix III. Marine Corps aircraft. A single-piloted, light-attack, vertical/short take-off and landing aircraft used primarily for responsive close air support. This is a remanufacture program that converts older versions to the most recent production version and provides night fighting capability. Air Force aircraft. A new production aircraft that modernizes the airlift fleet. It will augment the C-5, C-141, and C-130 aircraft; carry outsize cargo into austere airfields; and introduce a direct deployment capability. Army helicopter. A new production, 24-hour, all-weather, survivable aerial reconnaissance helicopter to replace the AH-1, OH-6, and OH-58A/C helicopters and complement the AH-64 Apache. A little more than one-third of the total production aircraft will be equipped with Longbow capability. Air Force aircraft. A new production, medium-range, tactical airlift aircraft designed primarily for transport of cargo and personnel within a theater of operations. This model uses latest technology to reduce life-cycle costs and has more modern displays, digital avionics, computerized aircraft functions, fewer crew members, and improved cargo handling and delivery systems. Navy aircraft. A new production, all-weather, carrier-based airborne Combat Information Center providing tactical early warning, surveillance, intercept, search and rescue, communications relay, and strike and air traffic control. Air Force aircraft. A major modification to provide the Air Combat Command with new and improved capabilities for the AWACS radar. It involves both hardware and software changes to the AWACS. Air Force aircraft. A new production, next-generation stealthy air superiority fighter with first-look, first-kill capability against multiple targets. It will replace the F-15C aircraft in the air superiority role. Navy aircraft. A new-production, major model upgrade to the F/A-18C/D multimission tactical aircraft for Navy fighter escort, interdiction, fleet air defense, and close-air support mission requirements. Planned enhancements over the F/A-18C/D include increased range, improved survivability, and improved carrier suitability. It will replace F/A-18C/D models, A-6, and F-14 aircraft. Marine Corps helicopter. An upgrade to the Marine Corps AH-1W attack and UH-1N utility versions of this helicopter to convert both versions from 2-bladed to 4-bladed rotor systems and provide the attack version with fully integrated cockpits. The attack version provides close air support, anti-armor, armed escort, armed/visual reconnaissance and fire support coordination under day/night and adverse weather conditions. The utility version provides day/night and adverse weather command and control, combat assault support, and aeromedical evacuation. Air Force and Army aircraft. (Joint Surveillance Target Attack Radar System) A new production joint surveillance, battle management and targeting radar system on a modified E-8 aircraft that performs real time detection and tracking of enemy ground targets. Air Force and Navy aircraft. A new production, next-generation, multimission strike fighter. It will replace the Air Force's F-16 and A-10, the Marine Corps' AV-8B and F-18A/C/Ds, and be a "first-day survivable complement" to the Navy's F-18 C/D and E/F aircraft. (continued) Air Force and Navy aircraft. (Joint Primary Aircraft Training System) A new production joint training aircraft and ground based training system, including simulators, that replaces the Air Force T-37B trainer aircraft, Navy T-34C trainer aircraft, and their associated ground systems. Army helicopter. A modification program to develop and provide weapons enhancements to the AH-64 Apache attack helicopter. The Longbow program will provide a fire-and-forget Hellfire missile capability to the AH-64 Apache helicopter that can operate in night, all-weather, and countermeasures environments. Navy helicopter. A Block II weapon systems upgrade of the Navy version of the Army Black Hawk to enhance mission areas performance. It is a twin-engine medium lift, utility or assault helicopter performing anti-submarine warfare, search and rescue, anti-ship warfare, cargo lift, and special operations. Navy aircraft. A strike pilot training system to replace the T-2C and TA-4J for strike and E2 and C2 pilots. It includes the T-45A aircraft, simulators, and training equipment and materials. Army helicopter. A new production, twin-engine air assault, air cavalry, and aeromedical evacuation helicopter that transports up to 14 troops and equipment into battle. It continues to replace the UH-1H Iroquois helicopter. Navy, Marine Corps, and Air Force aircraft. A new production, tilt-rotor, vertical take-off, and landing aircraft designed to provide amphibious and vertical assault capability to the Marine Corps and replace or supplement troop carrier and cargo helicopters in the Marines, the Air Force, and the Navy. The following are our comments on the Department of Defense's (DOD) letter dated June 8, 1997. 1. Although the Quadrennial Defense Review report recommended that adjustments be made to the number of aircraft to be procured and the rates at which they are to be procured, the report projected that additional procurement funding would be made available through base closures and other initiatives to reduce defense infrastructure and reengineer business practices. The details of these initiatives are not expected to be available until the fiscal year 1999 budget is submitted to the Congress. At this time, the availability of savings from planned initiatives is not clearly evident. 2. The Quadrennial Defense Review does not provide sufficiently detailed projections to judge the affordability of DOD's new aircraft procurement plans by comparing the long-term funding expected to be available with the funding needed to fully implement those plans. We continue to believe that this type of long-term projection is needed by both DOD and the Congress to ensure that DOD's aircraft procurement programs are clearly affordable as planned through the span of procurement. 3. We continue to believe that the $17 billion increased cost of procuring F/18-E/F aircraft compared to F/A-18C/Ds is not warranted by the limited increases in performance that would be obtained. We recognize that, while the F/A-18E/F will provide some improvements over the F/A-18C/D, most notably in range, the F/A-18C/D's current capabilities are adequate to accomplish its assigned missions. Our rebuttals to DOD's specific comment are contained in our report, Naval Aviation: F/A-18E/F Will Provide Marginal Operational Improvement at High Cost (GAO/NSIAD-96-98, June 18, 1996). 4. Although procurement rates for F-22s during the planned low-rate initial production period were to be lowered in accordance with the Quadrennial Defense Review report, we continue to believe that the degree of overlap between development and production of the F-22 is high and that procurement of F-22s should be minimized until the aircraft demonstrates that it can successfully meet the established performance requirements during operational testing and evaluation. There has also been congressional concern about the cost and progress of the F-22 program. The Senate has initiated legislation to require us to review the F-22 development program annually. 5. We clarified the language in the report to more explicitly recommend that long-term projections of the availability of funds should be used as a guide to assess the likely availability of funds to carry out a program at the time of the procurement approval decision. The Quadrennial Defense Review recognized that more procurement dollars were being planned to be spent than were likely to be available over the long term. Our intent in making this recommendation is to recognize the difficulty DOD and the Congress face and to suggest some solid analysis that would aid in evaluating the long-term commitments that are inherent in nearer term decisions to procure weapon systems. A better understanding of the long-term budgetary assumptions underlying near-term decisions would clearly aid both DOD and the Congress in ensuring that needed weapon systems are affordable in both the near and long term. Combat Air Power: Joint Assessment of Air Superiority Can Be Improved (GAO/NSIAD-97-77, Feb. 26, 1997). B-2 Bomber: Status of Efforts to Acquire 21 Operational Aircraft (GAO/NSIAD-97-11, Oct. 22, 1996). Air Force Bombers: Options to Retire or Restructure the Force Would Reduce Planned Spending (GAO/NSIAD-96-192, Sept. 30, 1996). U.S. Combat Air Power: Aging Refueling Aircraft Are Costly to Maintain and Operate (GAO/NSIAD-96-160, Aug. 8, 1996). Combat Air Power: Assessment of Joint Close Support Requirements and Capabilities Is Needed (GAO/NSIAD-96-45, June 28, 1996). U.S. Combat Air Power: Reassessing Plans to Modernize Interdiction Capabilities Could Save Billions (GAO/NSIAD-96-72, May 13, 1996). Combat Air Power: Funding Priority for Suppression of Enemy Air Defenses May Be Too Low (GAO/NSIAD-96-128, Apr. 10, 1996). Navy Aviation: AV-8B Harrier Remanufacture Strategy Is Not the Most Cost-Effective Option (GAO/NSIAD-96-49, Feb. 27, 1996). Future Years Defense Program: 1996 Program Is Considerably Different From the 1995 Program (GAO/NSIAD-95-213, Sept. 15, 1995). Aircraft Requirements: Air Force and Navy Need to Establish Realistic Criteria for Backup Aircraft (GAO/NSIAD-95-180, Sept. 29, 1995). Longbow Apache Helicopter: System Procurement Issues Need to Be Resolved (GAO/NSIAD-95-159, Aug. 24 1995). Comanche Helicopter: Testing Needs to Be Completed Prior to Production Decisions (GAO/NSIAD-95-112, May 18, 1995). Cruise Missiles: Proven Capability Should Affect Aircraft and Force Structure Requirements (GAO/NSIAD-95-116, Apr. 20, 1995). Army Aviation: Modernization Strategy Needs to Be Reassessed (GAO/NSIAD-95-9, Nov. 21, 1994). Future Years Defense Program: Optimistic Estimates Lead to Billions in Overprogramming (GAO/NSIAD-94-210, July 29, 1994). Continental Air Defense: A Dedicated Force Is No Longer Needed (GAO/NSIAD-94-76, May 3, 1994). The first copy of each GAO report and testimony is free. 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GAO reviewed the Department of Defense's (DOD) aircraft acquisition investment strategy, focusing on: (1) DOD's and the Congressional Budget Office's estimates of the annual funding needed for aircraft programs, as a percentage of the overall DOD budget, and a comparison of that percentage to a long-term historical average percentage of the defense budget; (2) the potential long-term availability of funding for DOD's planned aircraft procurements; and (3) DOD's traditional approach to resolving funding shortfalls. GAO noted that: (1) to meet its future aircraft inventory and modernization needs, DOD's current aircraft investment strategy involves the purchase or significant modification of at least 8,499 aircraft in 17 aircraft programs, at a total procurement cost of $334.8 billion (fiscal year 1997 dollars) through their planned completions; (2) DOD has maintained that its investment plans for aircraft modernization are affordable within expected future defense budgets; (3) DOD had stated earlier that sufficient funds would be available for its aircraft programs based on its assumptions that: (a) overall defense funding would begin to increase in real terms after fiscal year (FY) 2002; and (b) large savings would be generated from initiatives to downsize defense infrastructure and reform the acquisition process; (4) DOD's aircraft investment strategy may be unrealistic in view of current and projected budget constraints; (5) recent statements by DOD officials, as well as congressional projections, suggest that overall defense funding will be stable, at best, for the foreseeable future; (6) DOD's planned funding for the 17 aircraft programs in all but one year between FY 2000 and 2015 exceeds the long-term historical average percentage of the budget devoted to aircraft purchases and, for several of those years, approaches the percentages of the defense budget reached during the peak Cold War spending era of the early-to-mid-1980s; (7) the amount and availability of savings from infrastructure reductions and acquisition reform, two main claimed sources for increasing procurement funding, are not clearly evident today; (8) GAO's recent reviews of these initiatives indicate there are unlikely to be sufficient savings available to offset projected procurement increases; (9) to deal with a potential imbalance between procurement funding requirements and the available resources, DOD may need to: (a) reduce planned aircraft funding and procurement rates; (b) reduce funding for other procurement programs; (c) implement changes in force structure, operations, or other areas; or (d) increase total defense funding; (10) DOD has historically made long-term commitments to acquire weapon systems based on optimistic procurement profiles and then significantly altered those profiles because of insufficient funding; and (11) to avoid or minimize affordability problems, DOD needs to bring its aircraft investment strategy into line with more realistic, long-term projections of overall defense funding, as well as the amount of procurement funding expected to be available for aircraft purchases.	7,244	614
Information security is a critical consideration for any organization that depends on information systems and computer networks to carry out its mission or business; and it is especially important for government agencies, where the public's trust is essential. The dramatic expansion in computer interconnectivity and the rapid increase in the use of the Internet are changing the way our government, the nation, and much of the world communicate and conduct business. Without proper safeguards, systems are unprotected from individuals and groups with malicious intent to intrude and use the access to obtain sensitive information, commit fraud, disrupt operations, or launch attacks against other computer systems and networks. These concerns are well founded for a number of reasons, including the dramatic increase in reports of security incidents, the ease of obtaining and using hacking tools, the steady advance in the sophistication and effectiveness of attack technology, and the dire warnings of new and more destructive attacks to come. Computer-supported federal operations are likewise at risk. Our previous reports and reports by several agencies' inspectors general describe persistent information security weaknesses that place a variety of federal operations at risk of inappropriate disclosure, fraud, and disruption. We have designated information security as a governmentwide high-risk area since 1997. Recognizing the importance of securing the information systems of federal agencies, Congress enacted the Federal Information Security Management Act (FISMA) in December 2002. FISMA requires each agency to develop, document, and implement an agencywide information security program for the data and systems that support the operations and assets of the agency, using a risk-based approach to information security management. Information security program requirements to be implemented include assessing risk; developing and implementing policies, procedures, and security plans; providing security awareness and training; testing and evaluating the effectiveness of controls; planning, implementing, evaluating, and documenting remedial actions to address information security deficiencies; detecting, reporting, and responding to security incidents; and ensuring continuity of operations. Following the stock market crash of 1929, Congress passed the Securities Exchange Act of 1934, establishing SEC to enforce securities laws, regulate the securities markets, and protect investors. To carry out its responsibilities and help ensure that fair, orderly, and efficient securities markets are maintained, the commission issues rules and regulations that promote adequate and effective disclosure of information to the investing public. The commission also oversees and requires the registration of other key participants in the securities industry, including stock exchanges, broker-dealers, clearing agencies, depositories, transfer agents, investment companies, and public utility holding companies. SEC is an independent, quasi-judicial agency that operates at the direction of five commissioners appointed by the President and confirmed by the Senate. In fiscal year 2006, SEC had a budget of about $888 million and staff of 3,590. Each year the commission accepts, processes, and publicly disseminates more than 600,000 documents from companies and individuals, including annual reports from more than 12,000 reporting companies. In fiscal year 2006, the commission collected $499 million in filing fees and $1.8 billion in penalties and disgorgements. To support its financial operations and store the sensitive information it collects, the commission relies extensively on computerized systems interconnected by local and wide area networks. To process and track financial transactions such as filing fees paid by corporations and penalties from enforcement activities, SEC relies on several applications--Momentum, Electronic Data Gathering, Analysis, and Retrieval system (EDGAR), and Case Activity Tracking System 2000 (CATS). Momentum, a commercial off-the-shelf accounting software product, is used to record the commission's accounting transactions, to maintain its general ledger, and to maintain the information SEC uses to produce financial reports. EDGAR is an Internet- based system used to collect, validate, index, and accept the submissions of forms filed by SEC-registered companies. EDGAR transfers this information to the general ledger nightly. The commission's Division of Enforcement uses CATS, a modified commercial off-the-shelf database application, to record enforcement data and create management reports. CATS tracks enforcement-related data, including SEC-imposed fines and penalties. In addition, the commission uses these systems to maintain sensitive information, including filing data for corporations, and legal information on enforcement activities. According to FISMA, the Chairman of the SEC has responsibility for providing information security protections commensurate with the risk and magnitude of the harm resulting from unauthorized access, use, disclosure, disruption, modification or destruction of the agency's information systems and information. The Chairman of the SEC delegated authority to the chief information officer (CIO) to be responsible for establishing and maintaining a comprehensive information security program and governance framework. As part of its program, the CIO is to (1) ensure that policies, procedures, and control techniques to address all applicable information security requirements are effectively implemented and maintained; (2) work closely with designated authorizing officials to ensure that the SEC-wide program is effectively implemented and managed; and (3) delegate authority to the agency chief information security officer (CISO) to carry out information security responsibilities and to ensure compliance with applicable federal laws, regulations, and standards. The CISO serves as the CIO's liaison with system owners and authorizing officials to ensure the agency security program is effectively implemented. The CISO also ensures certifications and accreditations are accomplished in a timely and cost-effective manner and that there is centralized reporting of all information security related activities. The objectives of our review were to assess (1) the status of SEC's actions to correct or mitigate previously reported information security weaknesses and (2) the effectiveness of the commission's information system controls for ensuring the confidentiality, integrity, and availability of its information systems and information. As part of our assessment of the effectiveness of SEC's information system controls, we also evaluated the commission's progress toward meeting the requirements for an agencywide security program mandated by FISMA. We conducted our review using our Federal Information System Controls Audit Manual (FISCAM), a methodology for reviewing information system controls that affect the confidentiality, integrity, and availability of computerized data. Specifically, we evaluated information security controls in the following areas: security management, which provides a framework and continuing cycle of activity for managing risk, developing security policies, assigning responsibilities, and monitoring the adequacy of the agency's computer- related controls; access controls, which limit or detect access to computer resources (data, programs, equipment, and facilities), thereby protecting them against unauthorized modification, loss, and disclosure; configuration management, which prevents unauthorized changes to information system resources (for example, software programs and hardware configurations); segregation of duties, which includes policies, procedures, and an organizational structure to manage who can control key aspects of computer-related operations; and contingency planning, so that when unexpected events occur, critical operations continue without disruption or are promptly resumed, and critical and sensitive data are protected. For our first objective, we examined supporting documentation and conducted tests and evaluations of corrective actions taken by the commission to correct weaknesses previously reported as unresolved at the conclusion of our 2005 audit. To evaluate the effectiveness of the commission's information security controls and program, we identified and examined its pertinent security policies, procedures, guidance, security plans, and relevant reports. Where federal requirements, laws, and other guidelines, including National Institute of Standards and Technology guidance, were applicable, we used these to assess the extent to which the commission had complied with specific requirements. We held discussions with key security representatives, system administrators, and management officials to determine whether information system controls were in place, adequately designed, and operating effectively. In addition, we conducted tests and observations of controls in operation using federal guidance, checklists and vendor best practices. SEC has corrected or mitigated 58 of the 71 security control weaknesses previously reported as unresolved at the conclusion of our 2005 audit. Specifically, the commission resolved all of the previously reported weaknesses in security related activities and contingency planning, and it has made significant progress in resolving access control weaknesses. A key reason for SEC's progress was that its senior management was actively engaged in implementing information security related activities and mitigating the previously reported weaknesses. The commission has addressed 34 of the previously identified access control weaknesses. For example, SEC has implemented controls to enforce strong passwords, and removed excessive rights granted to certain users on their Microsoft Windows servers and workstations; established audit trails on its critical financial systems; reconfigured its internal network infrastructure to be configured securely; implemented virus protection on all of its Microsoft Windows servers; developed and implemented procedures to review employee and contractor access to the data center based on SEC-established criteria; assessed the physical security of each of its 11 field office locations and developed a plan to review each of the offices biannually; and developed an incident response program that includes policies and procedures for handling and analyzing incidents. SEC has also corrected or mitigated all 18 security related activity weaknesses previously reported as unresolved at the conclusion of our 2005 audit. For example, the commission has implemented a risk assessment process; established a process to ensure that effective information system controls exist to safeguard its payroll/personnel system; had 99 percent of employees and contractors complete security awareness training; developed and documented a process to ensure background investigations were conducted for employees and contractors; and established a process to identify and remove computer access rights accounts granted to separated contractors or nonpaid users of SEC systems. In addition, SEC has developed and updated its disaster recovery plans covering major applications. Moreover, the commission has tested its plans throughout the year through a series of disaster recovery exercises covering major applications and various scenarios. A key reason for its progress was that SEC's senior management was actively engaged in implementing information security related activities and mitigating the previously reported weaknesses. The Chairman has received regular briefings on agency progress in resolving the previously reported weaknesses, and the CIO has coordinated efforts with other offices involved in implementing information security policies and controls at the commission. An executive-level committee with oversight responsibility for the commission's internal controls was also established and has responsibility for approving programs and policies for internal control assessment and testing as well as developing policies to resolve internal control weaknesses. While SEC has made important progress in strengthening its information security controls and program, it has not completed actions to correct or mitigate 13 previously reported weaknesses. For example, the commission has not mitigated weaknesses in user account and password management, periodically reviewed software changes, or adequately controlled access to sensitive information. Failure to resolve these issues will leave the commission's sensitive data vulnerable to unauthorized disclosure, modification, or destruction. SEC has not consistently implemented certain key controls to effectively safeguard the confidentiality, integrity, and availability of its financial and sensitive information and information systems. In addition to 13 previously identified weaknesses that remain unresolved, we identified 15 new information security weaknesses in access controls and configuration management. By the conclusion of our review, SEC had taken action to address 11 of the 15 new weaknesses. A primary reason for these control weaknesses is that SEC had not consistently implemented elements of its information security program. As a result, the commission cannot be assured that its controls are appropriate and working as intended and that its financial and sensitive data and systems are not at increased risk of unauthorized disclosure, modification, or destruction. Access controls limit or detect inappropriate access to computer resources (data, equipment, and facilities), thereby protecting them from unauthorized disclosure, modification, and loss. Specific access controls include boundary protection, identification and authentication, authorization, and physical security. Without adequate access controls, unauthorized individuals, including outside intruders and former employees, can surreptitiously read and copy sensitive data and make undetected changes or deletions for malicious purposes or personal gain. In addition, authorized users can intentionally or unintentionally modify or delete data or execute changes that are outside their span of authority. Boundary protection pertains to the protection of a logical or physical boundary around a set of information resources and implementing measures to prevent unauthorized information exchange across the boundary in either direction. Organizations physically allocate publicly accessible information system components to separate subnetworks with separate physical network interfaces, and they prevent public access into their internal networks. Unnecessary connectivity to an organization's network increases not only the number of access paths that must be managed and the complexity of the task, but the risk of unauthorized access in a shared environment. SEC policy requires that certain automated boundary protection mechanisms be established to control and monitor communications at the external boundary of the information system and at key internal boundaries within the system. Additionally, SEC policy requires that if remote access technology is used to connect to the network, it must be configured securely. The commission did not configure a remote access application to include required boundary protection mechanisms. For example, the application was configured to allow simultaneous access to the Internet and the internal network. This could allow an attacker who compromised a remote user's computer to remotely control the user's secure session from the Internet. In addition, SEC did not securely configure the systems used for remote administration of its key information technology resources. Consequently, a remote attacker could exploit these vulnerabilities to launch attacks against other sensitive information systems within the commission. A computer system must be able to identify and authenticate different users so that activities on the system can be linked to specific individuals. When an organization assigns unique user accounts to specific users, the system is able to distinguish one user from another--a process called identification. The system must also establish the validity of a user's claimed identity by requesting some kind of information, such as a password, that is known only by the user--a process known as authentication. SEC policy requires the implementation of automated identification and authentication mechanisms that enable the unique identification of individual users. The commission did not securely enforce identification and authentication controls on all of its information systems. For example, SEC did not remove default database accounts with known or weak passwords or ensure that these accounts had been locked. In addition, the commission was still unable to enforce strong password management on all of its systems and continued to have weak key-management practices for some of its secure connections. This increases the risk that unauthorized users could gain access to SEC systems and sensitive information. Authorization is the process of granting or denying access rights and privileges to a protected resource, such as a network, system, application, function, or file. A key component of granting or denying access rights is the concept of "least privilege." Least privilege is a basic principle for securing computer resources and data. It means that users are granted only those access rights and permissions that they need to perform their official duties. To restrict legitimate users' access to only those programs and files that they need in order to do their work, organizations establish access rights and permissions. "User rights" are allowable actions that can be assigned to users or to groups of users. File and directory permissions are rules that are associated with a particular file or directory, regulating which users can access it--and the extent of that access. To avoid unintentionally giving users unnecessary access to sensitive files and directories, an organization must give careful consideration to its assignment of rights and permissions. SEC policy requires that each user or process be assigned only those privileges needed to perform authorized tasks. SEC system administrators did not ensure that their systems sufficiently restricted system and database access and privileges to only those users and processes requiring them to perform authorized tasks. For example, administrators had not properly restricted access rights to sensitive files on some servers. Nor did the commission adequately restrict privileges to a system database. In addition, new requests or modifications for user access to the EDGAR system were not reviewed by its system owner; nor was current documentation maintained on user privileges granted to individuals based on their roles and divisions. The commission also continued to experience difficulty implementing a process to effectively remove network system accounts from separated employees and adequately controlling access to sensitive information. These conditions provide more opportunities for unauthorized individuals to escalate their privileges and make unauthorized changes to files. Physical security controls are important for protecting computer facilities and resources from espionage, sabotage, damage, and theft. These controls restrict physical access to computer resources, usually by limiting access to the buildings and rooms in which the resources are housed and by periodically reviewing the access granted in order to ensure that access continues to be appropriate. At SEC, physical access control measures (such as guards, badges, and locks--used alone or in combination) are vital to protecting the agency's sensitive computing resources from both external and internal threats. SEC policy requires that specific procedures be followed to protect and control physical access to sensitive work areas in its facilities. SEC procedures for protecting and controlling physical access to sensitive work areas were not always followed. Specifically, the commission had not properly implemented perimeter security at a key location. Guards at the location did not inspect photo identification and expiration dates. In addition, the commission did not adequately restrict physical access to its network in public locations. Until SEC fully addresses its physical security vulnerabilities, there is increased risk that unauthorized individuals could gain access to sensitive computing resources and data and inadvertently or deliberately misuse or destroy them. To protect an organization's information, it is important to ensure that only authorized applications and programs are placed in operation and that the applications are securely configured. This process, known as configuration management, consists of instituting policies, procedures, and techniques to help ensure that all programs and program modifications are properly authorized, tested, and approved. Specific controls for configuration management include policies and procedures over change control and patch management. Configuration management policies and procedures should be developed, documented, and implemented at the agency, system, and application levels to ensure an effective configuration management process. Patch management, including up-to-date patch installation, helps to mitigate vulnerabilities associated with flaws in software code, which could be exploited to cause significant damage. SEC policy requires vulnerability management of system hardware and software on all of its information systems. SEC continues to have difficulty implementing effective control over changes to software and other applications. For example, the commission lacked procedures to periodically review application code to ensure that only authorized changes were made to the production environment, did not document authorizations for software modifications, and did not always follow its policy of assigning risk classifications to application changes. As a result, unapproved changes to SEC production systems could be made. In addition, the commission did not ensure the application of timely and comprehensive patches and fixes to system software. For example, the commission did not consistently install critical patches for the operating system and third-party applications on its servers and end-user workstations. Failure to keep system patches up-to-date could allow unauthorized individuals to gain access to network resources or launch denial-of-service attacks against those resources. A malicious user can exploit these vulnerabilities to gain unauthorized access to network resources or disrupt network operations. As a result, there is increased risk that the integrity of these network devices and administrator workstations could be compromised. A primary reason for these control weaknesses is that SEC had not consistently implemented elements of its information security program. The effective implementation of an information security program includes implementing the key elements required under FISMA and the establishment of a continuing cycle of activity--which includes assessing risk, developing and implementing security procedures, and monitoring the effectiveness of these procedures--to ensure that the elements implemented under the program are effective. FISMA requires agencies to develop, document, and implement an information security program, which includes the following: developing and implementing policies and procedures; testing and evaluating the effectiveness of controls; and planning, implementing, evaluating, and documenting remedial actions to address information security deficiencies. A key task in developing, documenting, and implementing an effective information security program is to establish and implement risk-based policies, procedures, and technical standards that cover security over an agency's computing environment. If properly implemented, policies and procedures can help to reduce the risk that could come from unauthorized access or disruption of services. Because security policies are the primary mechanism by which management communicates its views and requirements, it is important to document and implement them. Although SEC has developed and documented information security related policies and procedures, it has not consistently implemented them across all systems. According to SEC policy, heads of office and system owners are responsible for implementing policies and procedures as well as reviewing and enforcing security for their systems. However, our analysis showed that 13 of the 15 newly identified weaknesses were due to the inconsistent implementation of policies and procedures by the system owners and offices. Until the commission can verify that all system owners and offices implement agency policies and procedures, it will not have assurance that requirements are being followed and controls will work as intended. Testing and evaluating systems is a key element of an information security program that ensures that an agency is in compliance with policies and that the policies and controls are both appropriate and effective. This type of oversight is a fundamental element because it demonstrates management's commitment to the security program, reminds employees of their roles and responsibilities, and identifies and mitigates areas of noncompliance and ineffectiveness. Although control tests and evaluations may encourage compliance with security policies, the full benefits are not achieved unless the results improve the security program. Analyzing the results of security reviews provides security specialists and business managers with a means of identifying new problem areas, reassessing the appropriateness of existing controls, and identifying the need for new controls. FISMA requires that the frequency of tests and evaluations be based on risk, but occur no less than annually. SEC did not sufficiently test and evaluate the effectiveness of controls for a major system as required by its certification and accreditation process. When the general ledger system underwent a significant change, agency policy required that the system undergo recertification and reaccreditation, which included system testing and evaluation of controls. However, SEC did not complete recertification and reaccreditation testing of controls for the system. We identified three control weaknesses associated with the change to the general ledger system that SEC had not detected. Since the commission has not completed sufficient testing and evaluation for the general ledger system after it underwent a significant change, it cannot be assured that its security policies and controls are appropriate and working as intended. Remedial action plans are a key component described in FISMA. These plans assist agencies in identifying, assessing, prioritizing, and monitoring the progress in correcting security weaknesses that are found in information systems. According to Office of Management and Budget guidance, agencies should take timely and effective action to correct deficiencies that they have identified through a variety of information sources. To accomplish this task, remedial action plans should be developed for each deficiency, and progress should be tracked for each. Although SEC developed remedial action plans to mitigate identified weaknesses in its systems and developed a mechanism to track the progress of actions to correct deficiencies, it did not consistently take effective and timely action to do so. Our analysis showed that 7 of the 15 new weaknesses had been previously identified in remedial action plans. Of the 7 weaknesses, 4 were not effectively mitigated, although SEC noted that they had been closed in prior year remedial action plans. Another known weakness had been listed in a remedial action plan since April 2004. This existed in part because until recently, system remedial action plans did not have completion dates for all deficiencies. These inconsistencies exist because the commission did not develop, document, and implement a policy on remedial action plans to ensure deficiencies were mitigated in an effective and timely manner. As a result, SEC will have limited assurance that all known information security weaknesses are mitigated or corrected in an effective and timely manner. Public trust is vital to the proper functioning of the securities markets. Because SEC relies heavily on computerized systems to maintain fair, orderly, and efficient securities markets, the security of its financial and sensitive data is paramount. While the commission has made important progress in addressing our previous information security recommendations and strengthening its information security program, both outstanding and newly identified weaknesses continue to impair SEC's ability to ensure the confidentiality, integrity, and availability of financial and other sensitive data. Accordingly, these deficiencies represent a reportable condition in internal controls over SEC's information systems. Sustained senior management involvement and oversight are vital for SEC's newly developed security program to undergo the continuous cycle of activity required for the effective development, implementation, and monitoring of policies and procedures. If the commission continues to have senior management actively engaged and continues to implement a framework and continuous cycle of activity, it will help ensure that outstanding weaknesses are mitigated or resolved and that key controls are consistently implemented. If progress is not sustained, SEC will not have sufficient assurance that its processes can mitigate current weaknesses and detect new weakness, and its financial and sensitive data will remain at risk of unauthorized disclosure, modification, or destruction. To assist the commission in improving the implementation of its agencywide information security program, we recommend that the SEC Chairman take the following three actions: 1. verify that all system owners and offices implement agency security 2. complete recertification and reaccreditation testing and evaluation on the general ledger system; 3. develop, document, and implement a policy on remedial action plans to ensure deficiencies are mitigated in an effective and timely manner. In a separate report designated "Limited Official Use Only", we also made 18 recommendations to the SEC Chairman to address actions needed to correct 15 information security weaknesses. In providing written comments on a draft of this report, the SEC Chairman and Chief Information Officer agreed that the agency needs to maintain momentum addressing the remaining gaps in its information security program and stated that it is actively working to complete corrective actions for findings that remain open and enhance its information security program by implementing our recommendations. They also identified several actions the agency has completed to resolve known weaknesses and stated that going forward the commission's primary focus will be on making its information security program more aggressive in identifying and resolving issues as or before they arise, to ensure high levels of security compliance across the agency. Their written comments are reprinted in appendix I. This report contains recommendations to you. As you know, 31 U.S.C. 720 requires that the head of a federal agency submit a written statement of the actions taken on our recommendations to the Senate Committee on Homeland Security and Governmental Affairs and to the House Committee on Oversight and Government Reform not later than 60 days from the date of the report and to the House and Senate Committees on Appropriations with the agency's first request for appropriations made more than 60 days after the date of this report. Because agency personnel serve as the primary source of information on the status of recommendations, GAO requests that the agency also provide us with a copy of your agency's statement of action to serve as preliminary information on the status of open recommendation. We are sending copies of this report to the Chairmen and Ranking Minority Members of the Senate Committee on Banking, Housing, and Urban Affairs; Senate Committee on Homeland Security and Governmental Affairs; House Committee on Financial Services; House Committee on Oversight and Government Reform; and SEC's Office of Managing Executive for Operations; Office of the Executive Director; Office of Financial Management; Office of Information Technology; and the SEC's Inspector General. We will also make copies available to others on request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions regarding this report, please contact me at (202) 512-6244 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. Key contributors to this report are listed in appendix II. In addition to the individual named above, Charles Vrabel and Lon Chin, Assistant Directors; Angela Bell, Jason Carroll, Daniel Castro, West Coile, William Cook, Anh Dang, Kirk Daubenspeck, Valerie Hopkins, Henry Sutanto, Amos Tevelow, and Chris Warweg made key contributions to this report.	In carrying out its mission to ensure that securities markets are fair, orderly, and efficiently maintained, the Securities and Exchange Commission (SEC) relies extensively on computerized systems. Integrating effective information security controls into a layered control strategy is essential to ensure that SEC's financial and sensitive information is protected from inadvertent or deliberate misuse, disclosure, or destruction. As part of its audit of SEC's financial statements, GAO assessed (1) SEC's actions to correct previously reported information security weaknesses and (2) the effectiveness of controls for ensuring the confidentiality, integrity, and availability of SEC's information systems and information. To do this, GAO examined security policies and artifacts, interviewed pertinent officials, and conducted tests and observations of controls in operation. SEC has made important progress toward correcting previously reported information security control weaknesses. Specifically, it has corrected or mitigated 58 of the 71 weaknesses previously reported as unresolved at the conclusion of GAO's 2005 audit. The commission resolved all of the previously reported weaknesses in security related activities and contingency planning, and made significant progress in resolving access control weaknesses. A key reason for its progress was that SEC's senior management was actively engaged in implementing information security related activities. Despite this progress, SEC has not consistently implemented certain key controls to effectively safeguard the confidentiality, integrity, and availability of its financial and sensitive information and information systems. In addition to 13 previously identified weaknesses that remain unresolved, 15 new information security weaknesses were identified. By the conclusion of GAO's review, SEC took action to address 11 of the 15 new weaknesses. A primary reason for these control weaknesses is that SEC had not consistently implemented elements of its information security program. This included inconsistent implementation of agency policies and procedures, not sufficiently testing and evaluating the effectiveness of controls for a major system as required by its certification and accreditation process, and not consistently taking effective and timely action to correct deficiencies identified in remedial action plans. Until SEC does, it will have limited assurance that it will be able to manage risks and protect sensitive information on an ongoing basis.	6,044	456
Veterans submit their disability compensation claims to 1 of VBA's 57 regional offices. These claims contain, on average, five disabling medical conditions that the veteran believes are service connected. For each claimed condition, VA must determine if credible evidence is available to support the veteran's contention of service connection. VA grants service connection for an average of three of the five conditions claimed by a veteran. Key sources of evidence for determining service connection are veterans' military service medical and personnel records. To determine service connection in some cases, VA also may need to obtain information from DOD historical military records for the units in which veterans served. VBA's regional offices face a complex task in obtaining veterans' military service records because (1) service records consist of numerous types of records that can originate from numerous sources within or outside DOD, (2) the process for collecting and storing service records has varied substantially for different groups of veterans over time, (3) service records cannot always be found at the expected storage locations, and (4) the service records of many veterans were destroyed by a fire in 1973 at the National Personnel Records Center, a primary repository for service personnel and medical records. For detailed information on military service records, including the types and locations of the records and the process for collecting and storing them, see appendix II. Once a claim has all the necessary evidence, the regional office evaluates the claim and determines whether the claimant is eligible for benefits. If a veteran disagrees with a regional office's decision on any of the issues in his or her claim, the veteran may file an appeal with the Board of Veterans' Appeals, requesting a more favorable decision. In many cases, the board finds it cannot make a final decision on a veteran's appeal until VBA does additional work on the case. In such cases, the board sends (remands) the case back to VBA to perform the necessary additional work. The additional work required for remands can include making initial or follow- up attempts to obtain relevant records in accordance with the requirements of the Veterans Claims Assistance Act. Under the act, if relevant records--such as military service records--are believed to be in the custody of a federal agency, VBA's regional offices must continue requesting the records until either the agency provides the records or the regional office is reasonably certain the records do not exist or that further efforts would be futile. VA's regulations state that the regional office cannot discontinue its efforts unless it has obtained a statement from the agency advising VA that the records either do not exist or are not in the agency's possession. For detailed information on VA's disability compensation claims and appeals process, see appendix III. VA's internal assessments indicate that regional offices generally comply with the requirements of the Veterans Claims Assistance Act for obtaining veterans' military service records. However, VBA does not have a system for assessing the reliability and accuracy of research done on behalf of regional offices by a VBA unit located at the National Personnel Records Center, where the service records of many veterans are stored. The VBA quality review unit that evaluates the accuracy of regional office decisions on compensation claims has found that that less than 4 percent of these decisions contain errors involving regional offices' failing to obtain military service records as required by law. Similarly, of all the compensation appeals cases decided by the Board of Veterans' Appeals during November 2004-January 2006, the board remanded less than 3 percent of these cases to VBA for rework due to deficiencies in obtaining military service records. However, because VBA does not systematically evaluate the quality of the research done on behalf of regional offices by the VBA unit at the National Personnel Records Center, VBA does not know the extent to which the information that this unit provides to regional offices is reliable and accurate. VBA maintains a quality review program known as the Systematic Technical Accuracy Review (STAR) program. VBA selects random samples of each regional office's compensation decisions and assesses the regional office's accuracy in processing and deciding such cases. For each decision, the STAR quality review unit reviews the documentation contained in the regional office's claim file to determine, among other things, whether the regional office complied with claims assistance act duty-to-assist requirements for obtaining relevant records, made correct service connection determinations for each claimed condition, and made correct disability rating evaluations for each condition determined to be service connected. An error in any of these decision elements has the potential to result in a different decision outcome. One of VBA's fiscal year 2007 performance goals is that 88 percent of compensation decisions should contain no errors that could affect decision outcomes, and the long-term strategic goal is 98 percent. STAR data from reviews of regional office decisions made during the first half of fiscal year 2006 showed that less than 4 percent of the cases reviewed contained any type of error related to the law's requirements for developing evidence. Because military service records are only one component in the overall body of evidence that regional offices must develop, the percentage of cases with errors related to military service records would be even smaller than the 4 percent error rate. While the STAR database does not capture statistical data on specific types of errors in evidence development, it does contain quality reviewers' narrative comments on the nature of errors found. A VBA analysis of these narrative comments showed that over half of all evidence development errors were due to regional offices not obtaining VA medical examinations or opinions when needed and using inadequate medical examinations. Thus, on the basis of STAR data, one would conclude that errors related to military service records account for less than half--or about 2 percent--of all evidence development errors. Since November 2004, when the Board of Veterans' Appeals began tracking whether remands are the fault of regional offices, it has remanded relatively few cases--less than 3 percent--because of regional office deficiencies in obtaining military records. For example, as of January 2006, the board had made decisions on 41,517 compensation cases and had remanded at least one issue in 44 percent of these cases (see table 1). However, of the 41,517 cases, 25.6 percent contained issues that had been remanded for reasons considered to be the fault of the regional office, and only 2.8 percent contained issues remanded specifically because of deficiencies in obtaining military service records. For each case decided by the appeals board, it also tracks the outcome of each contested issue in the case--for example, a veteran may have contested the denial of service connection for a specific medical condition and also may have asked for a higher disability rating on another condition for which the regional office granted service connection. The 41,517 compensation cases decided by the board contained a total of 88,156 contested issues, of which 39 percent (34,351) were remanded to VBA. However, of the total contested issues, 23 percent (20,191) were remanded for reasons considered to be the fault of the regional offices. For the 20,191 issues remanded because of regional office deficiencies, the board identified a total of 36,812 reasons for remanding these issues (see table 2). Of these remand reasons, only 7.6 percent were related to inadequacies in obtaining military service records (service medical records, 3.5 percent; service personnel records, 2.4 percent; and military unit historical records, 1.6 percent). The predominant reasons for remands were deficiencies in obtaining medical examinations or opinions and nonmilitary records and in providing proper due process. Focusing only on issues in which veterans asked the appeals board to grant service connection for a medical condition that the regional office had denied, the board identified about 12 percent of the reasons for remanding service connection issues as being related to inadequacies in obtaining military service records. To obtain service records stored at the National Personnel Records Center, regional offices submit requests to a VBA unit located at the center, asking the VBA unit to provide copies of service records and/or provide information contained in the records. This unit responded to such requests from regional offices for about 290,000 cases in calendar year 2005. For certain types of compensations claims, such as herbicide exposure and PTSD claims, VBA's written procedures instruct regional offices not to request a copy of the veteran's entire service personnel record, which can be voluminous. Instead, regional offices are supposed to rely on the VBA unit at the National Personnel Records Center to obtain the veteran's files, perform a physical search of the files for relevant records, provide copies of only certain specified records, analyze certain types of records, and provide regional offices with narrative answers on the results of their research and analyses. Thus, regional offices rely on the VBA unit at the National Personnel Records Center to do thorough and complete searches of records, do reliable analyses of records, and provide accurate and clear narrative reports on the results. VBA, however, does not have a systematic quality review program that evaluates the accuracy of the work that the VBA unit at the National Personnel Records Center performs on behalf of the regional offices. Such a program is needed as part of an adequate system of internal management controls for VBA's administration of the compensation program. An example of why the records research done by VBA employees at the National Personnel Records Center must be reliable is provided by disability claims based on exposure to herbicides in Vietnam. Under the Agent Orange Act of 1991, VA presumes that any veteran who had set foot on land in the Republic of Vietnam at any time during the Vietnam era (January 9, 1962, to May 7, 1975) was exposed to herbicides such as Agent Orange. If any such veteran files a claim for certain specified diseases that have been determined to be attributable to herbicide exposure, VA must presumptively grant service connection to the veteran for such diseases. If a veteran claims that he or she was officially stationed on land in Vietnam during that period, the VBA unit at the National Personnel Records Center should be able to verify this fact by examining standard personnel forms in his or her service personnel file. However, if a veteran who was not officially stationed on land in Vietnam claims that on some occasion he or she did set foot on land in Vietnam during that period, VBA may encounter more difficulty obtaining the evidence needed to verify the veteran's claim because standard personnel forms would not document such occasions. In such cases, VBA procedures instruct regional offices not to ask for the veteran's entire service personnel file, but instead, the regional office must ask the VBA unit at the National Personnel Records Center to search the veteran's personnel file for any evidence that might corroborate his or her claim of having set foot on land in Vietnam. One regional office that we visited provided an example of how the VBA unit at the National Personnel Records Center could overlook corroborating evidence contained in the file and cause a significant delay of benefits for a veteran. In this particular case, an Air Force veteran claimed that he had been assigned to an aircraft that had landed and spent a short time on the ground in Vietnam during the presumptive period. The VBA unit at the National Personnel Records Center did not provide the regional office with evidence supporting this claim, and the regional office ultimately denied the claim. However, the veteran appealed the decision to the Board of Veterans' Appeals, which remanded the case to the regional office and ordered the regional office to obtain and review the veteran's entire personnel file. After obtaining the entire file from the National Personnel Records Center, the regional office found documents in the file that provided sufficient evidence to conclude that the veteran's claim was credible. If the VBA unit at the National Personnel Records Center had found and reported this evidence to the regional office during the initial claims process, the veteran's claim could have been granted without his having to go through the appeals process. Also, for many PTSD claims, regional offices potentially must rely on the VBA unit at the National Personnel Records Center to do thorough research of personnel records. PTSD results from personal exposure to traumatic events (stressors) that can occur during combat events; noncombat events--such as plane crashes, ships sinking, explosions, burn ward duty, or graves registration duty--and personal assault. For such claims, if evidence substantiates that a veteran engaged in a combat event, the veteran's own testimony is sufficient to substantiate the occurrence of a claimed stressor associated with that event. If engagement in combat is not substantiated, then the regional office must seek other evidence substantiating the occurrence of the stressor claimed by the veteran. Only for PTSD claims involving personal assault do VBA's procedures instruct regional offices to request a copy of the entire personnel file from the National Personnel Records Center. Routinely requesting the entire file for personal assault cases is permitted because such cases can involve personal and sensitive incidents that sometimes are not officially reported. Therefore, the entire file needs to be examined for indications of changes in behavior or performance that may have been related to the alleged rape or assault. For all other types of PTSD stressors claimed by veterans, the documents that regional offices may routinely request from the veterans' service personnel files do not include performance reports or written justifications for awards and commendations. According to regional office officials, however, these documents sometimes can contain evidence that supports a veteran's PTSD claim. As a result, the regional offices depend on the VBA employees stationed at the National Personnel Records Center to read such documents and report any supporting evidence to the regional office. Officials of VBA's Records Management Center--which oversees the work of the VBA unit at the National Personnel Records Center--informed us they are considering implementing a systematic program for reviewing the quality of all types of research work performed by this unit. Although a quality review function is already in place, only one analyst has been responsible for reviewing a 3 percent random sample of each employee's work products. Given the volume of work products and limited time because of other duties, the analyst told us he examined few actual service record files to assess the accuracy of the work done by the employees. Instead, the analyst had resorted to using professional judgment to assess whether the content of the responses that employees provided to regional offices appeared reasonable in light of the nature of the request to which they were responding. Only if the analyst thought the response content looked questionable did he actually obtain the service record files and examine the records to determine the accuracy of the response. For example, the analyst told us that in a recent month he had reviewed actual service record files for only 17 of the approximately 700 responses randomly selected for review. According to officials of the VA Records Management Center, they are considering establishing a team of three or four full-time quality review specialists that would report to the director of the VA Records Management Center. If implemented, this team would review the quality of work done by VBA employees at the National Personnel Records Center and at the VA Records Management Center. The team would continue to randomly select a 3 percent sample of each employee's completed work products prepared in response to regional office requests. However, unlike the current review, to determine accuracy, the new team would be able to review the actual service record files for all responses selected for review. A quality review specialist position description has been developed, but at the time of our review, implementation milestones for the new system had not been established. VBA potentially could improve its procedures and reduce the time required to process some veterans' PTSD claims. During fiscal years 1999-2004, the number of veterans receiving compensation benefits because of PTSD increased by about 80 percent, from about 120,000 to almost 216,000. VBA potentially could improve its procedures to reduce the time required to process some veterans' PTSD claims. To verify the occurrence of claimed stressors, regional offices sometimes cannot find needed evidence in the veteran's personal service records and must turn to information contained in the military historical records of DOD. While regional offices are able to directly access and search an electronic library of such records for many Marine Corps veterans, they must rely on a DOD research organization--the U.S. Army and Joint Services Records Research Center (JSRRC)--to research such records for all other service branches. JSRRC's average response time to regional office requests for such research approaches 1 year; by contrast, VBA's average processing time strategic goal for claims involving disability compensation issues is 125 days. The opportunity may exist for VBA to establish an electronic library of DOD military historical records for the other service branches and greatly reduce the time required to process the PTSD claims of many veterans. According to VBA's procedures, if the regional office verifies that a PTSD claimant engaged in combat or was a prisoner of war, the claimant's own personal testimony is sufficient evidence to verify the occurrence of a stressor associated with the combat or the prisoner-of-war experience. Otherwise, the regional office must obtain other credible evidence to verify the claimed stressor. For Marine Corps veterans from the Vietnam era and the Korean conflict, the regional office can electronically view and search a set of compact discs provided by the Marine Corps University Archives. These discs contain Marine Corps historical records for the Vietnam era (1960-1975) and the Korean conflict. Officials of regional offices we visited estimated that, on average, they can perform these electronic searches of Marine Corps records in less than a day. If the regional office cannot find the needed corroborative evidence on the compact disks, the regional office must ask the Marine Corps University Archives to search its records for any evidence corroborating the veteran's claim, and only if the Marine Corps University Archives cannot find corroboration may the regional office deny the veteran's PTSD claim. By contrast, for veterans of armed service branches other than the Marine Corps, DOD has not created an electronic historical library of records that regional offices can search when the veteran's service medical or personnel records do not provide evidence to verify engagement in combat or to verify the claimed stressor. Instead, VBA's procedures call for regional offices to ask JSRRC to conduct research of military historical records of the units in which veterans served in order to provide the needed corroboration. Many of the records that JSRRC may search are voluminous, are not stored electronically, and must be searched manually (see app. V for information on such records). After conducting its research, JSRRC provides the regional office a summary of its findings but does not evaluate evidence, render opinions, make conclusions, or decide the merits of a claim. According to its Director, the center has 13 full-time- equivalent employees and a steady backlog of about 4,000 cases, of which about 85 percent come from VBA regional offices; the remaining requests are submitted by individual veterans and veterans service organizations. In our visit to VBA's Oakland regional office, we learned that the regional office recently had begun a local initiative in which the regional office had designated three employees who--when other decision-making duties permit--search an electronic library of unclassified historical military records compiled by the Chicago regional office's military records specialist. According to the Chicago regional office's military records specialist, several other regional offices also have been provided this electronic library. The Oakland regional office employees doing this research and the Chicago regional office military records specialist stated that they have been able to find sufficient evidence in the electronic library to grant service connection for a substantial portion of PTSD cases that otherwise would have required that the regional office ask the JSRRC to search for evidence corroborating the veteran's claim. According to these officials, they can complete these searches within a few weeks after being asked to do the search. These regional offices now request searches by JSRRC for PTSD cases only if sufficient evidence cannot be found in the electronic library to grant service connection. The Director of JSRRC told us that such research by regional offices could greatly reduce JSRRC's backlog of research requests and reduce the average response time, assuming JSRRC's staffing level remained constant. A related issue is that some veterans may not be willing to disclose to regional offices certain details needed to process their PTSD claims because the claimed stressful event occurred during classified operations. For example, to alleviate the possibility of such reluctance on the part of hundreds of thousands of veterans who had participated in classified atmospheric atomic testing and possibly been exposed to nuclear radiation, the Secretary of Defense issued a memorandum in 1996 authorizing such veterans to divulge to VA the name and location of their command, duties performed, dates of service, and related information necessary to validate exposure to nuclear radiation. Similarly, in PTSD cases for which regional offices cannot find sufficient evidence in veterans' service records to grant the claims, if the veterans, because of concerns about classified operation, will not provide the regional office with certain minimum details, the regional office will not be able to submit requests to JSRRC to search military historical records for corroborating evidence. We discussed the classified operations issue with the Director of JSRRC, who stated that he personally had talked with veterans who had directly contacted his organization and who maintained they could not divulge to him the details of their participation in classified operations. He said that after he explained to them that the entire JSRRC staff are DOD employees and have appropriate security clearances, the veterans were willing to provide him with the details needed to conduct searches of DOD records, including any pertinent classified records maintained by DOD. While the extent of the classified problem is unknown, the Director had no objections to regional offices advising veterans to directly contact JSRRC if they are unwilling to disclose sufficient details to the regional office to process their claims because their disabilities allegedly were incurred during classified operations. VA is responsible for providing reasonable assurance that it is complying with applicable laws and regulations. While VA's internal assessments indicate that its regional offices generally comply with the requirements of the Veterans Claims Assistance Act for obtaining military service records, VA does not have a systematic quality review program for ensuring the reliability and accuracy of records research done on behalf of regional offices by the VBA unit located at the National Personnel Records Center. As a result, VA cannot reasonably ensure the quality of the research on which regional offices rely to assist many veterans in obtaining service records relevant to their compensation claims. PTSD claims have been a growing portion of the claims processed by regional offices. Many present challenges in obtaining the evidence needed to process them, resulting in veterans having to wait for long periods for their claims to be decided. VBA's establishment of a claims-processing timeliness performance goal demonstrates that high-quality service should result not only in correct decisions, but also decisions rendered in a reasonable length of time. The experience of several regional offices suggests that VBA could improve its timeliness in deciding the PTSD claims of many veterans nationwide if VBA systematically utilized an electronic library of historical military records such as the one compiled by the Chicago regional office. The average time for the Joint Services Records Research Center to respond to such requests is about 1 year; by contrast, officials in some regional offices have found that using the online library compiled by the Chicago regional office enabled them to find sufficient evidence in a matter a few weeks to grant the PTSD claims of many veterans. We recommend that the Secretary of the Department of Veterans Affairs direct the Under Secretary for Benefits to take the following actions. To adequately ensure the quality of the records research done on behalf of regional offices by the VBA unit at the National Personnel Records Center, VBA should move forward in implementing a systematic quality review program that evaluates and measures the accuracy of the unit's responses to all types of regional office research requests. To improve its timeliness in deciding PTSD claims, VBA should assess whether it could systematically utilize an electronic library of historical military records, such as the one compiled by the Chicago regional office, to identify veterans whose PTSD claims can be granted on the basis of information contained in such a library, rather than submitting all research requests to the Joint Services Records Research Center. In its written comments on a draft of this report (see app. VI), VA agreed with our findings and concurred with our recommendations. VA stated it had increased the number of VBA quality reviewers at the National Personnel Records Center in order to better ensure the quality of responses provided to regional offices. VA also noted that VBA will determine the feasibility of regional offices' using other databases to research cases in order to reduce the number of cases sent to the JSRRC. We believe these are positive steps toward ensuring the quality of the records research done by the VBA unit at the National Personnel Records Center and improving timeliness. As agreed with your office, unless you publicly announce it contents earlier, we plan no further distribution until 30 days after the date of this report. At that time, we will send copies of this report to the Secretary of Veterans Affairs, appropriate congressional committees, and other interested parties. The report will also be available at GAO's Web site at http://www.gao.gov. If you or your staff have any questions regarding this report, please call me at (202) 512-7215. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other contacts and staff acknowledgments are listed in appendix VI. To identify Veterans Benefits Administration (VBA) procedures for obtaining relevant military service records, we obtained and analyzed Department of Veterans Affairs (VA) regulations governing the processing of compensation claims; VBA's written procedures, user guide for the automated system for requesting military records, training materials, and other VBA instructions for directing regional offices' efforts in obtaining military records; locally written procedures and guides developed by regional offices to direct their employees in obtaining military records; and information electronically available to regional offices through VBA's internal network. To gain an operational context for the information obtained from these sources and to obtain stakeholders' views on the effectiveness of VBA's procedures for obtaining relevant military service records, we interviewed officials of VA's Board of Veterans' Appeals and Office of Inspector General; VBA's Compensation and Pension Service, Office of Field Operations, Appeals Management Center, Records Management Center, VA Liaison Office at the National Personnel Records Center, and regional offices located in Atlanta, Georgia, Baltimore, Maryland, Oakland, California, and St. Petersburg, Florida; custodians of military records and organizations that research military records on behalf of VBA's regional offices, including Department of Defense (DOD) U.S. Army and Joint Services Records Research Center, Defense Threat Reduction Agency, DOD Joint Requirements and Integration Office, and National Personnel Records Center, which is operated by the National Archives and Records Administration; and veterans' advocacy groups, including Disabled American Veterans, American Legion, Veterans of Foreign Wars, Paralyzed Veterans of America, AMVETS, National Veterans Legal Services Program, and state and county veterans service agencies. As part of our review of the results of VA's internal assessments of regional offices' compliance with Veterans Claims Assistance Act requirements for obtaining military service records, we assessed the reliability of fiscal year 2006 data compiled by VBA from its Systematic Technical Accuracy Review (STAR) program for regional office decisions involving compensation issues. In earlier GAO work on STAR data reported for fiscal year 2004, we reported that regional offices had failed to send any case files to the STAR unit for hundreds of cases randomly selected for quality review, which meant the possibility existed that if the STAR unit had actually been able to review the files for these cases, the accuracy scores for some individual regional offices could have been lower than those reported for fiscal year 2004. Subsequently, the STAR unit began tracking the receipt of cases randomly selected for review. For our current work, we followed up with the STAR unit to determine the extent to which regional offices now send to the STAR unit all cases selected for quality review. We obtained data from the STAR unit and concluded that the numbers of cases requested, received, and reviewed for the first half of fiscal year 2006 provided nationwide data that were sufficiently reliable for our reporting purposes. Even so, the STAR unit did not receive about 6 percent of the cases selected for review during the first half of fiscal year 2006; therefore, because the STAR unit might have found additional VCAA development errors if it had had the opportunity to review these cases, the percentage of cases actually containing Veterans Claims Assistance Act (VCAA) development errors may have been larger than indicated by the fiscal year 2006 data reported by the STAR unit. Also, as part of our review of VA's internal assessments of regional offices' compliance with VCAA requirements for obtaining military service records, we assessed the reliability of data recorded in the Veterans Appeals Control and Locator System (VACOLS) by the Board of Veterans' Appeals on the results of its reviews of veterans' appeals on compensation decisions made by regional offices. We obtained data as of January 31, 2006, on all compensation cases decided by the board since November 1, 2004, when the board began recording in VACOLS whether its remands of decisions to VBA for rework were due to regional office deficiencies. To assess the reliability of the VACOLS data, we interviewed knowledgeable board officials, performed electronic testing of pertinent VACOLS data elements, and reviewed existing information about the data and the system that produced them. We determined that the data were sufficiently reliable for the purposes of this report. We analyzed these data to create summary statistics on the disposition of compensation cases and issues decided by the board. VBA's regional offices face a complex task in obtaining veterans' military service records because (1) service records consist of numerous types of records that can originate from numerous sources within or outside DOD, (2) the process for collecting and storing service records has varied substantially for different groups of veterans over time, (3) service records cannot always be found at the expected storage locations, and (4) the service records of many veterans were destroyed by a fire in 1973 at the National Personnel Records Center, a primary repository for service personnel and medical records. The cumulative service medical records and service personnel records of individual service members contain numerous types of records that can originate in varying organizations and geographic locations of DOD's activities as service members migrate from assignment to assignment during their military service (see table 3). Historically, when service members separated from active duty, all DOD service branches forwarded all service medical records and service personnel records to the National Personnel Records Center in St. Louis, Missouri. However, beginning in the early 1990s, separation point military installations began sending service medical records to VA's Records Management Center, also located in St. Louis. The timing of this changeover varied among service branches, but as of May 1998, all branches had begun sending service medical records to the VA Records Management Center for service members who are discharged from active duty and have no remaining military reserve or National Guard obligation (see table 4, col. 2). Also, in 1996, the Navy became the first DOD service branch to store service personnel records electronically in optically imaged files, which permitted the Navy to discontinue sending these records to the National Personnel Records Center. As of November 2005, all DOD service branches were storing service personnel records electronically and had discontinued sending such records to the National Personnel Records Center (see table 4, col. 3). When service members have military reserve or National Guard obligations remaining at the time of their release from active duty, the service branches may not route their service records in the same way that they route the records of those who do not have such an obligation when released from active duty. For service members who still have reserve or guard obligations at the time of their release, the disposition of their service records varies depending on their service branch, whether their obligation is a reserve versus guard obligation, and whether or not they are assigned to an active unit at the time of release from active duty. VA and DOD jointly initiated a Benefits Delivery at Discharge program that enables service members still on active duty to file disability compensation claims within 6 months before separating from active military duty. Under this program, VBA arranges for a physical examination of the claimant, and the service branch provides a VBA liaison with a copy of the claimant's service medical records. The liaison sends these records to one of the two VBA regional offices (Winston-Salem and Salt Lake City) that process all claims filed under this program. The regional office prepares a rating decision prior to the claimant's discharge from active duty, and after the claimant's discharge, the service branch sends the regional office a copy of the claimant's DD Form 214 (Report of Release from Active Military Service), and the regional office immediately authorizes benefits. As of April 2005, 141 military installations worldwide were participating in the Benefits Delivery at Discharge program, and in fiscal year 2004, and VBA processed 39,000 claims under this program. Additionally, if a service member not participating in this program submits a VA disability claim form to his or her service branch before separating from active duty, the service branch retains the claim form until the individual separates from active duty and then forwards his or her claim form, DD Form 214, and service medical records to the regional office having jurisdiction over the individual's permanent address. To request veterans' service records, regional offices rely primarily on a VBA system known as the Personnel Information Exchange System (PIES). This system provides regional offices with a menu of record request codes, each of which is defined in terms of the types of service records and/or information being requested by the regional office. On behalf of the regional offices that input such requests into the PIES system, the VA Records Management Center prints and mails requests to custodians of records maintained in paper form, and the PIES system electronically routes requests to custodians of service personnel records maintained in optically imaged files. However, for a variety of reasons, the custodians whom regional offices expect to be in possession of requested records cannot always provide the records (see fig. 1). The service records of many older veterans were destroyed by a fire in 1973 at the National Personnel Records Center. The fire destroyed the records of approximately 80 percent (16 million to 18 million) of the Army veterans who served during November 1912 through January 1, 1960, and the records of 75 percent of the Air Force veterans with surnames Hubbard through Z who were discharged between September 25, 1947, and January 1, 1964, and were not in a retired or reserve status at the time of the fire. For some of these veterans, the National Personnel Records Center has resources that can help reconstruct some of their service medical information. For example, the center has Army morning (sick) reports for November 1912 to December 1974 and Air Force morning reports for September 1947 to June 1966. Also, in 1988, the National Personnel Records Center obtained magnetic tapes containing limited information extracted by the Surgeon General's Office from about 10 million hospital admission records for veterans admitted to military hospitals during 1942-1945 and 1950-1954. Another alternative is for VA to ask the veteran's service branch to search sick logs, morning reports, and records of military organizations, hospitals, and infirmaries. Other alternative sources for medical information can include statements from service medical personnel; buddy certificates or affidavits; state or local police accident reports; employment physical examinations; medical evidence from hospitals, clinics, and private physicians that may have treated the veteran during or soon after separation; letters written by the veteran during service; photographs taken during service; pharmacy prescription records; and insurance examinations. For each contested issue, board makes one of three decisions, as shown below (or) Board denies the benefits requested by the veteran (or) VBA obtains more evidence but denies the requested benefits and resubmits the contested issue to the board for a final decision (or) The following individuals made important contributions to the report: Irene Chu, Assistant Director; Marta Chaffee; Martin Scire; Ira Spears; Vanessa Taylor; and Walter Vance.	The Ranking Democratic Member, House Committee on Veterans' Affairs, asked GAO to determine (1) whether VA's internal assessments indicate its regional offices are complying with the requirements of the Veterans Claims Assistance Act (VCAA) of 2000 for obtaining military service records for veterans' disability compensation claims and (2) whether VBA could improve its procedures for obtaining military service records for claims involving post-traumatic stress disorder (PTSD). The Department of Veterans Affairs' (VA) internal assessments indicate its regional offices generally comply with VCAA's requirements for obtaining military service records for veterans' compensation claims. For example, of the decisions made by regional offices on compensation claims during the first half of fiscal year 2006, Veterans Benefits Administration (VBA) quality reviewers found that less than 4 percent contained errors involving failure to obtain military service records. Similarly, of the appealed compensation cases decided by the Board of Veterans' Appeals during November 2004-January 2006, the board remanded less than 3 percent to VBA for rework due to deficiencies in obtaining military service records. However, VBA does not systematically evaluate the quality of research done on behalf of regional offices by a VBA unit at the National Personnel Records Center, where the service records of many veterans are stored. Regional offices rely on this unit to do thorough and reliable searches and analyses of records and provide accurate reports on the results. Without a systematic program for assessing the quality of this unit's work, VBA does not know the extent to which the information that this unit provides to regional offices is reliable and accurate. VBA potentially could improve its procedures and reduce the time required to process some veterans' claims for PTSD, which may result after a veteran participates in, or is exposed to, stressful events or experiences (stressors). Regional offices sometimes must turn to information contained in the military historical records of the Department of Defense (DOD) to verify the occurrence of claimed stressors. While regional offices are able to directly access and search an electronic library of such records for many Marine Corps veterans, they must rely on DOD's U.S. Army and Joint Services Records Research Center (JSRRC) to research such records for all other service branches. The JSRRC's response time to regional office requests approaches an average of 1 year. However, by building on work already done by several regional offices to establish and use an electronic library of DOD military historical records for the other service branches, VBA may be able to greatly reduce the time required to process many veterans' PTSD claims.	7,854	545
In 1999, FCC established the Enforcement Bureau to investigate potential violations of applicable statutes and Commission regulations and orders that are within FCC's mission of protecting consumers, promoting competition, ensuring responsible use of the public airwaves, and addressing risks to public safety. Prior to the establishment of the Enforcement Bureau, the Compliance and Information Bureau handled enforcement of matters currently handled by the field offices, and individual policy bureaus, such as the Media Bureau handled enforcement within their bureau's responsibilities. When the Commission created the Enforcement Bureau, it consolidated most of these responsibilities to streamline enforcement. Currently, the Enforcement Bureau has five divisions that conduct investigations (see fig. 1 below). As of August 2017, there are approximately 199 employees (full time equivalents) in the Enforcement Bureau. Enforcement Bureau officials conduct reviews of potential violations and open enforcement cases if they determine an investigation is warranted. According to FCC officials, information about potential violations comes from a variety of sources including: (1) consumer complaints; (2) industry and/or public safety complaints on interference, such as weather or cell tower interference; (3) referrals from other FCC bureaus such as the Media Bureau that administers broadcast licenses; (4) congressional interest/direction; and (5) trade/news reports on potential company violations. Figure 2 below shows the general process the Enforcement Bureau uses once it decides to open a case and pursue an investigation. In most instances, cases conclude with one of the three following outcomes: the Enforcement Bureau determines there is no violation, and the case is closed without action; the Enforcement Bureau and the company reach a settlement; or FCC issues an enforcement action, which can include a monetary penalty. If an investigation for an enforcement case reveals a potential violation, the Enforcement Bureau may issue a non-monetary or monetary enforcement action. Non-monetary actions include written warnings such as a notice of unlicensed operation or a notice of violation. For example, FCC can notify a party that it is operating a radio station without a license and warn that continued operation could result in more severe penalties such as a fine, seizure of equipment, and imprisonment. Below are the three main enforcement actions that could involve a monetary penalty: Notice of Apparent Liability (NAL): A notice to inform the party of an investigation of a violation that FCC believes has occurred and forfeiture in a specified dollar amount is warranted. The subject of an NAL may elect to pay the proposed forfeiture, ending the proceeding, or file a response making legal or factual arguments that the proposed forfeiture should be modified, reduced, or cancelled. Consent Decree: An agreement between FCC and the party of an investigation that sets forth the terms and conditions in exchange for closing the investigation. This can include a plan for reaching compliance and an agreed upon civil penalty payable to the U.S. Treasury. Forfeiture Order: An order that requires the monetary forfeiture proposed in an NAL be paid. If a party does not pay the forfeiture, the case is referred to the U.S. Department of Justice, which may bring an enforcement action in district court to recover the forfeiture. From calendar years 2014 through 2016, the Enforcement Bureau opened 3,075 cases. Of these, 2,591--approximately 84 percent--were field office cases, which are under the Office of the Field Director. Many of the cases handled by the field offices relate to wireless spectrum interference, such as, a radio station operating outside of its licensed spectrum and interfering with other radio communications. For the number of cases opened and closed by each division from calendar years 2014 through 2016, see table 1 below. FCC closes most cases the Enforcement Bureau investigates without monetary penalty. In calendar years 2014 through 2016, FCC closed 3,732 cases (see table 2). Of these cases, 359 (approximately 10 percent) had a monetary penalty in the form of a NAL, Consent Decree, or Forfeiture Order. In this same period, FCC closed 1,509 cases (approximately 40 percent) through non-monetary enforcement actions such as written or verbal warnings or notice of unlicensed operation. FCC closed the remaining 1,864 cases (approximately 50 percent) without an enforcement action. FCC recently improved the collection of data for its enforcement program by implementing a new enforcement data system and consumer informal complaint portal. Enforcement Bureau Activity Tracking System (EBATS): EBATS is a new data system that serves as the system of record for the Enforcement Bureau. EBATS captures data inputs for investigations (such as key dates and close out status), and contains pertinent notes and documents investigators obtain or create related to a case. Prior to the implementation of EBATS, there were five distinct data systems, one for each division within the Enforcement Bureau. In 2008, we reported that FCC's separate data systems and the limitations with each hampered FCC's ability to use data to inform management of the enforcement program, and we recommended the data systems be improved. EBATS addresses these previously reported issues by unifying the databases and capturing key Enforcement Bureau data and information in a manner that we found, during our current review, to be generally reliable beginning with calendar year 2014. Managers across FCC's divisions use data from EBATS to monitor ongoing work. FCC officials told us that managers of each division review reports based on available data on a weekly basis, which includes the number of cases closed and opened during that week. FCC officials said Enforcement Bureau managers such as the deputy chief of the Enforcement Bureau and assistant bureau chiefs, review EBATS data on a monthly basis. FCC officials noted that the monthly review focuses mainly on cases with pending Commission reviews and external deadlines such as referring debt collection of an issued fine to the U.S. Department of Justice, which is the final step by FCC if a party does not pay an ordered fine. FCC officials said EBATS allows for closer management of dates that resulted in improved case efficiency and provided two examples. First, officials said FCC has decreased the use of tolling agreements, in which FCC requests that parties waive the statute of limitations. Data on the number of tolling agreements from 2014 through 2016 showed FCC used tolling agreements in approximately 1-2 percent of the cases investigated each year. Although FCC officials told us this is an improvement over previous years, they could not provide reliable data on tolling agreements used before 2014. The second example provided by FCC officials is a decrease in the number of backlogged cases, which are those cases considered overdue for resolution. However, when we requested information on the total number of backlogged cases over the last 5 years FCC officials informed us that they do not currently track this information over time. While the database improvements should increase the availability and reliability of data FCC officials can use to assess the program, the agency's current enforcement performance goals are not quantified, as is discussed later in this report. Consumer Informal Complaints Portal: FCC implemented a new consumer complaints portal in December 2014 at a development cost of $297,514. This portal allows consumers to receive e-mail updates on the status of their complaints as well as ask questions and receive answers related to the complaint. The Consumer and Governmental Affairs Bureau (CGB) manages and houses the consumer informal complaints portal. FCC officials stated that most complaints are directly addressed by CGB officials through actions such as providing information to consumers and/or forwarding the complaint to the service provider. FCC officials told us that most complaints do not become enforcement cases because most do not represent a violation of a federal statute or commission regulation. For example, in calendar year 2016 consumers filed 344,045 complaints through the portal; these complaints resulted in 402 enforcement cases, according to FCC officials. Regardless of whether a complaint initiates an enforcement case, FCC officials have access to the information in the consumer complaint portal and officials stated that they can use this data to help identify trends and determine whether to review a particular company or practice. FCC recently updated its enforcement processes by developing an enforcement handbook and reorganizing the field office division of the Enforcement Bureau to enhance efficiencies. Enforcement Handbook: The enforcement handbook is an internal guidance document for the Enforcement Bureau. The handbook contains and organizes previously disparate policy guidelines and added additional guidelines. According to FCC officials, in 2014, there was an agency wide process reform effort and an Enforcement Bureau specific reform effort that resulted in the creation of the enforcement handbook. Officials stated that this document helped in meeting several goals of the reform effort including increasing efficiencies and consistency across divisions and improving effectiveness of allocated resources. The handbook sets explicit timelines for major case milestones. The handbook also provides a case priority rating system to improve efficient use of resources. The case priority rating system is used by most divisions to determine how to prioritize investigations to improve efficient use of resources with the exception of the field office division, which conducts the majority of investigations. The Office of the Field Director has a separate priority rating system to prioritize public safety interference, such as interference to emergency communication networks, above all other cases. FCC officials said they found the case priority rating system helpful for day-to- day management of the enforcement program. To improve consistency across the divisions, the handbook also has standardized templates for various forms and official documents. Previously, each division had its own guidance for preparing these documents. Field Office Reorganization: FCC contracted for a study to review its field offices and received the results in March 2015. In July 2015, FCC issued an order stating it could achieve efficiencies through reorganizing and closing some field offices. As of January 2017, FCC had closed 11 of 24 field offices (see fig. 3), and FCC officials stated that this reduction included eliminating 16 of 21 management positions, and reducing the total number of staff from 108 to 54 employees. FCC officials estimated the reorganization would cost $2 to $4 million and would save $9 to $10 million per year. FCC had originally proposed further cuts to the field office division, but while FCC was considering the field office reorganization in 2015, some stakeholders--ranging from members of Congress, to industry groups, and private companies--raised concerns that the decrease in field staff would hinder FCC's effectiveness and timeliness of response to interference. Two stakeholders (one expert and one industry association) we spoke with for our review remain concerned about this issue. For example, one expert whom we interviewed stated that with the current transition in technology there is likely to be an increase in spectrum interference. According to this expert, wireless broadband is important to the economy because it is used in so many different ways and without effective interference enforcement, wireless' potential could be undermined. The expert added that if there is an increase in interference FCC will need more, not fewer, field resources to resolve interference between spectrum users. Similarly, the industry association representatives we spoke to, expressed concerns that FCC's ability to effectively respond to interference issues has diminished since the field office reorganization. According to FCC officials, to help mitigate concerns about responsiveness to interference issues FCC has employed mobile "tiger teams." These tiger teams are currently located in the Columbia and Denver field offices where FCC officials stated they can be quickly deployed to support high-priority initiatives of the Enforcement Bureau or other entities from headquarters. FCC officials also told us that they are taking steps to use the anticipated cost savings from the field office reorganization to invest in training, equipment, and technology updates that will improve efficiency. For example, some efforts already under-taken or planned, according to officials include the following: Training: FCC officials said field office staff completed a 3-day training on Long-Term Evolution (LTE) wireless networks in July 2016 to increase staff knowledge of this technology. FCC officials said that LTE is increasingly being used for wireless communication and that it is important for FCC officials in the field to understand what it is and how interference with it can cause harm. Officials stated that they plan to conduct more training in the future. Equipment: FCC is in the process of purchasing a remote radio location detector system, which officials stated will act as a "force multiplier" because the detectors can be easily deployed and left in place to measure interference over time. Previously field personnel had to collect this type of data in-person. FCC officials stated they have conducted hands on evaluations of the top four vendors and are developing purchase recommendations. Also, according to FCC officials, FCC recently purchased mobile direction finding equipment for use on rental vehicles and is in the process of purchasing equipment such as amplifiers, filters, and spectrum analyzers to improve the technological capability of field office personnel. Technology: FCC officials are working on a new complaint portal for businesses and public safety officials to use when they experience interference. FCC planned to implement this portal in spring 2016 but has faced delays. Given the recent changes, it is too early to determine the impact these actions will have on enforcement efforts. We found that most of FCC's enforcement program goals as published in its Annual Performance Reports and Budget Estimates to Congress are missing key elements that could improve oversight and performance evaluation. The Government Performance and Results Act (GPRA), as enhanced by the GPRA Modernization Act of 2010 requires agencies to develop objective, measurable, and quantifiable performance goals and related measures and to report progress in performance reports in order to promote public and congressional oversight as well as improve agency program performance. OMB guidance on implementation of the GPRA Modernization Act of 2010 states that performance goals should include a specific measure with a targeted level of performance to occur over a defined timeframe. In comparing FCC's recently published goals to OMB guidance, FCC has only one enforcement performance goal that partly meets OMB's guidance and FCC's remaining seven performance goals do not have associated measures with target levels and timeframes, see table 3 below. Our review of FCC's annual performance report found that it includes descriptions of enforcement actions taken against companies, but does not include quantified performance measures. FCC officials stated that narrative examples, rather than quantified goals and related measures, were the most appropriate way to report on FCC's efforts to help consumers and protect the public through its enforcement program. In 2008, FCC reported two additional performance measures related to the number of cases they investigated and the length of time that it took to close cases. FCC officials told us the Chairman's Office made the decision in 2009 to stop reporting data driven measures and to replace them with narratives of the types of investigations performed, penalties issued, and examples of what it considers bad behavior. According to FCC officials, it is difficult to develop effective performance goals and measures for its enforcement program because enforcement is usually in reaction to the activities of companies. As a result, in lieu of performance goals and measures, FCC's Fiscal Year 2016 Annual Performance Report contains descriptions of specific settlements or proposed fines issued; including one fine in excess of $34 million assessed to a company that illegally imported jamming devices that overpower, jam, or interfere with authorized communications. However, the Enforcement Bureau's new database--EBATS--described earlier in this report, has the data that FCC could use to help establish and report on objective, measurable, and quantifiable performance goals and related measures. Three other regulatory agencies with inherently reactive enforcement programs similar to FCC's have developed objective, measurable, and quantifiable performance goals. During our review we spoke with officials from the Securities Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), and Federal Trade Commission (FTC), which all have enforcement programs and have developed objective, quantifiable, and measureable goals for their programs. Officials from these agencies agreed that it is difficult to measure enforcement performance in part due to the reactive nature of enforcement as well as the difficultly of quantifying deterrence. However, they believe there are performance measures--timeliness, monetary outcomes, and enforcement actions taken in relation to consumer complaints, among others--that can capture essential program information. Examples of three agencies' performance goals for their enforcement programs are shown in table 4 below. We have previously reported that a key element in an agency's efforts to manage for results is its ability to set meaningful performance goals and to measure progress towards those goals. We have also found that communicating what an agency intends to achieve and its approach for doing so are fundamental aims of performance management. Without developing meaningful, quantifiable goals and related measures for the enforcement program, FCC (1) lacks important tools for assessing and reporting on the progress of its enforcement program and determining whether changes should be made to improve performance, and (2) may be missing an opportunity to help promote transparency about its program and support congressional oversight. We interviewed stakeholders with a wide range of perspectives however most agreed that FCC's enforcement is important for deterring violations of federal statutes and FCC regulations. Fourteen of the 22 stakeholders explicitly stated that FCC enforcement is important to deter violations and/or provided examples of appropriate FCC enforcement against violators. Ten of the stakeholders highlighted the importance of Enforcement Bureau actions in helping to protect consumers. For example, two telecommunications experts said FCC enforcement actions against prepaid calling card companies for deceptive marketing practices have protected consumers. In calendar years 2010 through 2015, FCC investigated and issued separate $5 million dollar fines to six companies for deceptive marketing of pre-paid calling cards. FCC's announcement of the fines said that in each case, companies sold cards that advertised hundreds or thousands of minutes for international calls at a low cost but consumers were only given a small fraction of the advertised time unless they used all of the minutes in a single call. FCC officials we spoke with also cited these cases as instances in which they believed there may be a deterrent effect to other companies that might consider conducting similar practices. Four stakeholders said Enforcement Bureau actions help address interference with emergency communications systems or violations of public safety regulations. For example, representatives of one public interest group and one industry association said FCC is quick to respond and resolve interference issues with communications systems used by first responders, which ensures that risks to public safety are minimized. One telecommunications company official said FCC's fines to companies for insufficiently lighted radio towers appear to be effective because according to this official, the number of aircraft accidents involving towers appears to have decreased. Most stakeholders expressed concerns regarding the transparency, fairness, or emphasis on publicity in the enforcement process. Of the 22 stakeholders we interviewed, 17 mentioned at least one of these concerns. Lack of Transparency: When asked about their perception regarding the transparency of the enforcement process 16 of the 22 stakeholders we interviewed expressed concern that the enforcement process was not transparent. As an example, stakeholders noted their unsuccessful attempts to obtain information during an investigation. Eight stakeholders said companies are unable to obtain information from the Enforcement Bureau about the potential violations under investigation until the final stages of an investigation. Of these 8 stakeholders, 4 said that this situation is different from their interactions with other regulatory enforcement agencies that inform companies of the specific violation the agency is investigating earlier in the process. FCC officials we spoke with said their lack of transparency during the course of an investigation is, in part, to protect the reputation and business interests of the target in the event that no violation is found and ensure that sensitive information that could undermine a case is not revealed to the party being investigated. Perceived Unfair Process: Fourteen stakeholders said the enforcement process was not always fair. Stakeholders provided the following examples. Ten stakeholders said that requests for information from the Enforcement Bureau can be broad and burdensome and require a lot of time and resources from the company to comply. FCC officials told us they often work with parties they are investigating to narrow the scope of a request like a letter of inquiry, which can reduce the resource burden on the party and the Enforcement Bureau. FCC officials added, however, that they are careful to avoid overly narrowing the scope of a letter of inquiry because doing so could preclude the Enforcement Bureau from gathering information about all potential violations by the party. Nine stakeholders said the Enforcement Bureau issued fines when there was no clear violation of the regulations. In addition, seven stakeholders commented that FCC is using enforcement actions to set precedent and effectively create new policy. Two industry associations stated that they believe this type of action bypasses the notice and comment requirements in the Administrative Procedure Act (APA). For example, one industry association cited a 2015 FCC enforcement policy statement that adopted a treble damages approach to calculating fines for companies not making their full contributions to FCC administered funds such as the Universal Service Fund. Four industry associations filed a joint petition with FCC that asked FCC to reconsider the policy statement because they considered it a substantial change, issued without public notice and therefore in violation of the APA. FCC officials stated that this petition for reconsideration is pending at the FCC. When we asked FCC officials about claims that FCC issued fines where there was no clear violation of the regulations, officials directed us to a written response to a question for the record for a 2015 congressional oversight hearing, where former FCC Chairman Wheeler stated that penalties may be issued in the absence of an agency regulation governing such conduct. He stated that this is because the Communications Act of 1934, as amended, demonstrates Congress's intent that certain conduct be prohibited and the act as established by Congress does not require the additional creation of an agency regulation. He further stated that because the Commission has the choice to decide whether to carry out their activities through rulemaking or adjudication under the APA, FCC may use adjudication to interpret and apply statutes Congress has directed FCC to enforce. Nine stakeholders said industry participants have lost the incentive to self-report potential violations because it does not appear that the Enforcement Bureau will treat them fairly. Of these 9 stakeholders, 4 said they know of companies that acted quickly to correct and report violations, but the Enforcement Bureau still issued significant penalties. FCC officials stated that industry's self-policing is important to an effective enforcement regime and that pursuant to FCC regulations, good faith or voluntary disclosure can factor in decisions of leniency on parties. Emphasis on Generating Publicity through Large Proposed Fines: Fifteen of the stakeholders expressed concerns that there has been an emphasis on generating publicity by proposing high dollar fines through NALs. In addition, 10 of the 15 stakeholders said fine amounts appeared to be calculated arbitrarily and without rational basis. To determine whether there has been an increase in the amount of FCC issued NALs, we reviewed FCC data on NALs from calendar years 2012 through 2016. As shown in table 5 below, the average dollar amount of NALs issued by FCC increased from approximately $180,000 in 2012 to approximately $6,300,000 in 2016. The median NAL fine amount has also generally increased over this same period though not to the same extent. From 2012 through 2016 median fines increased from $15,000 to $25,000. Also, the total number of NALs decreased from 111 in 2012 to 24 in 2016. Compared to previous years FCC has recently issued a small number of fines with very high dollar amounts. In 2016, FCC issued two of these high fines compared to none in 2012 (see table 6). When asked about the apparent increase in proposed fines, FCC officials acknowledged fines have increased. However, these officials stated that they have recently focused resources to investigate difficult cases they believe have the biggest impact on consumers and that the fine amounts they issue are appropriate for the violation. FCC officials also stated that publicity and large fines can be effective deterrents and can alert consumers that certain activities are unlawful. Seven stakeholders agreed that publicity and headlines can be effective tools for enforcement. FCC currently has a variety of ways it communicates with stakeholders varying in terms of formality and public versus private communications but does not have a clear communication strategy for its enforcement activities (see list of all communications in table 7 below). Instead, FCC tailors the extent of its communications to stakeholders on a case-by- case basis. FCC officials told us they use this approach because they have concerns that in some cases sharing too much information about their enforcement processes or case sensitive information could help parties of investigations undermine FCC's case. For example, FCC does not publish an enforcement manual or similar overall policy document on its website outlining their enforcement policies and processes. In contrast, other agencies such as FTC and SEC publish enforcement manuals on their websites to provide information about the enforcement process as well as brief summaries to explain agency regulations to help ensure the clarity of both. FCC officials also told us they work under very strict time deadlines because of the one-year statute of limitations that applies to many cases that the Enforcement Bureau investigates. FCC officials also stated that at least some courts have found that this one-year deadline begins at the time of the violation--not at the time the Enforcement Bureau learns of the violation--further reducing the time the Bureau has to negotiate the scope of the investigation. During this one-year period FCC officials say they must make sure that communications with the parties do not jeopardize the agency's ability to act within the one year statutory deadline. However, as described earlier, FCC can use tolling agreements, which allows FCC--with agreement from investigated parties--to waive the statute of limitations in cases where it needs additional time to conduct or complete the investigation. Despite the communication efforts outlined in table 7, 16 of 22 stakeholders we spoke with expressed concern that the enforcement process was not transparent or fair. Additionally, 10 of these 16 stakeholders said there is a perceived lack of communication between stakeholders and the Enforcement Bureau. Clear communication strategies are important to promoting transparency particularly in the case of enforcement activities. In a publication on the Best Practice Principles for Regulatory Enforcement, the Organisation for Economic Co-operation and Development (OECD) states that government should ensure a clear and fair process for enforcement. The Best Practice Principles include clearly informing parties of what rights and obligations they have in the process, how to challenge and appeal the conclusions, where and how to obtain compliance assistance and/or report any abuses. Federal internal control standards state that management should design appropriate control activities for programs including externally communicating the necessary quality information to achieve the entity's objectives. In the case of enforcement, agencies can help promote compliance by establishing strategies that foster open two-way communications with external parties to help ensure the clarity of regulations and processes for enforcement. A communication strategy would serve to relay the purposes, objectives, and processes the Enforcement Bureau employs to achieve its mission as well as the rights and expectations of those under investigation. Furthermore, the creation of a communication strategy to provide necessary and quality information to external stakeholders could (1) clarify aspects of the enforcement process that are not transparent or are confusing to stakeholders, and (2) promote clear, fair, and consistent enforcement. For example, such a strategy could include clearly identifying the rights and obligations parties have in the enforcement process, and where and how to obtain additional information regarding questions about the enforcement process, or to report any abuses, without revealing information considered sensitive during the course of an investigation. Recently, FCC has taken steps toward improving the transparency of Commission processes to external stakeholders. Since January 2017, the new FCC Chairman has implemented six changes including two intended to improve external transparency. One of the newly implemented changes is for FCC to publicly release, in advance of monthly Commission meetings, the text of all agenda items that the Commission will vote on during the monthly meeting. Previously, FCC's practice was to release the full text of agenda items only after the Commission voted. However, an exception will be made for enforcement actions that are to be voted on before the Commission; FCC officials explained that the information contained in enforcement actions is considered law enforcement sensitive until it has been voted upon by the Commissioners. The other change intended to improve transparency is releasing a one-page fact sheet that summarizes the text of the meeting's agenda items. FCC's statement released about this change said that the one-page summaries will improve the public's accessibility to Commission information. Although these policies have a limited direct impact on enforcement, increased focus on external transparency for the enforcement program could improve stakeholder perceptions of FCC actions and help promote the perception of a fair process as well as greater industry cooperation and compliance with FCC regulations. In recent years, FCC has taken certain actions to improve the efficiency of its enforcement program. However, the extent to which FCC's Enforcement Bureau is achieving its mission of protecting consumers, promoting competition, ensuring responsible use of the public airwaves, and addressing risks to public safety is difficult to determine because FCC has not developed performance indicators, targets, and timeframes that would enable a meaningful assessment of its enforcement program. Furthermore, without quantifiable performance goals and related measures, Congress does not have information needed to fulfill its oversight role, and industry and consumers lack information that would provide transparency regarding FCC's enforcement priorities. Similarly, without a communications strategy that publicly outlines the purposes, objectives, and processes used by the Enforcement Bureau in carrying out its mission, FCC may be missing an opportunity to improve transparency for industry and consumers and to further engage with both to improve their understanding of FCC's enforcement process. The Chairman of the FCC should establish quantifiable goals and related measures--performance indicators, targets, and timeframes-- for its enforcement program and annually publish the results to demonstrate the performance of this program and improve transparency regarding FCC's enforcement priorities. (Recommendation 1) The Chairman of the FCC should establish, and make publically available, a communications strategy outlining the agency's enforcement program for external stakeholders, to improve engagement with the telecommunications community on the purposes, objectives, and processes the Enforcement Bureau employs to achieve its mission. (Recommendation 2) We provided a draft of this report to the Federal Communications Commission for review and comment. FCC provided written comments that are reprinted in appendix II. In written comments, FCC stated that it agreed with both of our recommendations and noted steps it plans to take when making changes to implement quantifiable performance goals and increase transparency regarding the enforcement process. FCC also provided technical comments that we incorporated as appropriate. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. This report addresses (1) actions taken by FCC in the last 5 years to update its enforcement program; (2) performance goals and measures for FCC's enforcement program; and (3) selected stakeholders' views on FCC's enforcement program and FCC's communication with these stakeholders. To identify trends in enforcement actions and outcomes, we analyzed calendar years 2014 through 2016 summary data from FCC's Enforcement Bureau Activity Tracking System (EBATS). Although EBATS was implemented in 2012, a rolling implementation and major system upgrades limited the available reliable data to 2014 through 2016. We determined that these data were sufficiently reliable for our purposes by reviewing documentation related to how the data were collected and processed, by reconciling the publicly accessible data, and by interviewing FCC officials on their data validation efforts. To describe what actions FCC has taken in the last five years (calendar years 2012 through 2016) to update its enforcement program we reviewed FCC documentation, such as policies and reports related to internal improvement efforts. In addition, we interviewed FCC officials from the Enforcement Bureau, Consumer and Government Affairs Bureau, as well as the Office of Managing Director. We also interviewed FCC officials located in two of FCC's field offices, Columbia, MD, and Dallas, TX, because these field offices represent 2 of the 3 regions and in the past have conducted greater numbers of investigations than some other field offices. In Dallas, we accompanied FCC officials on a field investigation to observe officials use equipment to locate sources of interference. To determine what performance goals and measures are in place for the enforcement program we reviewed FCC's annual performance reports, budget estimates to congress, and strategic plans from 2008 to present and interviewed FCC officials. We evaluated FCC's performance goals and measures as listed in FCC's Fiscal Year 2015 Annual Performance Report and the Fiscal Year 2017 Budget Estimates to Congress, against criteria for developing federal agency performance goals and measures as established in the GPRA Modernization Act of 2010 and OMB guidance related to implementing performance measures. We also reviewed documents including OMB's Circular A-11, Part 6, Section 200, and GAO's Federal Internal Control Standards related to performance measures. We also reviewed FCC's fiscal year 2016 Annual Performance Report and Fiscal Year 2018 Budget Estimates to Congress; however, FCC did not include enforcement program goals in these reports. To obtain information on the performance goals and measures used by other agencies with enforcement programs, we selected three additional agencies to review: the Securities Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC). We selected these agencies from a group of comparison agencies that also had (1) federal independent regulatory authority and (2) a dedicated enforcement bureau/division. After applying the first set of criteria, we selected the three agencies based on similarity to FCC in terms of budget and number of employees allocated in the congressionally approved budget for fiscal year 2016. For each of the agencies selected we reviewed its most recent performance plans and other relevant enforcement related documentation. We also interviewed officials from each of these agencies to gain their perspectives on managing performance and measuring enforcement efforts. To determine stakeholder views on FCC's enforcement program we interviewed a non-generalizable sample of 22 stakeholders who were knowledgeable of the Enforcement Bureau and the communications industry. We selected these stakeholders in order to get a range of perspectives using the following criteria: (1) type of industry perspective, (2) size of a company (where applicable), (3) level of activity in filing comments with FCC, and (4) area of expertise. After applying these criteria we assembled a list of stakeholders who viewed the industry from different perspectives (telecommunications companies, public interest groups, industry association, telecommunications experts) and different areas of expertise (phone, radio, television, and internet). By taking into account stakeholders' prior work and their level of FCC comment activity, we also ensured these selected stakeholders were knowledgeable of the industry. For a full list of the stakeholders whom we interviewed see table 8 below. To determine how FCC communicates with stakeholders, we reviewed FCC documentation and policies for formal and informal communication with stakeholders. We compared these policies to the Organisation for Economic Co-operation and Development's (OECD) Best Practice Principles for Regulatory Policy: Enforcement and Inspections and Federal Internal Control Standards on managing external communications. We also analyzed publicly accessible data on monetary enforcement actions that are on FCC's website from calendar years 2012 through 2016 to determine whether stakeholder views matched recent FCC enforcement outcomes. We determined that these data were sufficiently reliable for our purposes by reconciling the data with FCC provided data and interviewing FCC officials on their data validation efforts. We conducted this performance audit from June 2016 to September 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, Derrick Collins, Assistant Director; Jade Winfree, Analyst-in-Charge; Dennis Antonio, Anne Dore, Camilo Flores, Josh Ormond, Michelle Weathers, and Elizabeth Wood made key contributions to this report.	FCC's Enforcement Bureau is primarily responsible for ensuring the telecommunications industry's compliance with federal statutes and the Commission rules and orders designed to protect consumers, ensure public safety, and encourage competition. Some industry stakeholders have raised questions about the transparency and fairness of the Enforcement Bureau. GAO was asked to review FCC's management of its enforcement program. In this report, GAO addresses: (1) actions FCC has taken in the last 5 years to update its enforcement program, (2) FCC's enforcement performance goals and measures, and (3) selected stakeholders' views on FCC's enforcement program and external communications. GAO reviewed FCC's enforcement policies and procedures; analyzed FCC's performance measures and spoke with officials of similarly sized independent agencies with enforcement missions; and interviewed FCC officials and 22 stakeholders from public and private organizations who were knowledgeable of the Enforcement Bureau and the communications industry. The Federal Communications Commission (FCC) has taken actions in the last 5 years to update its enforcement data collection and processes. In 2012, FCC implemented a new enforcement data system, which combined five previously separate databases and contains pertinent information related to each enforcement case. In 2014, FCC launched a new consumer complaints portal that FCC officials can use to identify trends and determine whether to investigate a particular company or practice. FCC also updated its internal enforcement program guidance, which includes case prioritization policies as well as timeliness goals for case resolution. Lastly, FCC completed its reorganization of the Enforcement Bureau's field office division in January 2017, closing 11 of 24 field offices and decreasing personnel from 108 to 54. FCC officials stated they do not anticipate a decline in enforcement activity because FCC is taking steps to use the anticipated annual cost savings of $9 to $10 million from the reorganization to invest in training, equipment, and technology that will improve efficiency. Given the recent changes, it is too early to determine the impact these actions will have on enforcement efforts. FCC has not quantified most of its enforcement performance goals and measures. FCC officials told GAO that in 2009 the Chairman's Office decided that narrative examples, rather than quantifiable goals and related measures, were the most appropriate way to report on the enforcement program. For example, FCC's 2016 Annual Performance Report describes details of settlements or fines levied without reporting such goals or measures. Although such metrics can be difficult to develop, GAO found that other enforcement agencies report quantified performance goals and related measures and that FCC has the data it would need to develop such goals and measures. Without meaningful program performance goals and measures, FCC lacks important tools for assessing and reporting on the progress of its enforcement efforts and determining whether it should make changes to its program. FCC also may be missing an opportunity to help promote transparency and support congressional oversight by clearly communicating enforcement priorities. Most of the selected stakeholders GAO interviewed affirmed the importance of enforcement, but cited concerns about FCC's current enforcement process and communication efforts with stakeholders. Fourteen of 22 selected stakeholders said enforcement is important for deterring violations of federal statutes and FCC rules. However, 17 of 22 also expressed concerns regarding the transparency or fairness of the enforcement process or regarding FCC's emphasis on generating publicity by proposing high dollar fines for potential violators. FCC does not have a formal communications strategy that outlines its enforcement purposes and processes. Instead, FCC tailors the extent of its communications to stakeholders on a case-by-case basis. FCC officials told GAO that information about the enforcement process is sensitive and could undermine their cases. However, leading practices on enforcement highlight the importance of disclosing agency enforcement processes, including how to challenge and appeal conclusions, as a way to foster fair and consistent enforcement. Increased communication from FCC could improve transparency and stakeholder perceptions of FCC enforcement actions. FCC should establish and publish: (1) quantifiable performance goals and related measures for its enforcement program; and (2) a communications strategy outlining its enforcement program for external stakeholders. FCC concurred with the recommendations.	7,758	866
The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), as amended, defines the federal government's role during disaster response and recovery. The Stafford Act also establishes the programs and processes through which the federal government provides disaster assistance to state, tribal, territorial, and local governments, as well as certain nonprofit organizations and individuals. According to the act, the President can declare a major disaster after a governor or chief executive of an affected tribal government finds that a disaster is of such severity and magnitude that effective response is beyond the capabilities of the state and local governments and that federal assistance is necessary. That is, when the governor of a state or the chief executive of an Indian tribal government requests a declaration for a major disaster, FEMA evaluates the requests and makes a recommendation to the President, who decides whether or not to declare a major disaster and commit the federal government to provide supplemental assistance. Generally, state and local governments are responsible for the remaining share of disaster costs. If the President declares a major disaster, the declaration can trigger a variety of federal assistance programs for governmental and nongovernmental entities, households, and individuals. FEMA provides disaster assistance to states, tribal governments, localities and individuals through several programs including: the Public Assistance (PA) and the Individual Assistance (IA) programs.disaster assistance programs. It provides grants to fund debris removal, and the repair, replacement, or restoration of disaster-damaged facilities. PA also funds certain types of emergency protective measures that eliminate or reduce immediate threats to lives, public health, safety, or improved property. To determine whether to recommend that a jurisdiction receive PA funding, FEMA relies on a series of factors including the statewide per capita impact indicator. PA is the largest of FEMA's FEMA's IA program ensures that disaster survivors have timely access to a full range of programs and services to maximize their recovery, through coordination among federal, state, tribal and local governments, nongovernmental organizations, and the private sector. Among other things, IA programs provide housing assistance, disaster unemployment assistance, crisis counseling, and legal services. households may be eligible for financial assistance or direct services if, due to the disaster, they have been displaced from their primary residence, their primary residence has been rendered uninhabitable, or they have necessary expenses and serious needs that are unmet through other means, such as insurance. The IA program provides assistance up to $32,900 for fiscal year 2015 to eligible individuals and households who, as a direct result of a major disaster or emergency, have uninsured or under insured necessary expenses and serious needs that cannot be addressed by other means, such as through other assistance programs or insurance. Specific IA programs and areas of responsibility include: the Individuals and Households Program, including Housing Assistance and Other Needs Assistance; the Disaster Unemployment Assistance Program; Disaster Legal Services; the Crisis Counseling Assistance and Training Program; the Disaster Case Management Program; Mass Care and Emergency Assistance Coordination; Voluntary Agency Coordination; and Disaster Recovery Center and Disaster Survivor Assistance Coordination. If approved for federal disaster assistance, states, tribal governments, and localities are expected to contribute toward disaster response and recovery costs. The usual cost share arrangement calls for the federal government to pay not less than 75 percent of the eligible PA costs of a disaster and for nonfederal entities (e.g., state and local governments) to pay the remaining nonfederal share of 25 percent. The federal government covers 100 percent of the Individuals and Households Program but requires states to contribute 25 percent to the Other Needs Assistance component of this program. This component covers repair or replacement costs for personal property including furniture and personal belongings, and some uninsured medical, dental, funeral, and transportation expenses as well as child care and other expenses. If states are denied federal disaster assistance, they may choose to cover some of these costs. Disaster funding, like most other state expenditures, is typically part of a state's annual operating budget providing appropriations through the fiscal year. Disaster costs typically compete with other state priorities unless states establish a separately sourced disaster fund outside of the funds tied to their state's balanced budget requirements. Most states have constitutional or statutory provisions requiring that they balance their operating budgets, commonly referred to as their general fund. All 10 states in our review used a range of mechanisms to ensure the availability of funds for unforeseen disaster costs during the fiscal year or current budget cycle. While each state had its own set of budget mechanisms, all of the selected states provided disaster funds at the start of the fiscal year and as needed during the course of the fiscal year. The types of unforeseen disaster costs states encountered depended, in large part, on the kind of disaster, but were typically related to emergency response activities. For instance, the costs of clearing debris and repairing roads along with emergency policing were typical expenses that states incurred after a major storm. Many of those expenses qualified for federal reimbursement under a presidential disaster declaration. Statewide disaster accounts. Statewide disaster accounts provided funding for disaster expenditures across state agencies or for localities. As shown in figure 2, all 10 states in our review established one or more types of statewide disaster accounts that received funds from general fund appropriations or from other revenue sources. All 10 states funded these statewide accounts through general fund revenues and 6 states-- Alaska, California, Florida, Indiana, North Dakota, and Vermont--used other revenue sources in addition to general fund revenues to cover unforeseen costs that arose during the fiscal year. For example, Florida imposed an annual surcharge on homeowners' residential insurance policies and on commercial and business owners' property insurance policies, which the state then deposited into a trust fund to be used for emergency management purposes. In addition, one of Indiana's statewide disaster funds relied on public safety fees generated through the sale of retail fireworks, while North Dakota funded its statewide disaster account through a biennial appropriation from the revenues of the state's share of oil and gas taxes. The states in our review based initial funding levels for statewide disaster accounts on a range of considerations, such as estimates of disaster costs based on past events and emergency response costs for unforeseen disasters. Although some statewide disaster accounts allow unexpended balances to be carried over into future fiscal years, states typically budgeted these costs for a single budget cycle. For example, based on its past disaster costs, Alaska typically budgeted disaster relief funds to cover the costs of two state-declared disasters (totaling $2 million) and two federally-declared disasters (totaling $5 million to $6 million). Some states, such as North Dakota and California, may also establish funding amounts in statute. Specifically, North Dakota's Disaster Relief Fund receives an appropriation of $22 million every 2 fiscal years or each biennial budget cycle, while California's Disaster Response- Emergency Operations Account receives an annual appropriation of $1 million at the beginning of each fiscal year, consistent with the state's budget cycle. In establishing statewide disaster accounts, states typically defined the criteria under which the account funds could be used. For example, in Oklahoma, the governor is authorized to distribute funds from the state's disaster account to agencies that requested funds for emergency situations including: (1) destruction of public property; (2) operation of the National Guard; (3) matching funds for federal disaster relief programs; (4) asbestos removal from public buildings; and (5) emergency response necessary to protect the public health, safety, or welfare of livestock or wild animals. In North Dakota, the state's Disaster Relief Fund could be used to reimburse state agencies for disaster-related expenses incurred above the agencies' normal operating costs. Budgets of state agencies. Nine of the 10 selected states also covered a portion of unforeseen disaster costs through the operating budgets of state agencies with missions relevant to disaster response and recovery, For example, in West Virginia, such as public safety and transportation.the state's Division of Homeland Security and Emergency Management within the Department of Military Affairs and Public Safety used its regular operating budget to cover disaster response costs. Other agencies in West Virginia, such as the state's transportation and police departments, also used funds in their operating budgets to cover major disaster costs. These agencies then submitted these costs to the emergency management office for reimbursement. As was shown in figure 2 earlier, of the 10 selected states, seven maintained contingency accounts for disasters. For example, Florida's Department of Environmental Protection established a disaster contingency account funded through user fees on Florida's state parks. In addition, the contingency fund for California's Department of Forestry and Fire Protection typically received an appropriation based on the average emergency cost from the previous five years. Supplemental appropriations. Eight of the 10 states in our review made use of supplemental appropriations when the funds appropriated to statewide accounts or agency budgets at the beginning of the fiscal year were insufficient. When states' general funds served as the source of supplemental appropriations, these funds were unavailable to spend on other budget areas. Statewide multipurpose reserve accounts, such as budget stabilization funds (also referred to as rainy day funds), could also be tapped in the event that funds were not available through other means. A few states expanded the conditions for which budget stabilization funds could be tapped to include similar unanticipated expenses not directly related to revenue shortfalls or budget deficits. For example, although initially intended to offset revenue shortfalls, West Virginia's budget stabilization fund was subsequently modified to allow the state legislature to make appropriations from the fund for emergency revenue needs caused by natural disasters, among other things. However, budget officials from several states in our review told us that it was uncommon to access budget stabilization funds to cover disaster expenses because their state could generally provide disaster funding from a combination of general fund revenues and spending reductions in other areas. For example, despite having expanded its acceptable uses to include natural disasters, West Virginia only accessed its budget stabilization fund once since 2005 to cover disaster-related expenses. Similarly, in Florida, the state's budget stabilization fund was last used for disaster costs during the 2004 and 2005 hurricane seasons. Funding transfers. In addition, nine states in our review had mechanisms to allow designated officials (e.g., the governor, budget director, or a special committee) to transfer funds within or between agencies or from statewide reserve accounts after the start of the fiscal year. For example, in Indiana, if funds within an agency's budget are insufficient to cover the unexpected costs of a disaster, a special finance board can authorize a transfer of funds from one agency to another. In addition, the state's budget director can transfer appropriations within an agency's accounts if needed for disaster assistance. The authority to release funds from disaster accounts varied by state and resided with the governor, the legislature, or special committees. As we have previously reported, a state where the legislature is in session for only part of the year might give the governor more control over the release of disaster funds.legislature is out of session, the presiding officers of the legislature can agree in writing to suspend the $1 million limit placed on the Governor's disaster spending authority. For example, in the event that the Alaska Also, if a state legislature already appropriated a portion of general fund or other revenues to a disaster account, the governor or budget director can exert greater control over access to the reserves. For example, in California, a gubernatorial emergency declaration grants the state's Director of Finance the authority to tap into any appropriation in any department for immediate disaster response needs. All states in our review budgeted for ongoing costs associated with past disasters. Typically, these ongoing costs included recovery-related activities, such as rebuilding roads, repairing bridges, and restoring public buildings and infrastructure. Costs associated with past disasters included the state's share of federal disaster assistance and disaster costs the state would cover in the absence of a federal declaration.for the costs of past disasters, all 10 states determined their budgets based on cost estimates for the upcoming fiscal year, even though each disaster declaration could span several budget cycles. As was shown in figure 2, all selected states used a range of budget mechanisms to cover the cost of past disasters. These mechanisms were similar to those the states used to budget for unforeseen disaster costs. States used some of the mechanisms to appropriate funds at the start of the fiscal year and used other mechanisms to provide disaster funds during the course of the fiscal year. For example, in Missouri, multiple agency accounts funded the expenses from past disasters incurred by state agencies, while a separate statewide account covered the non- federal match of disaster programs. The funding levels in states' accounts varied from year to year depending on annual estimates of expected disaster costs, primarily determined through the project worksheet process--the means by which the estimated costs are determined by FEMA and the state. For example, Florida's emergency management agency forecasts the ongoing costs associated with past disasters for three future fiscal years and reports these cost estimates on a quarterly basis. In New York, the Governor's budget office, along with its emergency management agency, periodically estimated the amount of disaster program costs the federal government would cover in addition to costs the state would have to bear. Most states in our review had established cost share arrangements with localities and passed along a portion of the required nonfederal cost share to them. Two states--Alaska and West Virginia--covered the 25 percent cost share for federally declared disasters while only one state-- Indiana--passed the 25 percent nonfederal cost share onto its affected localities. In Vermont, municipalities that adopted higher flood hazard mitigation standards could qualify for a higher percentage of state funding for post-disaster repair projects, ranging from a minimum of 7.5 percent to a maximum of 17.5 percent. In Florida, the state typically evenly splits the nonfederal share with local governments but would cover a greater percentage of the nonfederal share for economically distressed localities.each state in our review. None of the 10 states in our review maintained reserves dedicated solely for future disasters outside of the current fiscal year. As discussed earlier in this report, although funds in some states' statewide disaster accounts could be carried forward into the future, funding for these accounts was typically intended to fund a single fiscal year. For example, unexpended balances from Indiana's State Disaster Relief Fund--which receives an annual appropriation of $500,000, could be carried forward from one year to the next. Similarly, North Dakota's Disaster Relief Fund, which receives a biennial appropriation, can carry forward unexpended fund balances into the next biennial cycle. According to a North Dakota state official, this procedure was established in statute to provide a ready source of disaster funding. Otherwise, according to this official, the state legislature would need to identify large amounts of funding from the general fund account at the start of each budget cycle. Some state officials reported that they could cover disaster costs without dedicated disaster reserves because they generally relied on the federal government to fund most of the costs associated with disaster response and recovery. During the past decade, the federal government waived or reduced state and local matching requirements during extraordinary disasters such as Hurricanes Katrina and Sandy. For Hurricane Sandy, however, 100 percent of the federal funding was only available for certain types of emergency work and for a limited period of time. As we have reported in our prior work on state emergency budgeting, natural disasters and similar emergency situations did not have a significant effect on state finances because states relied on the federal government to provide most of the funding for recovery. Alaska's individual assistance program also provides reimbursement for personal property loss and assistance with housing repairs at 50 percent of the annual approved amounts for the federal IA Program. provided disaster assistance to localities on several occasions after being denied federal assistance. Overall, states did not make major changes to their approaches to budgeting for disaster costs between fiscal years 2004 and 2013. Some states in our review did take steps to increase the availability of disaster funds, while others changed procedures related to legislative oversight. Although the national economic recession occurred during this time (officially lasting from December 2007 to June 2009) and resulted in state revenue declines of 10.3 percent--states in our review reported that they were able to ensure the availability of funding to cover the cost of disasters. Officials in Alaska and North Dakota, for example, reported that state revenues generated from oil and gas taxes buffered their states from much of the fiscal distress that other states had experienced during the 2007 to 2009 recession. Three states in our review--Alaska, Indiana, and North Dakota--changed their budgeting approaches to further ensure the availability of disaster funding prior to a disaster rather than after a disaster. While these moves did not provide funding for future disasters beyond the current fiscal year, they did improve the availability of funds for disaster response within the current fiscal year. For example, Alaska established a statewide disaster fund in the late 1960s to ensure the availability of disaster funding. Prior to 2010, Alaska primarily funded the disaster fund through supplemental appropriations after a disaster had occurred and after the state's administration and emergency management agency had requested funding. However, according to a state official, this approach did not provide funding timely enough for state agencies and localities to respond quickly to a disaster. Rather, the approach involved waiting for the state legislature to appropriate funds to the state's disaster account, which could have taken weeks, particularly if the legislature was not in session. At that time, Alaska experienced multiple concurrent disasters. In addition, the nature of Alaska's climate and the remote location of many of its communities resulted in a need for the state to take swift action to respond to disasters so that residents were able to repair or rebuild their damaged homes before the onset of winter. Consequently, the state began to forward fund the disaster fund to have more money available immediately after a disaster. According to this state official, the change in approach relied on cost estimates of multiple disasters to develop an annual budget figure. In 2006, Indiana began appropriating funds to its State Disaster Relief Fund from the revenues it generated from firework sales to ensure the availability of a dedicated source of disaster funding. Although the state established the disaster relief fund in 1999, it did not appropriate funds to the account due to fiscal constraints. In 2006, the state began dedicating funds from the sale of fireworks. Then in 2007, the state established in statute that the fund would receive an annual appropriation of $500,000 from revenues generated from the firework sales. Prior to 2006, the state relied on general revenue funds to pay for disasters on an as- needed basis. North Dakota established its Disaster Relief Fund during its biennial legislative session (2009 to 2011) to ensure the availability of funding in the event of a disaster. The state appropriated money to the fund at the beginning of the state's biennial budget cycle with revenues generated from the state's tax on oil and gas production. In order to respond to disasters prior to the establishment of this fund, state agencies with emergency response missions, such as the Department of Transportation, had to request funding directly from the state legislature during the time it was in session.session, state agencies were required to obtain a loan from the Bank of North Dakota to cover their immediate disaster costs. Then, to repay the loan, the agencies needed to request a supplemental appropriation when the state legislature reconvened. A North Dakota state official told us that this process was inefficient, so the state legislature established the Disaster Relief Fund to provide an easier means for accessing disaster relief funds. However, if the legislature was out of Legislatures in three of our review states-- North Dakota, Missouri, and West Virginia--took steps to increase their oversight of disaster spending. After North Dakota established a dedicated revenue source to ensure the availability of disaster funding, the state legislature took subsequent steps to increase the oversight of disaster relief funds. In particular, the legislature required state agencies to submit a request to the state's Emergency Commission in order to receive disaster funding. Established in 2011, the Emergency Commission, comprised of the Governor, Secretary of State, and the House and Senate majority leaders, has the authority to approve the appropriation of supplemental funding when there is an imminent threat to the safety of individuals due to a natural disaster or war crisis or an imminent financial loss to the state. Prior to 2011, the state's emergency management agency had been authorized to access disaster relief funds directly without approval from the Commission. According to a state emergency management official, the legislature took this action in response to a number of instances in which federal PA funds initially awarded to the state were deobligated, leaving the state with unanticipated disaster response costs. In one instance, for example, federal PA funds were deobligated because the state did not properly document the pre-existing conditions of a parking lot damaged by the National Guard in responding to a disaster. In this particular case, the state had to appropriate funds from their disaster relief fund to cover the cost of repair, rather than rely on federal PA funding to cover these costs. To provide more oversight for disaster expenditures, the Missouri legislature changed its requirements for accessing funds from the State Emergency Management Agency (SEMA) budget. Specifically, the legislature required that the administration seek legislative approval for all supplemental appropriations to the SEMA budget. According to Missouri budget officials, SEMA used to submit a budget request that represented a rough estimate of anticipated costs for the upcoming fiscal year. If actual costs exceeded SEMA's appropriation, the administration had the authority to appropriate additional money from general revenues for specific line items on an as-needed basis without additional legislative approval. West Virginia's legislature increased oversight of disaster funding by restricting the use of funds appropriated to the Governor's Contingent Fund. In prior years, the legislature appropriated funds to the Governor's Contingent Fund as a civil contingent fund--a very broad term, according to a state budget official. Over the last few years, the legislature changed the appropriations bill language to limit spending flexibility for money appropriated to the fund. For example, appropriations bill language specified that funds were being appropriated for "2012 Natural Disasters" or "May 2009 Flood Recovery." States rely on the assurance of federal assistance when budgeting for disasters. Based on current regulations, policies, and practices, the federal government is likely to continue to provide federal funding for large-scale disasters. In light of this federal approach to funding disaster response and recovery, the states in our review designed their budgeting approaches for disasters to cover the required state match for federal disaster assistance as well as the costs they incur in the absence of a federal declaration. For unforeseen disaster costs and for ongoing costs associated with past disasters, these states relied on a number of budget mechanisms including statewide disaster accounts, state agency budgets and supplemental appropriations, to ensure the availability of funding for disasters. However, none of the states in our review maintained reserves dedicated solely for future disasters outside of the current fiscal year. More frequent and costly disasters could prompt reconsideration of approaches to dividing state and federal responsibilities for providing disaster assistance. Given the fiscal challenges facing all levels of government, policymakers could face increased pressure to consider whether the current state and federal approach for providing disaster assistance balances responsibilities appropriately. Absent federal policy changes, the experience of the 10 states we reviewed suggests that states will likely continue to rely on federal disaster assistance for most of the costs associated with the response to large-scale disasters. We provided a draft of this report to the Secretary of the Department of Homeland Security for review and comment. The Department of Homeland Security generally agreed with our findings and provided technical comments, which we incorporated as appropriate. Additionally, we provided excerpts of the draft report to budget officers and emergency management officials in the 10 states we included in this review. We incorporated their technical comments as appropriate. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its issue date. At that time, we will send copies of this report to the Secretary of the Department of Homeland Security and 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 concerning this report, please contact Michelle Sager at (202) 512-6806 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. The objectives of our review were to determine (1) the approaches selected states use to budget for and fund state-level disaster costs; and (2) how, if at all, state disaster budgeting approaches have changed over time, including the factors influencing those changes and any challenges states encountered in budgeting for state-level disaster costs. To address the objectives, we selected a nonprobability sample of 10 states from the 50 states and the District of Columbia. To select the states for our sample, we obtained data from the Federal Emergency Management Agency's (FEMA) Integrated Financial Management Information System on major disaster declarations by state during fiscal years 2004 through 2013. We focused on this time frame because it contained the most current data for major disaster declarations. We assessed the reliability of the FEMA data by discussing with another GAO team their recent access and use of the data in a prior year's report and their determination that the data provided reliable evidence to support findings, conclusions, and recommendations. We also discussed data quality control procedures with FEMA officials who were knowledgeable about the specific types of data recorded in the database. Based on how we intended to use the information, we determined that the data were sufficiently reliable for the purpose of selecting states for our study. We sorted the data obtained based on the total number of major disaster declarations approved by state. We calculated the median number of major declarations approved by FEMA and identified states directly above the median. For those states, we also identified the number of major disaster declarations that had been denied by FEMA during the same time period, which ranged from zero denials to seven denials. We then calculated the statewide Public Assistance per capita amount of funding, based on FEMA's statewide per capita indicator of $1.39 and the U.S. Census Bureau's 2013 population estimate for each state. That is, we multiplied the 2013 population estimate for each state by the PA per capita indicator of $1.39. We then grouped the states according to low, medium, and high per capita threshold levels. To ensure geographic dispersion and a range of per capita amounts, we selected 10 states-- four low per capita states (Alaska, North Dakota, Vermont, and West Virginia), two medium per capita states (Missouri and Oklahoma), and four high per capita states (California, Florida, Indiana, and New York) (see table 1 for additional information). The results of our study are not generalizable to state budgeting approaches for all states and the District of Columbia. We then developed and administered a semistructured interview to state budget officers and emergency management officials in the10 selected states regarding the approaches they used to budget for and fund state- level disaster costs and how, if at all, approaches changed over time. To address the first objective, we analyzed information from the semistructured interviews about selected states' approaches to budgeting for disasters. We also obtained and analyzed state budget and other relevant documents to determine how states estimate, authorize, and appropriate state disaster funds, the extent to which states share costs with affected localities, and how cost share arrangements with affected localities are determined. To address the second objective, we analyzed information from the semistructured interviews about how states' budgeting approaches have changed during the past decade, factors influencing any changes, and any challenges states face in funding disaster assistance. We focused our questions on the period covering fiscal years 2004 through 2013. We also analyzed FEMA data regarding major state disasters to identify possible trends in the frequency, severity, type, and cost of state disaster events during the period from fiscal years 2004 through 2013. For both objectives, we analyzed relevant state statutes and regulations that govern the use of state disaster funds. In addition, we interviewed FEMA officials who participate in making recommendations to the President as to whether state requests for federal disaster funding should be approved or denied. We conducted this performance audit from April 2014 to March 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The 10 selected states in our review used a range of budget mechanisms to cover the costs of disasters. This appendix provides additional detail on the range of disaster-specific funds, disaster assistance programs, and cost share arrangements in the 10 states. In addition to the contact named above, Stanley Czerwinski, Brenda Rabinowitz (Assistant Director), Kathleen Drennan (Analyst-in-Charge), Mark Abraham, Liam O'Laughlin, and Robert Yetvin made key contributions to this report. Aditi Archer, Amy Bowser, Jeffrey Fiore, Robert Gebhart, Carol Henn, Donna Miller, Susan Offutt, and Cynthia Saunders also contributed to this report.	In recent years, natural and human-made disasters have increased in the United States in terms of both numbers and severity. For presidentially declared disasters, the federal government generally pays 75 percent of disaster costs and states cover the rest. As a result of this trend, governments at all levels have incurred increased costs for disaster response and recovery. An understanding of the approaches states take to budget for disaster costs can help inform congressional consideration of the balance between federal and state roles in funding disaster assistance. GAO was asked to examine how states typically budget for costs associated with disasters and any changes to those budget approaches during the past decade. This report reviewed (1) the approaches selected states use to budget for and fund state-level disaster costs; and (2) how, if at all, state disaster budgeting approaches have changed over time. For this review, GAO selected 10 states based on criteria such as the number of major disaster declarations and denials for each state from fiscal years 2004 to 2013. GAO reviewed state statutes, budgets, and other documents explaining states' approaches to budgeting for disaster costs and interviewed state officials. Although GAO's findings are not generalizable, they are indicative of the variation in budget mechanisms among the states. GAO is not making recommendations. GAO received and incorporated, as appropriate, technical comments from the Department of Homeland Security and the 10 selected states. The 10 selected states in GAO's review--Alaska, California, Florida, Indiana, Missouri, New York, North Dakota, Oklahoma, Vermont, and West Virginia--had established budget mechanisms to ensure the availability of funding for the immediate costs of unforeseen disasters and the ongoing costs of past disasters. All 10 states provided disaster funds at the start of the fiscal year and then as needed during the course of the fiscal year. Each of the selected states had its own combination of budget mechanisms that generally fell into four categories: Statewide disaster accounts . These accounts provided the 10 states with the flexibility to fund disaster expenses across state entities or for local governments. States typically funded these accounts through general fund revenue. Six states also used other sources, such as revenues from oil and gas taxes and fees on homeowner's and commercial insurance. The amounts appropriated to these accounts at the start of the fiscal year were based on a range of considerations, such as estimates of disaster costs based on past events and emergency response costs for unforeseen disasters. State agency budgets . Nine of the 10 states also covered a portion of unforeseen disaster costs through the operating or contingency budgets of state agencies with missions relevant to disaster response and recovery. For example, West Virginia's Division of Homeland Security and Emergency Management used its operating budget to cover disaster response costs. Florida's Department of Environmental Protection had a disaster contingency account funded through user fees on state parks. Supplemental appropriations . When advance funding proved insufficient to cover disaster costs, eight of the 10 states provided supplemental funding to pay for the remaining costs. While reserve accounts such as rainy day funds could be used to provide this funding if general funds were unavailable, budget officials said their state rarely tapped these funds. Transfer authority . All 10 states in our review allowed designated officials (i.e., the governor, budget director, or a special committee) to transfer funds within or between agencies or from statewide reserve accounts after the start of the fiscal year. None of the 10 states in GAO's review maintained reserves dedicated solely for future disasters. Some state officials reported that they could cover disaster costs without dedicated disaster reserves because they generally relied on the federal government to fund most of the costs associated with disaster response and recovery. While some states have increased the oversight and availability of disaster funds, all 10 states' approaches to budgeting for disasters have remained largely unchanged during fiscal years 2004 through 2013. Specifically, three states--Alaska, Indiana, and North Dakota--changed their budgeting processes to ensure that funding for disasters was appropriated before rather than after a disaster occurred. In addition, legislatures in three states--Missouri, North Dakota and West Virginia--took steps to increase their oversight of disaster spending.	6,410	888
Unsecured cargo or other debris falling from a moving vehicle can pose a serious hazard to other motorists and can lead to property damage, injuries, or fatalities (see fig. 1). Examples of unsecured-load debris that often ends up on roadways include objects such as mattresses or box springs, ladders, and furniture items. NHTSA's mission is to prevent motor vehicle crashes and reduce injuries, fatalities, and economic losses associated with these crashes. To carry out this mission, the agency conducts a range of activities, including setting vehicle safety standards; conducting research on a variety of safety issues; administering grant programs authorized by Congress; providing guidance and other assistance to states to help them address key safety issues, such as drunken driving and distracted driving; and collecting and analyzing data on crashes. NHTSA analyzes crash data to determine the extent of a problem and to determine what steps it should take to develop countermeasures. Regarding unsecured loads, NHTSA collects some data regarding whether a crash involved an unsecured load. Determining the number of crashes involving unsecured loads can be a challenge because data are limited. NHTSA does track the number of crashes involving road debris. However, as mentioned previously, these data include all types of road debris, including debris resulting from human error (e.g., unsecured load) and debris that is from natural elements (e.g., a fallen tree branch). Based on available NHTSA data, such crashes comprise a small percentage of total police-reported crashes. For example, in 2010, out of a total of about 5,419,000 crashes, about 1 percent-- 51,000 crashes--involved a vehicle striking an object that came off another vehicle or a non-fixed object lying in the roadway. Of these 51,000 crashes, there were almost 10,000 people injured and 440 fatalities--about 1 percent of the total number of fatalities from motor vehicle crashes in that year (32,855). States determine what laws, if any, to apply to non-commercial vehicles carrying unsecured loads and whether to develop prevention programs geared towards reducing crashes of non-commercial vehicles carrying unsecured loads. State and local law enforcement agencies are responsible for enforcing these laws. While NHTSA currently collects limited information on crashes involving unsecured loads, the agency intends to make changes to its data systems to follow Congress's direction to distinguish road obstructions resulting from human error from those involving natural elements. NHTSA's changes to its data systems will allow the agency to better track crashes involving unsecured loads, but NHTSA will still face challenges with collecting this information because the determination as to whether a crash involved an unsecured load is made by state law enforcement officials and can be difficult to make. Further, there are some limitations with respect to the state data collected in police crash reports, and data improvements will take time to implement. NHTSA collects data on crashes and fatalities that may involve both commercial and non-commercial vehicles carrying unsecured loads in two data systems--FARS and NASS GES. (see table 1). The FARS provides a census of police-reported traffic crashes nationwide in which at least one fatality occurred. The NASS GES provides national estimates of crash statistics based on a sample of police-reported crashes. For both data systems, police crash reports, which are unique to each state, are a key source of data. NHTSA gathers this information from states and recodes it into a uniform format. Currently, there are three data categories in these systems that track data on crashes involving road debris. However, as noted previously, these data categories do not currently distinguish between different types of roadway debris (i.e., debris resulting from natural/environmental sources versus debris resulting from human error). As a result, NHTSA cannot currently identify how many crashes involve vehicles carrying unsecured loads. In response to the congressional direction to improve its data on unsecured-load crashes, NHTSA officials stated that they are currently making changes to the FARS and the NASS GES to collect better information and better track crashes involving unsecured loads. Specifically, NHTSA has developed changes to both systems to (1) revise two existing data categories on road debris and (2) add two new data categories. The revised and new categories will provide more specific information on unsecured-load crashes. (See appendix III for current FARS and NASS GES data category definitions and planned 2013 changes.) For example, NHTSA will now be able to distinguish between the following two types of crash scenarios that involve an object being set in motion by one vehicle and striking another vehicle, a person, or property, causing injury or damage: Cargo, such as a mattress, being transported by one motor vehicle becomes dislodged and strikes another vehicle, a person, or property. An object in the road, such as a tree branch, is struck by a motor vehicle and then strikes another vehicle, a person, or property. NHTSA will also be able to distinguish between two types of crash scenarios that involve a vehicle striking an object already in the road (without striking another vehicle, a person, or property): A motor vehicle strikes a non-fixed object already at rest in the roadway, such as a mattress, and the object is known to have been cargo from an unsecured load. A motor vehicle strikes a non-fixed object already at rest in the roadway, such as a tree branch, and the object is known to have not come from a motor vehicle, or it is unknown if it came from a motor vehicle. NHTSA officials stated that they intend to analyze this data in the future to determine whether actions are needed to address this problem. They explained that in deciding when to take actions regarding a traffic safety issue, NHTSA first tries to determine the extent of the problem by looking at counts or trends. The agency then may conduct research to better understand the problem and work toward developing countermeasures. According to NHTSA officials, these changes will be effective in the FARS and NASS GES during the 2013 data collection year, which begins January 2013. To implement these changes, NHTSA plans to develop a 2013 coding manual between mid-August 2012 and December 5, 2012, and develop data-entry specifications by November 2012. NHTSA officials stated that they plan to train FARS analysts at the state level and NASS GES data coders on how to use the new and revised data elements in early December 2012. Public users will first have access to the 2013 data in 2014 after data collection and quality control checks are completed. While NHTSA's changes to the FARS and NASS GES data systems will allow the agency to better track crashes involving unsecured loads, it still faces challenges collecting data on these crashes. Two primary factors affect NHTSA's ability to collect this information: (1) law enforcement officials face difficulties in determining whether a crash involved an unsecured load and (2) states do not collect uniform data on unsecured loads in their police crash reports. Even with the changes that NHTSA is making in its data collection processes and procedures, the resulting data will be imprecise because it relies on state reporting of crashes and data improvements will take time to implement as acknowledged by NHTSA. NHTSA officials stated that they will make every effort to capture the data available in the source documents to provide the most accurate assessment of this safety issue. Even though NHTSA is improving its data systems, determining whether a crash is a result of an unsecured load will remain a challenge. Several law enforcement officials we spoke with indicated that classifying a crash involving an unsecured load is difficult in some cases, because it is unclear whether the object on the road was as a result of an unsecured load or another factor. One law enforcement official explained that if an object falls from a moving vehicle and immediately hits a vehicle or a person, the crash is generally classified as an unsecured-load crash. However, if an object falls from a moving vehicle onto the road and remains on the road for some time before another vehicle subsequently strikes the object, then the crash will generally not be classified as an unsecured-load crash unless there is a witness available to report that the object originally fell off of another vehicle (see fig. 2). The official explained that identifying the first incident as an unsecured-load crash is generally easier because of a higher likelihood of witnesses at the scene who saw the crash occur and saw the unsecured-load fall from the vehicle. In the second scenario, where debris remains on the road for some time, there may be no information to explain how the object on the road ended up there. According to this official, it is up to the reporting officer to determine how to classify or describe the crash in the police report. Under NHTSA's planned data system changes, the agency will be able to specify in their data systems crashes that involve unsecured loads if all pertinent information is available to the reporting officer. However, if the incident is not identified by the reporting officer as an unsecured-load crash in the first place, it may not be flagged as such in NHTSA's data systems. NHTSA officials acknowledged that it can be difficult in some cases to determine if something in the road fell off a vehicle if there is no evidence available. States do not uniformly define and report data on unsecured loads in police crash reports. NHTSA uses information from police crash reports to determine whether a crash is an unsecured-load incident or another type of incident. Some state crash reports contain a field where officers can check off a box indicating whether "unsecured loads" were a contributing factor in a crash while others rely on the officer to explain in the narrative section of the report whether the incident involving an unsecured load or other factor. NHTSA uses information from both sections of the report in developing their data. However, in some cases, information about whether a crash involved an unsecured load may not be included in the narrative portion of the police reports. According to NHTSA officials, reports on fatal crashes are more likely to have this information; however, the level of information that is included in the narrative report could vary from officer to officer. If a police crash report does not contain information indicating that a crash involved an unsecured load, then NHTSA cannot classify the crash as such. On a voluntary basis, most states have begun collecting a similar minimum core of information in their police crash reports. These core elements are outlined in the Model Minimum Uniform Crash Criteria (MMUCC), voluntary guidelines for the implementation of uniform crash data elements.guidelines to varying degrees. One avenue for ensuring that all states collect consistent information on unsecured loads in their police crash reports would be to include unsecured-load data as a core data element in the next edition of the guidelines. NHTSA does not have independent authority to seek changes in state police reports; however, NHTSA officials stated that they will likely recommend changes to MMUCC guidelines. In order for a new data element to be added, it must be approved by the MMUCC Expert Panel, which includes representatives from NHTSA, FMCSA, the Federal Highway Administration, the National Transportation Safety Board, the Governors Highway Safety Association, Insurance Institute for Highway Safety, Ford Motor Company, Emergency Medical System agencies, and local and state police agencies. Recommended changes to the guidelines can be submitted by any agency represented on the MMUCC expert panel. According to NHTSA officials, most states follow these Any changes to the guidelines cannot be made for quite some time as MMUCC operates on a 5-year cycle. MMUCC released its revised guidelines in July 2012, and the next update is not expected until 2017. NHTSA officials explained that they would be unable to recommend changes to the guidelines until 2016, when MMUCC begins the process updating the guidelines. If changes are made to the guidelines, these changes would not go into effect until after 2017. NHTSA officials also noted that making changes to police crash reports in response to changes in the guidelines can take from 12 to 18 months. Some police agencies now use electronic police crash reports, and as a result, changes to the police crash reports could require information technology infrastructure investments to update their electronic systems. Moreover, additional training of police officers regarding how to use the new data elements would be required. NHTSA officials stated that in the interim, state FARS analysts and NASS GES data coders will communicate to law enforcement officials that information on unsecured-load crashes should be included in the narrative portion of police crash reports. All fifty states and the District of Columbia have statutes regarding unsecured loads that pertain to non-commercial vehicles. While nine states reported having no exemptions related to their statute, a majority of states and the District of Columbia reported exempting vehicles from unsecured-load statutes most commonly for roadway maintenance or agriculture activities, but these exemptions are primarily related to commercial activities. All fifty states and the District of Columbia reported having fines or penalties for violating unsecured-load statutes ranging from $10 to $5,000; fifteen of these states add the possibility of imprisonment. (See appendix IV for summary of all fifty states and the District of Columbia's laws, exemptions, and penalties/fines.) Ten states reported having a safety or education program related to unsecured loads. All fifty states and the District of Columbia have statutes regarding unsecured loads that pertain to non-commercial vehicles. While the statutes vary widely, many use a common construction similar to: "No vehicle shall be driven or moved on any highway unless such vehicle is so constructed or loaded as to prevent any of its load from dropping, shifting, leaking, or otherwise escaping there from," a statement that is oftentimes followed by exemptions as discussed below. However, a few states such as Mississippi have short statutes that contain a shortened form of this common language. Other states such as Oklahoma set forth more specific instructions in the statute directing, for example, the covering of loads to be "securely fastened so as to prevent said covering or load from becoming loose, detached or in any manner a hazard to other users of the highway." The state statutes on unsecured loads differ more frequently in their description of exemptions. According to our survey, 41 states and the District of Columbia have exemptions from unsecured-load laws in their statutes (see fig. 3). These exemptions most commonly applied to roadwork and agriculture. For example, the most common roadway exemption includes "vehicles applying salt or sand to gain traction" or "vehicles dropping water for cleaning or maintaining the highway." Exemptions for commercial activities range from general wording such as "applies to all motor vehicles except those carrying agricultural loads," to industry-specific exemptions such as "applies to all motor vehicles except logging trucks or those carrying wood, lumber, or sawmill wastes." Nine states reported having no exemptions to their unsecured-load statute, including Delaware, Kentucky, Missouri, Nebraska, New York, South Dakota, Texas, Vermont, and Wisconsin. All states have some level of fines or penalties for violations of unsecured-load statutes. Most states have specific penalties ranging from as little as $10 to as much as $5,000; fifteen states include possible jail time. (See fig. 4.) Two states--Nevada and New Hampshire--reported the fine as unknown, because it is imposed at the local court level and could vary widely. Twenty states and the District of Columbia reported maximum fines of $10 to less than $500 and only two of those states--Tennessee and Colorado--add possible jail time in addition to the fine. Eight of these states have maximum fines between $10 and $100 for the first offense. Twenty-eight states reported more severe maximum fines of $500 to $5,000 for violating unsecured-load laws and thirteen of those states--Florida, Georgia, Illinois, Louisiana, Michigan, Mississippi, New York, Oklahoma, South Dakota, Virginia, Washington, West Virginia, and Wyoming--include possible jail time in addition to a fine. The states of Illinois, Virginia, and Washington have the highest maximum fines: $2,500 for Illinois and Virginia, and $5,000 for Washington. In addition, the law enforcement officials in all of the seven states we selected for interviews stated that additional criminal charges could be brought in their state against individuals who injured or killed a person as a result of negligently securing their load in addition to the specific penalties stated in unsecured-load statutes. Enforcement officials in some states told us that it is often difficult to write citations for unsecured-load violations. In five of the seven states, officials we interviewed noted that statutory language can be ambiguous, or require law enforcement officials either to witness the unsecured load falling or have the load actually fall to the ground to be considered a statutory violation. This language makes law enforcement respond reactively rather than proactively. All seven enforcement officials we interviewed told us they were not aware how anyone could distinguish between citations written for commercial vehicles (i.e., used for business purposes) and non-commercial vehicles (i.e., private vehicles used to move personal belongings or take trash to the local landfill for example) as written in their states. Therefore, counting violations of their states' unsecure load laws specifically for non-commercial vehicles is not currently possible. Ten of the 50 states and the District of Columbia reported they have a safety or education program that pertains to unsecured loads on non- commercial vehicles. Those states include California, Illinois, Maine, North Carolina, North Dakota, South Carolina, South Dakota, Texas, Washington, and Wisconsin. Enforcement officials in all of the seven states we selected for interviews stated that in their experience, education--teaching drivers about the importance of properly securing the load in any vehicle or trailer before driving--is the key component to reducing unsecured-load incidents. See appendix V for examples of safety education materials from North Carolina and Washington. We provided a draft of this report to NHTSA for review and comment. NHTSA provided technical comments that were incorporated as appropriate. We are sending copies of this report to the Administrator of NHTSA, the Secretary of the Department of Transportation, and interested Congressional Committees. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff has any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. This report examines (1) efforts the National Highway Traffic Safety Administration (NHTSA) has undertaken to monitor crashes involving vehicles carrying unsecured loads and (2) existing state laws, exemptions, and punitive measures regarding non-commercial vehicles carrying unsecured loads. For the purposes of our review, we defined unsecured load to include a load or part of a load in transit that is not properly restrained, tied down, or secured with tarps, nets, or ropes to reasonably prevent a portion from falling off. We defined non-commercial vehicles to include passenger vehicles (cars or light trucks) transported for non-commercial purposes, and the towing of loads in an open trailer behind the passenger vehicle. Light trucks included trucks of 10,000 pounds gross vehicle weight rating or less, including pickups, vans, truck- based station wagons, and utility vehicles. Open trailers included trailers that can be obtained from personal or commercial sources, such as U- Haul, but used for non-commercial purposes. NHTSA collects data on crashes involving non-commercial and commercial crashes. We obtained NHTSA's input in developing these definitions. To identify efforts NHTSA has undertaken to monitor crashes involving vehicles carrying unsecured loads, we obtained documents from and conducted interviews with NHTSA officials to obtain information on NHTSA's current policies, procedures, and practices for monitoring crashes involving vehicles carrying unsecured loads. Specifically, we obtained information about what data on unsecured loads NHTSA currently collects; how NHTSA coordinates with state agencies on its data collection efforts; actions NHTSA has taken to date or plans to take to improve its data collection processes in response to its mandate; and challenges, if any, that NHTSA faces in improving its data on vehicles carrying unsecured loads. In addition, we conducted a literature search to identify and review relevant studies, reports, and available data on crashes involving vehicles carrying unsecured loads and to gain a better understanding of the magnitude of the problem. Finally, we analyzed NHTSA's crash data from the Fatality Analysis Reporting System (FARS) and the National Automotive Sampling System General Estimates System (NASS GES) to identify the number of crashes in 2010 in which a vehicle struck falling or shifting cargo or an object lying in the roadway. We assessed the reliability of these data sources by, among other things, interviewing NHTSA officials and reviewing NHTSA policies and procedures for maintaining the data and verifying their accuracy. Based on this information, we determined that the data provided to us were sufficiently reliable for our reporting purposes. To identify existing state laws, exemptions, and punitive measures regarding non-commercial vehicles carrying unsecured loads, we conducted a literature review of and legal research on state(s) laws, penalties, and exemptions regarding properly securing loads on non- commercial vehicles. In addition, we conducted a survey of all 50 states and the District of Columbia to supplement, verify, and corroborate data obtained from our legal research and to obtain additional information on penalties, enforcement actions and education and prevention efforts in each state. (The survey is reproduced in appendix II.) The survey was completed primarily by law enforcement officers in each state's Department of Public Safety. We selected three states in which to conduct pretests: Iowa, New Mexico, and Washington. In each pretest, we provided the state police official with a copy of our draft survey, asked this individual to complete it, and then conducted an interview to discuss the clarity of each question. On the basis of the feedback from the three pretests we conducted, we made changes to the content and format of the survey questions as appropriate. We launched our survey on June 20, 2012. We received completed responses from the 51 survey respondents for a response rate of 100 percent. We reviewed survey responses for inaccuracies or omissions, analyzed the data, and have presented the key findings in this report. We also conducted interviews with state police officials in seven states to collect information on enforcement actions and education and prevention efforts related to properly securing loads carried by non-commercial vehicles. We selected states that were (1) geographically diverse, (2) of varying sizes, and (3) varied in the types of laws related to non- commercial vehicles carrying unsecured loads. Using these criteria, we interviewed state police officials in California, Colorado, Maryland, New York, Texas, Washington, and Wisconsin. In addition, we also conducted interviews with associations and individuals active in highway safety issues, to obtain additional information on issues related to unsecured loads and efforts by states to deal with these issues. Interviewees included the American Automobile Association Foundation for Traffic Safety and one of the co-authors of a 2004 study for this foundation examining the safety impacts of vehicle-related road debris;Governor's Highway Safety Association; and the Transportation Cargo the Safety Organization. We also requested interviews with the International Association of Chiefs of Police, American Association of State Highway and Transportation Officials, and the American Association of Motor Vehicle Administrators; these organizations replied that they did not have information on unsecured-loads issues. We conducted this performance audit from March 2012 to November 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient and 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. Used when cargo on or parts from a motor vehicle are set in motion or an object in the road is struck by a motor vehicle and set in motion. In both cases, the cargo, parts, or object then strike another motor vehicle. Scenario A: A mattress transported by, or a hubcap from, vehicle 1 becomes dislodged and is set in motion. The mattress or hubcap flies into and strikes vehicle 2. Scenario B: Vehicle 1 hits a tree branch or a hubcap from an unknown source in the roadway, and sets it in motion striking vehicle 2. Used for all set-in-motion crashes described above. Revised: Will now be used only for scenario A (crashes where the object set in motion was originally cargo on, or parts from, a moving motor vehicle and this object strikes another vehicle, person or property causing injury or damage). Not a current category. New: Will be used for scenario B (crashes where the object set in motion was not originally cargo on or parts from a moving motor vehicle or it is unknown whether the object was the cargo or a part of an in- transport motor vehicle. In either case, the object strikes another motor vehicle, person or property causing injury or damage). Used for crashes wherein a motor vehicle strikes any non-fixed object, such as a mattress or a tree branch, lying in the roadway. Scenario C: Vehicle hits a tree branch already in the roadway. Scenario D: Vehicle hits a mattress already in the roadway. Revised: Will be used only for scenario C (when a motor vehicle strikes a non-fixed object already at rest in the roadway but known to have not come from a motor vehicle, or unknown if it came from a motor vehicle). How data category will be defined starting in 2013 New: Will be used for scenario D (when a motor vehicle strikes a non-fixed object already at rest in the road but known to have been the cargo or part of another motor vehicle in-transport). Unsecured-load law exemptions Motor vehicles carrying agricultural loads. Not more than $500. Unsecured-load violation fines/penalties (& separate penalty statute if not contained in unsecured-load law) Motor vehicles carrying agricultural, mining, and timber, vehicles applying salt or sand to gain traction, or public vehicles cleaning or maintaining the highway. Not more than $1000 and litter pickup. Motor vehicles carrying agricultural loads, cleaning or maintaining the highway or dropping sand for traction, minor pieces of agricultural materials such as leaves and stems from agricultural loads. $250-$1000. Motor vehicles depositing sand for traction or water for cleaning or maintaining the highway. $100 Arkansas Code Annotated SS5-4- 201. Motor vehicles carrying clear water or live bird feathers. $211 ($146 fine plus $30 security fee and $35 conviction assessment) California Rules of Court; Rule 4.102, January 2010 Edition. Motor vehicles dropping material for traction or for cleaning or maintaining the roadway. Vehicles operating entirely in a marked construction zone, vehicles involved in maintenance of public roads during snow or ice removal operations, vehicles involved in emergency operations when requested by a law enforcement agency or an emergency response authority. $150-$300 and/or 10-90 days imprisonment. C.R.S. 42-4-1701. Conn. Gen. Stat. SS 14-271 Farming vehicles, motor vehicles dropping $117-$158. sand for traction or water for maintaining roadway. None. First offense not less than $10 and no more than $28.75 and for each subsequent offense, no less than $28.75 and no more than $100. $150-$250. Motor vehicles dropping sand for the purpose of securing traction, or water or other substance sprinkled on the roadway in cleaning or maintaining the roadway. Unsecured-load law exemptions Farming vehicles traveling locally or vehicles dropping sand for traction or water for cleaning or maintaining the road. Unsecured-load violation fines/penalties (& separate penalty statute if not contained in unsecured-load law) $200 Fla. Stat. SS 318.18, license suspension with second offense. Any person who willfully violates the provisions of this section which offense results in serious bodily injury or death to an individual within the confines of statute is also subject to fines of no more than $500 and prison for not more than 60 days; SS 775.082 and SS 775.083. Motor vehicles carrying agricultural, vehicles transporting agriculture or farm products. Up to $1000 and/or jail time not to exceed 1 year. O.C.G.A. SS 17-10-3. Agricultural vehicles, vehicles carrying birds with feathers, and vehicles carrying rocks, sand, or gravel. $250 - $1000 + suspension of license (dependent on number of offenses). Vehicles that are government, quasi- government, their agents or employees or contractors thereof, in performance of maintenance or construction of a highway; vehicles owned by canal companies, irrigation districts, drainage districts or their boards of control, lateral ditch associations, water districts or other irrigation water delivery or management entities, or operated by any employee or agent of such an entity, performing construction, operation or maintenance of facilities; and vehicles transporting agricultural products.. $67. Motor vehicles dropping sand for traction or water for cleaning the highway, or agricultural vehicles. For 109: $120, Class A Misdemeanor, Illinois Supreme Court Rules, Rule 526. A conviction for this could result in a determinate sentence of imprisonment of less than one year or a fine not to exceed $2,500 for each offense or the amount specified in the offense, whichever is greater, may be imposed. Illinois Unified Code of Corrections (730 ILCS 5/5-4.5-55). For 109.1: Not to exceed $250. Motor vehicles transporting poultry or spreading sand/de-icing (removing ice). Up to $500 Indiana Code SS 34-28-5-4. Motor vehicles carrying hay or stover (stalks and leaves, of corn); or sand for traction or water for maintaining roadway. $200 Iowa Code SS 805.8A. Unsecured-load law exemptions Motor vehicles hauling livestock or spreading substances in highway maintenance or construction. Unsecured-load violation fines/penalties (& separate penalty statute if not contained in unsecured-load law) Not to exceed $500 K.S.A. SS 8-1901. None. Motor vehicles dropping sand to secure traction, or dropping a liquid substance on a highway to clean or maintain. $500 and/or 6 months jail time. Motor vehicles carrying hay, straw, vines, cornstalks, or grain. $150-$500. Motor vehicles carrying agricultural products and those dropping materials to provide traction or clean the highway. $500. Motor vehicles dropping sand for the purpose of securing traction, or sprinkling of water or other substance on such a way in cleaning or maintaining the same. $50-$200. Highway maintenance vehicles engaged in ice or snow removal. Agricultural and horticultural vehicles. Not more than $500 and/or 90 days jail time. Motor vehicles carrying agricultural products such as small grains, shelled corn, soybeans, or other farm produce, or vehicles dropping material for traction or cleaning. Not more than $300 Minn. Stat. SS 169.89. Motor vehicles dropping material for traction or for cleaning or maintaining the highway. Not more than $500 and not more than 6 months imprisonment or both. Miss. Code Ann. SS 63-5-7, 63-9-11. None. Not to exceed $300 R.S.Mo. SS 560.016. Commercial motor vehicles in compliance with state and federal laws; agricultural vehicles; vehicles performing road maintenance or in a marked construction zone. No more than $500 Mont. Code Anno., SS 61-8-711. None. $100 - $500 R.R.S. Neb. SS 28-106. Motor vehicles dropping materials for traction or cleaning the highway. Fines are addressed and set by individual courts, for example in Reno it's $403. Local farmers, transportation of heavy scrap or crushed vehicles, or construction vehicles in a construction zone, vehicles driving at less than 30 mph. Fines are addressed and set by individual courts. Agricultural vehicles. Not more than $500 for each violation. Unsecured-load law exemptions Agricultural vehicles or those dropping sand for traction or water for cleaning the roadway. Unsecured-load violation fines/penalties (& separate penalty statute if not contained in unsecured-load law) $100 N.M. Stat. Ann. SS 66-7-401; SS 66- 8-116. None. $100 - $750 and/or imprisonment up to 30 days. N.C. Gen. Stat. SS 20-116 Motor vehicles dropping material for $100 N.C. Gen. Stat. SS20-176. traction or cleaning the highway. Motor vehicles dropping sand for traction or water for highway maintenance. $20. Agricultural and garbage vehicles or those dropping sand for traction or water for cleaning the roadway. $150 - $1000 ORC Ann. 2929.28; ORC Ann. 4513.99. Agricultural vehicles or those dropping sand for traction or water for cleaning the roadway. $5 - $500 or imprisonment for up to 6 months, or both. 47 Okl. St. SS 17-101. ORS SS 818.300; 818.310 No exemptions for vehicles, just for certain roads, private thoroughfares. $260 ORS SS 818.300(4) and ORS SS 153.019. Additionally, owners or drivers are liable for all damage done as a result of the violation if it occurs on certain roadways. ORS SS 818.410. Logging and garbage trucks, the shedding or dropping of feathers or other matter from vehicles hauling live or slaughtered birds or animals, and spreading of any substance in highway maintenance or construction operations. $300-$1000. Logging trucks or those carrying wood, lumber, or sawmill wastes. Motor vehicles dropping sand for traction or water for highway maintenance. $85, R.I. Gen. Laws SS 31-41.1-4; $100 to not more than $500, R.I. Gen. Laws SS 31-25-10. Motor vehicles dropping sand for traction or water for highway maintenance. Agricultural and timber-related vehicles. $100. None. $500 or 30 days in prison or both, S.D. Codified Laws SS 22-6-2. Vehicles carrying farm produce to the market. Vehicles which transport crushed stone, fill dirt and rock, soil, bulk sand, coal, phosphate muck, asphalt, concrete, other building materials, forest products, unfinished lumber, agricultural lime. Motor vehicles dropping sand for traction or water for highway maintenance. No more than $50 or not more than 30 days in prison or both. Tenn. Code Ann. SS 40-35-111. Unsecured-load law exemptions None. Unsecured-load violation fines/penalties (& separate penalty statute if not contained in unsecured-load law) $25-$500 Tex. Transp. Code SS 725.003. Vehicles carrying dirt, sand, gravel, rock fragments, pebbles, crushed base, aggregate, any other similar material, or scrap metal. Certain agricultural loads and vehicles spreading any substance connected with highway maintenance, construction, securing traction or snow removal. $100-$250. None. $99 -$156 SS 1454. Motor vehicles dropping material for traction or for cleaning or maintaining the highway. SS 10.1-1424. Motor vehicles used exclusively for agricultural purposes, or transporting forest products, poultry, or livestock. SS 46.2-1156. Not more than $2,500 or not more than 12 months in jail for violating SS 10.1- 1424, and a fine of not more than $250 for violating SS 46.2-1156. Va. Code Ann. SS 18.2-11. Vehicles carrying gravel, sand, and dirt if 6 inches of freeboard is maintained within the bed. Motor vehicles dropping sand for traction. Up to $5000 or up to a year in jail or both. Rev. Code Wash. (ARCW) SS 9A.20.021. Motor vehicles dropping material for traction or for cleaning or maintaining the highway. Up to $500 fine or 6 months imprisonment or both. W. Va. Code SS 17C-18-1. None. $10-$200 Wis. Stat. SS 348.11. Motor vehicles spreading substance for maintaining or constructing the highway. Up to $500 fine or 6 months imprisonment or both. Wyo. Stat. SS 31- 5-1201. In addition to the contact named above, Judy Guilliams-Tapia (Assistant Director), Margaret Bartlett, David Hooper, Maren McAvoy, Maria Mercado, Amy Rosewarne, Beverly Ross, Kelly Rubin, and Andrew Stavisky made key contributions to this report.	Vehicles carrying objects that are not properly secured pose a safety risk on our nation's roadways. Debris that falls from a vehicle can collide with other vehicles or pedestrians, causing serious injuries or fatalities. According to data collected by NHTSA, there were about 440 fatalities caused by roadway debris in 2010. However, the exact number of incidents resulting from vehicles carrying unsecured loads is unknown. Congress, through the Conference Report for the Consolidated and Further Continuing Appropriations Act, (2012), directed NHTSA to improve its data on unsecured-load incidents and directed GAO to report on state laws and related exemptions, and punitive measures regarding unsecured loads on non-commercial vehicles, such as cars and light trucks used for non-commercial purposes. This report examines NHTSA's data collection efforts as well as states' laws related to unsecured loads. GAO reviewed NHTSA documents and interviewed officials from NHTSA, as well as representatives of highway safety associations and state police agencies. GAO also conducted a survey of all 50 states and the District of Columbia, with a response rate of 100 percent, and researched the laws, punitive measures, and education efforts in each state. GAO provided a draft of this report to NHTSA for review and comment. NHTSA provided technical comments that were incorporated, as appropriate. The National Highway Traffic Safety Administration (NHTSA) collects limited information on crashes involving vehicles carrying unsecured loads but plans to make changes to collect better information. Currently, NHTSA collects some data in the Fatality Analysis Reporting System and the National Automotive Sampling System General Estimates System. However, the systems do not currently have a data category to distinguish between debris resulting from natural sources (such as a tree branch) and debris resulting from human error (such as an unsecured load). As a result, NHTSA cannot currently identify how many crashes involve vehicles carrying unsecured loads. NHTSA intends to make changes to both its systems to better identify crashes involving unsecured loads. These changes will go into effect in 2013. However, NHTSA may still face challenges collecting this data because 1) law enforcement officials face difficulties in determining whether a crash involved an unsecured load and 2) states do not collect uniform data on unsecured loads in their police crash reports. NHTSA officials stated that they would likely recommend changes to the Model Minimum Uniform Crash Criteria (MMUCC)--voluntary guidelines intended to create uniform data in police crash reports; however, the revised guidelines will not be released until 2017 because of MMUCC's 5-year cycle of updates. NHTSA officials acknowledged that even with the changes in its data systems, data improvements will take time to implement and data on unsecured-load crashes will likely continue to be imprecise. All 50 states and the District of Columbia have statutes regarding unsecured loads that pertain to non-commercial and commercial vehicles. A majority of states and the District of Columbia reported exempting vehicles from unsecured load statutes for primarily commercial activities such as roadway maintenance or agriculture activities, while 9 states have statutes that apply to all vehicles. All 50 states and the District of Columbia reported having fines or penalties for violating unsecured load statutes ranging from $10 to $5,000; fifteen states add the possibility of imprisonment. Ten states also reported having a safety or education program related to unsecured loads.	8,142	736
Multiemployer plans are established pursuant to collectively bargained pension agreements negotiated between labor unions representing employees and two or more employers and are generally jointly administered by trustees from both labor and management. Multiemployer plans typically cover groups of workers in such industries as trucking, building and construction, and retail food sales. These plans provide participants limited benefit portability in that they allow workers the continued accrual of defined benefit pension rights when they change jobs, if their new employer is also a sponsor of the same plan. This arrangement can be particularly advantageous in industries like construction, where job change within a single industry is frequent over the course of a career. Multiemployer plans are distinct from single- employer plans, which are established and maintained by only one employer and where the plans may or may not be collectively bargained. Multiemployer plans also differ from so called multiple-employer plans that are not generally established through collective bargaining agreements and where many such plans have separate funding accounts for each employer. Since the enactment of the National Labor Relations Act (NLRA), in 1935, collective bargaining has been the primary means by which workers can negotiate, through unions, the terms of their pension plan. In 1935, NLRA required employers to bargain with union representatives over wages and other conditions of employment, and subsequent court decisions established that employee benefit plans could be among those conditions. The Taft Hartley Act amended NLRA to establish terms for negotiating such employee benefits and placed certain restrictions on the operation of any plan resulting from those negotiations. For example, employer contributions cannot be made to a union or its representative but must be made to a trust that has an equal balance of union and employer representation. Since its enactment in 1974, multiemployer defined benefit pensions have been regulated by the Employee Retirement Income Security Act (ERISA), which Congress passed to protect the interests of participants and beneficiaries covered by private sector employee benefit plans. Title IV of ERISA created PBGC as a U. S. Government corporation to insure the pensions of participants and beneficiaries in private sector-defined benefit plans. In 1980, Congress enacted the Multiemployer Pension Plan Amendments Act (MPPAA) of 1980 to protect the pensions of participants in multiemployer plans by establishing a separate PBGC multiemployer plan insurance program and by requiring any employer wanting to withdraw from a multiemployer plan to be liable for its share of the plan's unfunded liability. This amount is based upon a proportional share of the plans' unfunded vested benefits. Liabilities that cannot be collected from a withdrawn employer are "rolled over" and must eventually be funded by the plans remaining employers. PBGC operates distinct insurance programs, for multiemployer plans and single-employer plans, which have separate insurance funds, different benefit guarantee rules, and different insurance coverage rules. The two insurance programs and PBGC's operations are financed through premiums paid annually by plan sponsors, investment returns on PBGC assets, assets acquired from terminated single employer plans, and by recoveries from employers responsible for underfunded terminated single employer plans. Premium revenue totaled about $973 million in 2003, of which $948 million was paid into the single-employer program and $25 million paid to the multiemployer program. Over the last few years, the finances of PBGC's single-employer insurance program have taken a severe turn for the worse. Although the program registered a $9.7 billion accumulated surplus as recently as 2000, it reported a $11.2 billion accumulated deficit for fiscal year 2003, primarily brought on by the termination of a number of large underfunded pension plans. Several underlying factors contributed to the severity of the plans' underfunded condition at termination, including a sharp decline in the stock market, which reduced plan asset values, and a general decline in interest rates, which increased the cost of terminating defined benefit pension plans. Because of its accumulated deficit, the significant risk that other large underfunded plans might terminate and other structural factors, we designated PBGC's single-employer pension insurance program as a "high risk" program and added it to the list of agencies and major programs that we believe need urgent attention. In general, the same ERISA funding rules apply to both single and multiemployer defined benefit pension plans. However, there are some important differences. For example, while single-employer plan sponsors can adjust their pension contributions to meet their needs, within the overall set of ERISA and Internal Revenue Code (IRC) rules, individual employers in multiemployer plans cannot as easily adjust their plan contributions. For multiemployer plans, contribution levels are usually negotiated through the collective bargaining process and are fixed for the term of the collective bargaining agreement, typically 2 to 3 years. Benefit levels are generally also fixed by the contract or by the plan trustees. Employer contributions to multiemployer plans are typically made on a set dollar amount per hour of covered work. For many multiemployer plans, contributions are directly tied to the total number of hours worked, and thus, to the number of active plan participants. With other things being equal, the reduced employment of active participants will result in lower contributions and reduced plan funding. The U. S. employer-sponsored pension system has historically been an important component of total retirement income, providing roughly 18 percent of aggregate retirement income in 2000. However, millions of workers continue to face the prospect of retirement with no income from an employer-sponsored pension. The percentage of the workforce with pension coverage has been near 50 percent since the 1970s. Lower-income workers, part-time employees, employees of small businesses, and younger workers typically have lower rates of pension coverage. Retirees with pension incomes are more likely to avoid poverty. For example, 21 percent of retired persons without pension incomes had incomes below the federal poverty level, compared with 3 percent with pension incomes. Of those workers covered by a pension, such coverage is increasingly being provided by defined contribution pension plans. Surveys have reported a worker preference for defined contribution plans, with employers citing worker preference for transparency of plan value and improved benefit portability. As of 1998, the most recent published data available, 27 percent of the private sector labor force was covered by a DC plan, as their primary pension plan, up from 7 percent in 1979. While multiemployer plan funding has exhibited considerable stability over the past 2 decades, available data suggest that many plans have recently experienced significant funding declines. Since 1980, aggregate multiemployer plan funding has been stable, with the majority of plans funded above 90 percent of total liabilities and average funding at 105 percent by 2000. Recently, however, it appears that a combination of stock market declines coupled with low interest rates and poor economic conditions have reduced the assets and increased the liabilities of many multiemployer plans. In PBGC's 2003 Annual Report, the agency estimated that total underfunding of underfunded multiemployer plans reached $100 billion by year-end, from $21 billion in 2000, and that its multiemployer program had recorded a year-end 2003 deficit of $261 million, the first deficit in more than 20 years. While most multiemployer plans continue to provide benefits to retirees at unreduced levels, the agency has also increased its forecast of the number of plans that will likely need financial assistance, from 56 plans in 2001 to 62 plans in 2003. Private survey data are consistent with this trend, with one survey by an actuarial consulting firm showing the percentage of fully funded client plans declining from 83 percent in 2001 to 67 percent in 2002. In addition, long-standing declines in the number of plans and worker participation continue. The number of insured multiemployer plans has dropped by a quarter since 1980 to fewer than 1,700 plans in 2003, the latest data available. Although in 2001, multiemployer plans in the aggregate covered 4.7 million active participants, representing about a fifth of all defined benefit plan participants, this number has dropped by 1.4 million since 1980. Aggregate funding for multiemployer pension plans remained stable during the 1980s and 1990s. By 2000, the majority of multiemployer plans reported assets exceeding 90 percent of total liabilities, with the average plan funded at 105 percent of liabilities. As shown in figure 1, the aggregate net funding of multiemployer plans grew from a deficit of about $12 billion in 1980 to a surplus of nearly $17 billion in 2000. From 1980 to 2000, multiemployer plan assets grew at an annual average rate of 11.7 percent, to about $330 billion, exceeding the average 10.5 percent annual percentage growth rate of single-employer plan assets. During the same time period, liabilities for multiemployer and single-employer pensions grew at an average annual rate of about 10.2 percent and 9.9 percent, respectively. A number of factors appear to have contributed to the funding stability of multiemployer plans, including: Investment Strategy--Historically, multiemployer plans appear to have invested more conservatively than their single-employer counterparts. Although comprehensive data are not available, some pension experts have suggested that defined benefit plans in the aggregate are more than 60 percent invested in equities, which are associated with greater risk and volatility than many fixed-income securities. Experts have stated that, in contrast, equity holdings generally comprise 55 percent or less of the assets of most multiemployer plans. Contribution Rates--Unlike single-employer plans, multiemployer plan funds receive steady contributions from employers because those amounts generally have been set through multiyear collective bargaining contracts. Participating employers, therefore, have less flexibility to vary their contributions in response to changes in firm performance, economic conditions, and other factors. This regular contribution income is in addition to any investment return and helps multiemployer plans offset any declines in investment returns. Risk Pooling--The pooling of risk inherent in multiemployer pension plans may also have buffered them against financial shocks and recessions since the contributions to the plans are less immediately affected by the economic performance of individual employer plan sponsors. Multiemployer pension plans typically continue to operate long after any individual employer goes out of business because the remaining employers in the plan are jointly liable for funding the benefits of all vested participants. Greater Average Plan Size--The stability of multiemployer plans may also be due in part to their size. Large plans (1,000 or more participants) constitute a greater proportion of multiemployer plans than of single- employer plans. (See figs. 2 and 3.) While 55 percent of multiemployer plans are large, only 13 percent of single-employer plans are large and 73 percent of single-employer plans have had fewer than 250 participants, as shown in figure 2. However, distribution of participants by plan size for multiemployer and single-employer plans is more comparable, with over 90 percent of both multiemployer and single-employer participants in large plans, as shown in figure 3. Although data limitations preclude any comprehensive assessment, available evidence suggests that since 2000, many multiemployer plans have recently experienced significant reductions in their funded status. PBGC estimated in its 2003 Annual Report that the aggregate deficit of underfunded multiemployer plans had reached $100 billion by year-end, up from a $21 billion deficit at the start of 2000. In addition, PBGC reported its own multiemployer insurance program deficit of $261 million for fiscal year 2003, the first deficit since 1981 and its largest ever. (See fig. 4.) While most multiemployer plans continue to provide benefits to retirees at unreduced levels, PBGC has also reported that the deficit was primarily caused by new and substantial probable losses, increasing the number of plans it classifies as likely requiring financial assistance in the near future from 58 plans with expected liabilities of $775 million in 2002 to 62 plans with expected liabilities of $1.25 billion in 2003. Private survey data and anecdotal evidence are consistent with this assessment of multiemployer funding losses. One survey by an actuarial consulting firm showed that the percentage of its multiemployer client plans that were fully funded declined from 83 percent in 2001 to 67 percent in 2002. Other, more anecdotal evidence suggests increased difficulties for multiemployer plans. Discussions with plan administrators have indicated that there has been an increase in the number of plans with financial difficulties in recent years, with some plans reducing or temporarily freezing the future accruals of participants. In addition, IRS officials recently reported an increase in the small number of multiemployer plans (less than 1 percent of all multiemployer plans) requesting tax-specific waivers that would provide plans relief from current funding shortfall requirements. As with single-employer plans, falling interest rates coincident with stock market declines and generally weak economic conditions have contributed to the funding difficulties of many multiemployer plans. The decline in interest rates in recent years has increased pension plan liabilities for DB plans in general, because their liability for future promised benefits increases when computed using a lower interest rate. At the same time, declining stock markets decreased the value of any equities held in multiemployer plan portfolios to meet those obligations. Finally, because multiemployer plan contributions are usually based on the number of hours worked by active participants, any reduction in their employment will reduce employer contributions to the plan. Over the past 2 decades, the multiemployer system has experienced a steady decline in the number of plans and in the number of active participants. In 1980, there were 2,244 plans and by 2003 the number had fallen to 1,631, a decline of about 27 percent. While a portion of the decline in the number of plans can be explained by consolidations through mergers, few new plans have been formed, only 5, in fact, since 1992. Meanwhile, the number of active multiemployer plan participants has declined both in relative and absolute terms. By 2001, only about 4.1 percent of the private sector workforce was comprised of active participants in multiemployer pension plans, down from 7.7 percent in 1980 (see fig. 5), with the total number of active participants decreasing from about 6.1 million to about 4.7 million. Finally, as the number of active participants has declined, the number of retirees increased--from about 1.4 million to 2.8 million, and this increase had led to a decline in the ratio of active (working) participants to retirees in multiemployer plans. By 2001, there were about 1.7 active participants for every retiree, compared with 4.3 in 1980. (See fig. 6.) While the trend is also evident among single-employer plans, the decline in the ratio of active workers to retirees affects multiemployer funding more directly because employer contributions are tied to active employment. PBGC's role regarding multiemployer plans includes monitoring plans for financial problems, providing technical and financial assistance to troubled plans, and guaranteeing a minimum level of benefits to participants in insolvent plans. For example, PBGC annually reviews the financial condition of multiemployer plans to identify those that may have potential financial problems in the near future. Agency officials told us that troubled plans often solicit their technical assistance since under the multiemployer framework, affected parties have a vested interest in a plan's survival. Occasionally, PBGC is asked to serve as a facilitator where the agency works with all the parties associated with the troubled plan to improve its financial status. Examples of such assistance by PBGC include facilitating the merger of troubled plans into one stronger plan and the "orderly shutdown" of plans, allowing the affected employers to continue to operate and pay benefits until all liabilities are paid. Unlike its role in the single-employer program where PBGC trustees weak plans and pays benefits directly to participants, PBGC does not take over the administration of multiemployer plans, but instead, upon application, provides financial assistance in the form of loans when plans become insolvent and are unable to pay benefits at PBGC-guaranteed levels. Such financial assistance is infrequent; for example, PBGC has made loans totaling $167 million to 33 multiemployer plans since 1980 compared with 296 trusteed terminations of single-employer plans and PBGC benefit payments of over $4 billion in 2002-2003 alone. PBGC officials believe that the low frequency of PBGC financial assistance to multiemployer plans is likely due to specific features of the multiemployer insurance regulatory framework: (1) the employers sponsoring the plan share the risk for providing benefits to all participants in the plan and (2) benefit guarantees are set at a lower level for the multiemployer insurance program compared with the guarantees provided by the single-employer program. Agency officials say that together these features encourage the affected parties to collaborate on their own to address the plan's financial difficulties. Several of PBGC's functions regarding its multiemployer program and its single-employer program are similar. For example, under both programs PBGC monitors the financial condition of all plans to identify those that are at-risk of requiring financial assistance. The agency maintains a database of financial information about such plans that draws its data from both PBGC premium filings and the Form 5500. Using an automated screening process that measures each plan against funding and financial standards, the agency determines which plans may be at risk of termination or insolvency. For both, PBGC also annually identifies plans that it considers probable or reasonably possible liabilities and enumerates their aggregate unfunded liabilities in the agency's annual financial statements for each program. The type of assistance PBGC provides to troubled plans through its multiemployer program is shaped to a degree by the program's definition of the "insurable event." PBGC insures against multiemployer plan insolvency. A multiemployer plan is insolvent when its available resources are not sufficient to pay the level of benefits at PBGC's multiemployer guaranteed level for 1 year. In such cases, PBGC will provide the needed financial assistance in the form of a loan. If the plan recovers from insolvency, it must begin repaying the loan on a commercially reasonable schedule in accordance with regulations. Under MPPAA, unlike its authority towards single-employer plans, PBGC does not takeover or otherwise assume responsibility for the liabilities of a financially troubled multiemployer plan. PBGC sometimes provides technical assistance to help multiemployer plan administrators improve their funding status or for help on other issues. Plan administrators may contact PBGC's customer service representatives at designated offices to obtain assistance on such matters as premiums, plan terminations, and general legal questions related to PBGC. Agency officials told us that on a few occasions PBGC has worked with plan administrators to facilitate plan mergers, "orderly shutdowns," and other arrangements to protect plan participants' benefits. For example, in 1997, PBGC worked with the failing Local 675 Operating Engineers Pension Fund and the Operating Engineers Central Pension Fund to effect a merger of the two plans. However, PBGC officials also told us that the majority of mergers are crafted by private sector parties and have no substantial PBGC involvement. PBGC has also on occasion assisted in the orderly shutdown of plans. For example, agency officials told us that, in 2001, they helped facilitate the shutdown of the severely underfunded Buffalo Carpenters' Pension Fund. PBGC has the authority to approve certain plan rules governing withdrawal liability payments and did so in this case approving the plan's request to lower its annual payments, which made it possible for the employers to remain in business and pay benefits until all liabilities were paid. In those cases where a multiemployer plan cannot pay guaranteed benefits, PBGC provides financial assistance in the form of a loan to allow the plan to continue to pay benefits at the level guaranteed by PBGC. A multiemployer plan need not be terminated to qualify for PBGC loans, but must be insolvent and is allowed to reduce or suspend payment of that portion of the benefit that exceeds the PBGC guarantee level. The number of loans and amount of financial assistance from PBGC to multiemployer plans has been small in comparison to the benefits paid out under its single-employer program. Since 1980, the agency has provided loans to 33 plans totaling $167 million. In 2003, PBGC provided $5 million in loans to 24 multiemployer plans. This compares with 296 trusteed terminations of single-employer plans and PBGC benefit payments of over $4 billion to single-employer plan beneficiaries in 2002 and 2003 alone. PBGC officials say that this lower frequency of financial assistance is primarily due to key features of the multiemployer regulatory framework. First, in comparison to that governing the single-employer program, the regulatory framework governing multiemployer plans places greater financial risks on employers and workers and relatively less on PBGC. For example, in the event of the bankruptcy of an employer in a multiemployer plan, the remaining employers in the plan remain responsible for funding all plan benefits. Under the single-employer program, a comparable employer bankruptcy could leave PBGC responsible for any plan liabilities up to the PBGC-guaranteed level. In addition, the law provides a disincentive for employers seeking to withdraw from an underfunded plan by imposing a withdrawal liability based on its share of the plan's unfunded vested benefits. Another key feature is that multiemployer plan participants also bear greater risk than their single-employer counterparts because PBGC guarantees benefits for multiemployer pensioners at a much lower dollar amount than for single-employer pensioners: about $13,000 for 30 years of service for the former compared with about $44,000 annually per retiree at age 65 for the latter. PBGC officials explained that this greater financial risk on employers and lower guaranteed benefit level for participants in practice creates incentives for employers, participants, and their collective bargaining representatives to avoid insolvency and to collaborate in trying to find solutions to the plan's financial difficulties. The smaller size of PBGC's multiemployer program might also contribute to the lower frequency of assistance. The multiemployer program's $1 billion in assets and $1.3 billion in liabilities accounts for a relatively small portion of PBGC's total assets and liabilities, representing less than 3 percent of the total. Further, the multiemployer program covers just 22 percent of all defined benefit plan participants. There are also many fewer plans in the multiemployer program, about 1,700, as compared with about 30,000 single-employer plans. Other things equal, there are fewer opportunities for potential PBGC assistance to multiemployer plans than to single-employer plans. A number of factors pose challenges to the long-term prospects of the multiemployer pension plan system. Some of these factors are specific to the features and nature of multiemployer plans, including a regulatory framework that some employers may perceive as financially riskier and less flexible than those covering other types of pension plans. For example, compared with a single-employer plan, an employer covered by a multiemployer plan cannot easily adjust annual plan contributions in response to the firm's own financial circumstances. Collective bargaining itself, a necessary aspect of the multiemployer plan model and another factor affecting plans' prospects, has also been in long-term decline, suggesting fewer future opportunities for new plans to be created or existing ones to expand. As of 2003, union membership, a proxy for collective bargaining coverage, accounted for less than 9 percent of the private sector labor force and has been steadily declining since 1953. Experts have identified other challenges to the future prospects of defined benefit plans generally, including multiemployer plans. These include the growing trend among employers to choose defined contribution plans over DB plans, including multiemployer plans, the continued growing life expectancy of American workers, resulting in participants spending more years in retirement, thus increasing benefit costs, and increases in employer-provided health insurance costs, which are increasing employers' total compensation costs generally, making them less willing or able to increase elements of compensation, like wages or pensions. Some factors that raise questions about the long-term viability of multiemployer plans are specific to certain features of multiemployer plans themselves, including features of the regulatory framework that some employers may well perceive as less flexible and financially riskier than the features of other types of pension plans. For example, an employer covered by a multiemployer pension plan typically does not have the funding flexibility of a comparable employer sponsoring a single- employer plan. In many instances, the employer covered by the multiemployer plan cannot as easily adjust annual plan contributions in response to the firm's own financial circumstances. This is because contribution rates are often fixed for periods of time by the provisions of the collective bargaining agreement. Employers that value such flexibility might be less inclined to participate in a multiemployer plan. Employers in multiemployer plans may also face greater financial risks than those in other forms of pension plans. For example, an employer sponsor of a multiemployer plan that wishes to withdraw from the plan is liable for its share of pension plan benefits not covered by plan assets upon withdrawal from the plan, rather than when the plan terminates. Employers in plans with unfunded vested benefits face an immediate withdrawal liability that can be costly, while employers in fully funded plans face the potential of costly withdrawal liability if the plan becomes underfunded in the future. Thus, an employer's pension liabilities become a function not only of the employer's own performance but also the financial health of other employer plan sponsors. These additional sources of potential liability can be difficult to predict, increasing employers' level of uncertainty and risk. Some employers may hesitate to accept such risks if they can sponsor other plans that do not have them, such as 401(k) type defined contribution plans. The future growth of multiemployer plans is also predicated on the future growth prospects of collective bargaining. Collective bargaining is an inherent feature of the multiemployer plan model. Collective bargaining, however, has been declining in the United States since the early 1950s. Currently, union membership, a proxy for collective bargaining coverage, accounts for less than 9 percent of the private sector labor force. In 1980, union membership accounted for about 19 percent of the civilian workforce and about 27 percent of the civilian workforce in 1953. Pension experts have suggested a variety of challenges faced by today's defined benefit pension plans, including multiemployer plans. These include the continued general shift away from DB plans to defined contribution plans, and the increased longevity of the U.S. population, which translates into a lengthier and more costly retirement. In addition, the continued escalation of employer health insurance costs has placed pressure on the compensation costs of employers, including pensions. Employers have tended to move away from DB plans and towards DC plans since the mid 1980s. The number of PBGC-insured defined benefit plans declined from 97,683 in 1980 to 31,135 in 2002. (See fig. 7.) The number of defined contribution plans sponsored by private employers nearly doubled from 340,805 in 1980 to 673,626 in 1998. Along with this continuing trend to sponsoring DC plans, there has also been a shift in the mix of plans that private sector workers participate. Labor reports that the percentage of private sector workers who participated in a primary DB plan has decreased from 38 percent in 1980 to 21 percent by 1998, while the percentage of such workers who participated in a primary DC plan has increased from 8 to 27 percent during this same period. Moreover, these same data show that, by 1998, the majority of active participants (workers participating in their employer's plan) were in DC plans, whereas nearly 20 years earlier the majority of participants were in DB plans. Experts have suggested a variety of explanations for this shift, including the greater risk borne by employers with DB plans, greater administrative costs and more onerous regulatory requirements, and that employees more easily understand and favor DC plans. These experts have also noted considerable employee demand for plans that state benefits in the form of an account balance and emphasize portability of benefits, such as is offered by 401(k) type defined contribution pension plans. The increased life expectancy of workers also has important implications for defined benefit plan funding, including multiemployer plans. The average life expectancy of males at birth has increased from 66.6 in 1960 to 74.3 in 2000, with females at birth experiencing a rise of 6.6 years from 73.1 to 79.7 over the same period. As general life expectancy has increased in the United States, there has also been an increase in the number of years spent in retirement. PBGC has noted that improvements in life expectancy have extended the average amount of time spent by workers in retirement from 11.5 years in 1950 to 18 years for the average male worker as of 2003. This increased duration of retirement has placed pressure on employers with defined benefit plans to increase their contributions to match this increase in benefit liabilities. This problem can be further exacerbated for those multiemployer plans with a shrinking pool of active workers because plan contributions are generally paid on a per work-hour basis, and thus employers may have to increase contributions for each hour worked by the remaining active participants to fund any liability increase. Increasing health insurance costs are another factor affecting the long- term prospects of pensions, including multiemployer pensions. Recent increases in employer provided health insurance costs are accounting for a rising share of total compensation, increasing pressure on employers' ability to maintain wages and other benefits, including pensions. Bureau of Labor Statistics data show that the cost of employer provided health insurance has risen steadily in recent years, rising from 5.4 percent of total compensation in 1999 to 6.5 percent as of the third quarter of 2003. A private survey of employers found that employer-sponsored health insurance costs rose about 14 percent between the spring of 2002 and the spring of 2003, the third consecutive year of double digit acceleration and the highest premium increase since 1990. Plan administrators and employer and union representatives that we talked with identified the rising costs of employer provided health insurance as a key problem facing plans, as employers are increasingly forced to choose between maintaining current levels of pension or medical benefits. Although available evidence suggests that multiemployer plans are not experiencing anywhere near the magnitude of the problems that have recently afflicted the single-employer plans, there is cause for concern. Most significant is PBGC's estimate of $100 billion in unfunded multiemployer plan liabilities that are being borne collectively by employer sponsors and plan participants. Compared to the single- employer program, PBGC does not face the same level of exposure from this liability at this time. This is because, as PBGC officials have noted, the current regulatory framework governing multiemployer plans redistributes financial risk towards employers and workers and away from the government and potentially the taxpayer. Employers face withdrawal and other liabilities that can be significant, while workers face the prospect of receiving guaranteed benefits far lower and with benefit reduction at levels well below the guaranteed limits than those provided by PBGC's single-employer program, should their plan become insolvent. Together, not only do these features limit the exposure to PBGC and the taxpayer, they create important incentives for all interested parties to resolve difficult financial situations that could otherwise result in plan termination. However, the declines in interest rates and equities markets, and weak economic conditions in the early 2000s, have increased the financial stress on both individual multiemployer plans and the multiemployer framework generally. Proposals to address this stress should be carefully designed and considered for their longer-term consequences. For example, proposals to shift plan liabilities to PBGC by making it easier for employers to exit multiemployer plans could help a few employers or participants but erode the existing incentives that encourage interested parties to independently face up to their financial challenges. In particular, placing additional liabilities on PBGC could ultimately have serious potential consequences for the taxpayer, given that with only about $25 million in annual income, a trust fund of less than $1 billion, and a current deficit of $261 million, PBGC's multiemployer program has very limited resources to handle a major plan insolvency that could run into billions of dollars. The current congressional efforts to provide funding relief are at least in part in response to the difficult conditions experienced by many plans in recent years. However, these efforts are also occurring in the context of the broader, long-term decline in private sector defined benefit plans, including multiemployer plans, and the attendant rise of defined contribution plans, with their emphasis on greater individual responsibility for providing for a secure retirement. Such a transition could lead to greater individual control and reward for prudent investment and planning. However, if managed poorly, it could lead to adverse distributional effects for some workers and retirees, including a greater risk of a poverty level income in retirement. Under this transition view, the more fundamental issues concern how to minimize the potentially serious, negative effects of the transition, while balancing risks and costs for employers, workers, and retirees, and the public. These important policy concerns make Congress's current focus on pension reform both timely and appropriate. We provided a draft of this report to Labor, Treasury, and PBGC. The agencies provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Secretary of Labor, the Secretary of the Treasury, and the Executive Director of the Pension Benefit Guaranty Corporation; appropriate congressional committees; 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 have any questions concerning this report, please contact me at (202) 512-5932. Other major contributors include Joseph Applebaum, Orin B. Atwater, Susan Bernstein, Kenneth J. Bombara, Tim Fairbanks, Charles Jeszeck, Gene Kuehneman, Raun Lazier, and Roger J. Thomas.	Multiemployer-defined benefit pension plans, which are created by collective bargaining agreements covering more than one employer and generally operated under the joint trusteeship of labor and management, provide coverage to over 9.7 million of the 44 million participants insured by the Pension Benefit Guaranty Corporation (PBGC). The recent termination of several large single-employer plans--plans sponsored by individual firms--has led to millions of dollars in benefit losses for thousands of workers and left PBGC, their public insurer, an $11.2 billion deficit as of September 30, 2003. The serious difficulties experienced by these single-employer plans have prompted questions about the health of multiemployer plans. This report provides the following information on multiemployer pension plans: (1) trends in funding and worker participation, (2) PBGC's role regarding the plans' financial solvency, and (3) potential challenges to the plans' long-term prospects. Following 2 decades of relative financial stability, multiemployer plans as a group appear to have suffered recent and significant funding losses, while long-term declines in participation and new plan formation continue unabated. At the close of the 1990s, the majority of multiemployer plans reported assets exceeding 90 percent of total liabilities. Recently, however, stock market declines, coupled with low interest rates and poor economic conditions, appear to have reduced assets and increased liabilities for many plans. PBGC reported an accumulated net deficit of $261 million for its multiemployer program in 2003, the first since 1981. Meanwhile, since 1980, the number of plans has declined from over 2,200 to fewer than 1,700 plans, and there has been a long-term decline in the total number of active workers. PBGC monitors those multiemployer plans, which may, in PBGC's view, present a risk of financial insolvency. PBGC also provides technical and financial assistance to troubled plans and guarantees a minimum level of benefits to participants in insolvent plans. PBGC annually reviews the financial condition of plans to determine its potential insurance liability. Although the agency does not trustee the administration of insolvent multiemployer plans as it does with single-employer plans, it does offer them technical assistance and loans. PBGC loans have been rare, with loans to only 33 plans, totaling $167 million since 1980. Several factors pose challenges to the long-term prospects of the multiemployer system. Some are inherent to the multiemployer regulatory framework, such as the greater perceived financial risk and reduced flexibility for employers compared to other plan designs, and suggest that fewer employers will find such plans attractive. Also, the long-term decline of collective bargaining results in fewer new participants to expand or create new plans. Other factors threaten all defined benefit plans, including multiemployer plans: the growing trend among employers to choose defined contribution plans; the increasing life expectancy of workers, which raises the cost of plans; and continuing increases in employer health insurance costs, which compete with pensions for employer funding.	7,481	650
Currently located within the Department of the Treasury, the CDFI Fund was authorized in 1994 and has received appropriations totaling $225 million through fiscal year 1998. The 1995 Rescissions Act limited the Fund to 10 full-time-equivalent staff for fiscal years 1995 and 1996, but for fiscal year 1998, the Fund has a ceiling of 35 full-time staff. As of May 1998, the Fund had 27 full-time and 2 part-time staff. The Fund's overall performance is subject to the general guidance set forth in the Community Development Banking and Financial Institutions Act of 1994 (CDFI Act), which established the Fund. In addition, the Fund's overall performance is subject to the Results Act and the Office of Management and Budget's (OMB) implementing guidance. The latter act seeks to improve the management of federal programs and their effectiveness and efficiency by establishing a system for agencies to set goals for performance and measure the results. Under the act, federal agencies must develop a strategic plan that covers a period of at least 5 years and includes a mission statement, long-term general goals, and strategies for reaching those goals. Agencies must report annually on the extent to which they are meeting their annual performance goals and identify the actions needed to reach or modify the goals they have not met. The Fund completed its final plan in September 1997 and is currently considering revisions to that plan. While the assistance agreements that the Fund negotiated with awardees in the CDFI program satisfy the CDFI Act's requirements for performance measurement, they include more measures of activity (what the awardees will do) than of accomplishment (how the awardees' activities will affect distressed communities) and do not always include measures for key aspects of goals. In addition, baseline information that was available to the Fund seldom appears in the Fund's performance measurement schedule. A more comprehensive performance measurement system would provide better indicators for monitoring and evaluating the program's results. The CDFI Fund's progress in developing performance goals and measures for awardees in the CDFI program is mixed. On the one hand, the Fund has entered into assistance agreements with most of the 1996 awardees. As the CDFI Act requires, these assistance agreements include performance measures that (1) the Fund negotiated with the awardees and (2) are generally based on the awardees' business plans. On the other hand, the Fund's performance goals and measures fall somewhat short of the standards for performance measures established in the Results Act. Although awardees' assistance agreements are not subject to the Results Act, the act establishes performance measurement standards for the federal government, including the CDFI Fund. In the absence of specific guidance on performance measures in the CDFI Act, we drew on Results Act guidance for discussion purposes. The assistance agreements called for under the CDFI Act require awardees to comply with multiple provisions, including the accomplishment of agreed-upon levels of performance by the final evaluation date, typically 5 years in the future. As of January 1998, the Fund had entered into assistance agreements with 26 of the 31 awardees for 1996. We found, on the basis of our six case studies, that the Fund had negotiated performance goals that met the statutory requirements and established goals for awardees that match the Fund's intended purpose, extensively involved the awardees in crafting their planned performance, and produced a flexible schedule for designing goals and measures. According to Results Act guidance, both activity measures, such as the number of loans made, and accomplishment measures, such as the number of new low-income homeowners, are useful measures. However, the act regards accomplishment measures as more effective indicators of a program's results because such measures identify the outcome of the activities performed. Our survey of CDFIs nationwide, including the 1996 awardees, and our review of six case study awardees' business plans showed that CDFIs use both types of measures to assess their progress toward meeting their goals. Yet our review of the 1996 awardees' assistance agreements revealed a far greater use of activity measures. As a result, the assistance agreements focus primarily on what the awardees will do, rather than on how their activities will affect the distressed communities. According to most of the case study awardees, their use of accomplishment measures was limited by concerns about isolating and measuring the results of community development efforts, as well as concerns about the Fund's possible imposition of sanctions for not meeting performance benchmarks subject to factors outside their control. According to Results Act guidance, goals and measures should be clear. We found that the goals and measures had varying degrees of clarity. For instance, most goals and measures were related; however, in some agreements, the measures did not address all key aspects of the goals. Finally, under Results Act guidance, clarity in performance measurement is also best achieved through the use of specific units, well-defined terms, and baseline and target values and dates. While the measures in the agreements included most of these elements, they generally lacked baseline values and dates. Fund officials told us that they used baseline values and dates in negotiating the performance measures, but this information did not appear in the assistance agreements themselves. Therefore, without information contained in awardees' files, it is difficult to determine the level of increase or contribution the investment is intended to achieve. Refining the awardees' goals and measures to meet Results Act guidance will facilitate the Fund's assessment of the awardees' progress over time. The Fund is taking steps to avoid some of the initial shortcomings in future agreements and is seeking to enhance its expertise and staffing. Although the Fund has developed reporting requirements for awardees to collect information for monitoring their performance, it lacks documented postaward monitoring procedures for assessing their compliance with their assistance agreements, determining the need for corrective actions, and verifying the accuracy of the information collected. In addition, the Fund has not yet established procedures for evaluating the impact of awardees' activities. The effectiveness of the Fund's monitoring and evaluation systems will depend, in large part, on the quality of the information being collected through the required reports and the Fund's assessment of awardees' compliance and the impact of awardees' activities. Primarily because of statutorily imposed staffing restrictions in fiscal years 1995 and 1996 and subsequent departmental hiring restrictions, the Fund has had a limited number of staff to develop and implement its monitoring and evaluation systems. In fiscal year 1998, it began to hire management and professional staff to develop monitoring and evaluation policies and procedures. The Fund has established quarterly and annual reporting requirements for awardees in their assistance agreements. Each awardee is to describe its progress toward its performance goals, demonstrate its financial soundness, and maintain appropriate financial information. However, according to an independent audit recently completed by KPMG Peat Marwick, the Fund lacks formal, documented postaward monitoring procedures to guide Fund staff in their oversight of awardees' activities. In addition, Fund officials indicated that they had not yet established a system to verify information submitted by awardees through the reporting processes. Fund staff told us that they had not developed postaward monitoring procedures because of the CDFI program's initial staffing limits. Now that additional staff are in place, they have begun to focus their attention on monitoring issues, including those identified by KPMG Peat Marwick. The CDFI statute also specifies that the Fund is to annually evaluate and report on the activities carried out by the Fund and the awardees. According to the Conference Report for the statute, the annual reports are to analyze the leveraging of private assistance with federal funds and determine the impact of spending resources on the program's investment areas, targeted populations, and qualified distressed communities. To date, the Fund has published two annual reports, the second of which contains an estimate of the private funding leveraged by the CDFI funding. This estimate is based on discussions with CDFIs and CDFI trade association representatives, not on financial data collected from the awardees. In part because it has been only 16 months since the Fund made its first investment in a CDFI, information on performance in the CDFI program is not yet available for a comprehensive evaluation of the program's impact, such as the Conference Report envisions. The two annual reports include anecdotes about individuals served by awardees and general descriptions of awardees' financial services and initiatives, but they do not evaluate the impact of the program on its investment areas, targeted populations, and qualified distressed communities. Satisfying this requirement will entail substantial research and analysis, as well as expertise in evaluation and time for the program's results to unfold. Fund officials have acknowledged that their evaluation efforts must be enhanced, and they have planned or taken actions toward improvement. For instance, the Fund has developed preliminary program evaluation options, begun hiring staff to conduct or supervise the research and evaluations, and revised the assistance agreements for the 1997 awardees to require that they annually submit a report to assist the Fund in evaluating the program's impact. However, because the Fund has not yet finished hiring its research and evaluation staff, it has not yet reached a final decision on what information it will require from the awardees to evaluate the program's impact. The Fund also has to determine how it will integrate the results of awardees' reported performance measurement or recent findings from related research into its evaluation plans. As to be expected, reports of accomplishments in the CDFI program are limited and preliminary. Because most CDFIs signed their assistance agreements from March 1997 through October 1997, the Fund has just begun to receive the required quarterly reports, and neither the Fund nor we have verified the information in them. Through February 1998, the Fund had received 41 quarterly reports from 19 CDFIs, including community development banks, community development credit unions, nonprofit loan funds, microenterprise loan funds, and community development venture capital funds. The different types of CDFIs support a variety of activities, whose results will be measured against different types of performance measures. Given the variety of performance measures for the different types of CDFIs, it is difficult to summarize the performance reported by the 19 CDFIs. To illustrate cumulative activity in the program to date, we compiled the data reported for the two most common measures--the total number of loans for both general and specific purposes and the total dollar value of these loans. According to these data, the 19 CDFIs made over 1,300 loans totaling about $52 million. In addition, the CDFIs reported providing consumer counseling and technical training to 480 individuals or businesses. In the BEA program, as of January 1998, about 58 percent of the banks had completed the activities for which they received the awards and the Fund had disbursed almost 80 percent of the $13.1 million awarded in fiscal year 1996. Despite this level of activity, the impact of the program on banks' investments in distressed communities is difficult to assess. Our case studies of five awardees and interviews with Fund officials indicate that although the BEA awards encouraged some banks to increase their investments, other regulatory or economic incentives were equally or more important for other banks. In addition, more complete data on some banks' investments are needed to guarantee that the increases in investments in distressed areas rewarded by the BEA program are not being offset by decreases in other investments in these distressed areas. Furthermore, the Fund cannot be assured that the banks' increased investments remain in place because it does not require banks to report any material changes in these investments. Although the CDFI statute does not require awardees to reinvest their awards in community development, most banks that got BEA awards in 1996 have told the Fund that they have done so, thereby furthering the BEA program's objectives, according to the Fund. Our analysis indicated that the impact of the BEA award varied at our five case study banks. One bank reported that it would not have made an investment in a CDFI without the prospect of receiving an award from the Fund. In addition, a CDFI Fund official told us that some CDFIs marketed the prospect of receiving a BEA award as an incentive for banks to invest in them. We found, however, that the prospect of an award did not influence other banks' investment activity. For example, two banks received awards totaling over $324,000 for increased investments they had made or agreed to make before the fiscal year 1996 awards were made. Banks have multiple incentives for investing in CDFIs and distressed areas. Therefore, it is difficult to isolate the impact of the BEA award from the effects of other incentives. According to our five case study banks, regulatory incentives, such as the need to comply with the Community Reinvestment Act (CRA), often motivated the banks' investments in CDFIs and distressed communities, as did economic considerations. One bank said that such investments lay the groundwork for developing new markets, while other banks said that the investments help them maintain market share in areas targeted by the BEA program and compete with other banks in these areas. Two banks cited improved community relations as reasons for their investments. Some banks indicated that the BEA award provides a limited incentive, especially since it is relatively small and comes after a bank has already made at least an initial investment. According to Fund officials, a small portion of the 1996 awardees do not maintain the geographic data needed to determine whether any new investments in distressed areas are coming at the expense of other investments--particularly agricultural, consumer, and small business loans--in such areas. Concerned about the validity of the net increases in investments in distressed areas reported by awardees, the Fund required the 1996 awardees that did not maintain such data to certify that, to the best of their knowledge, they had not decreased investments in distressed areas that were not linked to their BEA award. While most banks maintain the data needed to track their investments by census tract and can thus link their investments with distressed areas, a few do not do so for all types of investments. The Fund does not require awardees to notify the Fund of material changes in their investments after awards have been made. Therefore, it does not know how long investments made under the program remain in place. We found, for example, that a CDFI in which one of our case study banks had invested was dissolved several months after the bank received a BEA award. The CDFI later repaid a portion of the bank's total investment. Because the Fund does not require banks to report their postaward activity, the Fund was not aware of this situation until we brought it to the attention of Fund officials. After hearing of the situation, a Fund official contacted the awardee and learned that the awardee plans to reinvest the funds in another CDFI. Even though this case has been resolved, Fund officials do not have a mechanism for determining whether investments made under the program remain in place. The CDFI statute does not require awardees to reinvest their awards in community development; however, most of the 1996 awardees have told the Fund, and we found through our case studies, that many of them are reinvesting at least a portion of their awards in community development. Reinvestment in community development is consistent with the goals of the BEA program. The CDFI Fund has more work to do before its strategic plan can fulfill the requirements of the Results Act. Though the plan covers the six basic elements required by the Results Act, these elements are generally not as specific, clear, and well linked as the act prescribes. However, the Fund is not unique in struggling to develop its strategic plan. We have found that federal agencies generally require sustained effort to develop the dynamic strategic planning processes envisioned by the Results Act. Difficulties that the Fund has encountered--in setting clear and specific strategic and performance goals, coordinating cross-cutting programs, and ensuring the capacity to gather and use performance and cost data--have faced many other federal agencies. Under the Results Act, an agency's strategic plan must contain (1) a comprehensive mission statement; (2) agencywide strategic goals and objectives for all major functions and operations; (3) strategies, skill, and technologies and the various resources needed to achieve the goals and objectives; (4) a relationship between the strategic goals and objectives and the annual performance goals; (5) an identification of key factors, external to the agency and beyond its control, that could significantly affect the achievement of the strategic goals and objectives; and (6) a description of how program evaluations were used to establish or revise strategic goals and objectives and a schedule for future program evaluations. OMB has provided agencies with additional guidance on developing their strategic plans. In its strategic plan, the Fund states that its mission is "to promote economic revitalization and community development through investment in and assistance to community development financial institutions (CDFIs) and through encouraging insured depository institutions to increase lending, financial services and technical assistance within distressed communities and to invest in CDFIs." Overall, the Fund's mission statement generally meets the requirements established in the Results Act by explicitly referring to the Fund's statutory objectives and indicating how these objectives are to be achieved through two core programs. Each agency's strategic plan is to set out strategic goals and objectives that delineate the agency's approach to carrying out its mission. The Fund's strategic plan contains 5 goals and 13 objectives, with each objective clearly related to a specific goal. However, OMB's guidance suggests that strategic goals and objectives be stated in a manner that allows a future assessment to determine whether they were or are being achieved. Because none of the 5 goals (for example, to strengthen and expand the national network of CDFIs) and 13 objectives (for example, increase the number of organizations in training programs) in the strategic plan include baseline dates and values, deadlines, and targets, the Fund's goals and objectives do not meet this criterion. The act also requires that an agency's strategic plan describe how the agency's goals and objectives are to be achieved. Results Act guidance suggests that this description address the skills and technologies, as well as the human, capital, information, and other resources, needed to achieve strategic goals and objectives. The Fund's plan shows mixed results in meeting these requirements. On the positive side, it clearly lists strategies for accomplishing each goal and objective--establishing better linkages than the strategic plans of agencies that simply listed objectives and strategies in groups. On the other hand, the strategies themselves consist entirely of one-line statements. Because they generally lack detail, most are too vague or general to permit an assessment of whether their accomplishment will help achieve the plan's strategic goals and objectives. For example, it is unclear how the strategy of "emphasizing high quality standards in implementing the CDFI program" will specifically address the objective of "strengthening and expanding the national network of CDFIs." The Fund's strategic plan lists 22 performance goals, which are clearly linked to specific strategic goals. However, the performance goals, like the Fund's strategic goals and objectives, generally lack sufficient specificity, as well as baseline and end values. These details would make the performance goals more tangible and measurable. For example, one performance goal is to "increase the number of applicants in the BEA program." This goal would be more useful if it specified the baseline number of applicants and projected an increase over a specified period of time. Also, some performance goals are stated more as strategies than as desired results. For example, it is not readily apparent how the performance goal of proposing legislative improvements to the BEA program will support the related strategic goal of encouraging investments in CDFIs by insured depository institutions. The Fund's strategic plan only partially meets the requirement of the Results Act and of OMB's guidance that it describe key factors external to the Fund and beyond its control that could significantly affect the achievement of its objectives. While the plan briefly discusses external factors that could materially affect the Fund's performance, such as "national and regional economic trends," these factors are not linked to specific strategic goals or objectives. The Results Act defines program evaluations as assessments, through objective measurement and objective analysis, of the manner and extent to which federal programs achieve intended objectives. Although the Fund's plan does discuss various evaluation options, it does not discuss the role of program evaluations in either setting or measuring progress against all strategic goals. Also, the list of evaluation options does not describe the general scope or methodology for the evaluations, identify the key issues to be addressed, or indicate when the evaluations will occur. Our review of the Fund's strategic plan also identified other areas that could be improved. For instance, OMB's guidance on the Results Act directs that federal programs contributing to the same or similar outcomes should be coordinated to ensure that their goals are consistent and their efforts mutually reinforcing. The Fund's strategic plan does not explicitly address the relationship of the Fund's activities to similar activities in other agencies or indicate whether or how the Fund coordinated with other agencies in developing its strategic plan. Also, the capacity of the Fund to provide reliable information on the achievement of its strategic objectives at this point is somewhat unclear. Specifically, the Fund has not developed its strategic plan sufficiently to identify the types and the sources of data needed to evaluate its progress in achieving its strategic objectives. Moreover, according to a study prepared by KPMG Peat Marwick, the Fund has yet to set up a formal system, including procedures, to evaluate, continuously monitor, and improve the effectiveness of the management controls associated with the Fund's programs. As is consistent with the Results Act, the Fund is refining its plan by taking steps that, according to a key Fund official in charge of revising the plan, will address the shortcomings that we and the Department of the Treasury have identified. According to this official, the revised strategic plan, which the Fund expects to complete by August 1998, proposes to incorporate changes to the plan's strategic goals, including the elimination of the two that are organizational rather than strategic; a new format for presenting goals and objectives that links benchmarks and planned evaluations to each goal, along with key external factors that could affect the Fund's progress toward that goal; a budget structure that aligns the program's activities with sources and uses of funds to better track the resources required to implement the program's goals and objectives; a performance goal that measures the ability of the Fund to leverage its resources with those of the private sector; and an identification and description of crosscutting organizations and programs that duplicate or compliment the CDFI Fund's programs. In closing, Madam Chair, our preliminary review has identified several opportunities for the Fund to improve the effectiveness of the CDFI and BEA programs and of its strategic planning effort. In our view, these opportunities exist, in part, because the Fund is new and is experiencing the typical growing pains associated with setting up an agency--particularly one that has the relatively complex and long-term mission of promoting economic revitalization and community development in low-income communities. In addition, staffing limitations have delayed the development of monitoring and evaluations systems. Recently, however, the Fund has hired several senior staff--including a director; two deputy directors, one of whom also serves as the chief financial officer; an awards manager; a financial manager; and program managers--and is reportedly close to hiring an evaluations director. While it is too early to assess the impact of filling these positions, the new managers have initiated actions to improve the programs and the strategic plan. In our final report, we expect to make recommendations to further improve the operations of the CDFI Fund and its programs. Madam Chair, this concludes our testimony. We would be pleased to respond to any questions that you or Members of the Committee may have at this time. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. 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.	GAO discussed the preliminary results of its ongoing review of the administration of the Community Development Financial Institutions (CDFI) Fund, focusing on: (1) the first year's performance of the CDFI and Bank Enterprise Award (BEA) programs and opportunities for improving their effectiveness; (2) the Fund's progress in developing performance measures for awardees and systems to monitor and evaluate their progress; (3) the impact of the BEA program on banks' investments in CDFIs and distressed communities; and (4) CDFI's progress in meeting the strategic planning requirements of the Government Performance and Results Act of 1993. GAO noted that: (1) as of January 1998, the Fund had entered into assistance agreements with 26 of the 31 CDFIs that received awards in 1996; (2) these agreements include performance goals and measures that were based on the business plans submitted by awardees in their application packages and negotiated between the Fund and the awardees, as the CDFI Act requires; (3) these agreements are consistent with the program's objectives; (4) using the Results Act for guidance, GAO found that the performance measures in the assistance agreements generally assess activities rather than accomplishments reflecting the results of activities; (5) GAO further found that although the performance measures in the assistance agreements are generally related to specific goals, they do not always address all key aspects of the goals, and most assistance agreements lack baseline data that would facilitate tracking progress over time; (6) the Fund has developed reporting requirements for awardees to collect information for monitoring their performance and is developing post-award monitoring procedures for assessing their compliance with their assistance agreements; (7) the Fund currently does not have a system for evaluating the impact of awardees' activities; (8) although the Fund has disbursed about 80 percent of the fiscal year 1996 BEA awards funds, it is difficult to determine the extent to which the program has encouraged the 38 awardees to increase their investments in distressed communities; (9) in addition, some banks do not collect all of the data on their activities needed to guarantee that increases in investments under the BEA program are not being offset by decreases in other investments in these distressed areas; (10) furthermore, the Fund cannot be assured that banks' increased investments remain in place because it does not require banks to report any material changes in the status of these investments; (11) the CDFI Fund's strategic plan contains all of the elements required by the Results Act and the Office of Management and Budget's associated guidance, but these elements generally lack the clarity, specificity, and linkage with one another that the act envisioned; (12) although the plan identifies key external factors that could affect the Fund's mission, it does not relate these factors to the Fund's strategic goals and objectives and does not indicate how the Fund will take the factors into account when assessing awardees' progress toward goals; and (13) in addition, the plan does not describe the relationship of its activities to similar activities in other government agencies.	5,310	629
We have reported in the past on acquisition management at several components of DHS. We have also assessed the department's overall acquisition management efforts. A common theme in these reports is DHS's struggle, from the outset, to provide adequate procurement support to its mission components and to provide departmentwide oversight of its acquisition function. Of the 22 components that initially joined DHS from other agencies, only 7 came with their own procurement support. An eighth office, the Office of Procurement Operations, was created anew to provide support to a variety of DHS entities--but not until January 2004, almost a year after the department was created. DHS has established a goal of aligning procurement staffing levels with contract spending at its various components by the last quarter of fiscal year 2009. DHS has set forth a stated goal of integrating the acquisition function more broadly across the department. However, the goal has not been accomplished. In March 2005, we identified key factors impeding accomplishment of the department's objective, including limitations of a 2004 management directive and lack of departmentwide oversight of component acquisition organizations. We also identified potential gaps in the department's knowledge-based approach for reviewing its major, complex investments. On a related issue, a number of systemic acquisition challenges we have identified at the Department of Defense could apply equally to DHS. In October 2004, the Secretary of DHS signed a management directive entitled "Acquisition Line of Business Integration and Management," the department's principal guidance for leading, governing, integrating, and managing the acquisition function. It directs managers from each component organization to commit resources to training, development, and certification of acquisition professionals. It also highlights the Chief Procurement Officer's broad authority, including management, administration, and oversight of departmentwide acquisition. However, we have reported that the directive may not achieve its goal of creating an integrated acquisition organization because it creates unclear working relationships between the Chief Procurement Officer and heads of DHS's principal components. For example, the Chief Procurement Officer and the director of Immigration and Customs Enforcement share responsibility for recruiting and selecting key acquisition officials, preparing performance ratings for the top manager of the contracting office, and providing appropriate resources to support procurement initiatives. The policy leaves unclear how the responsibilities will be implemented or what enforcement authority the Chief Procurement Officer has to ensure that initiatives are carried out. Further, the directive does not apply to the Coast Guard or Secret Service, two entities that are required by the Homeland Security Act of 2002 to be maintained as distinct entities within DHS. According to the directive, the Coast Guard and Secret Service are exempted by statute. We are not aware of any explicit statutory exemption that would prevent the application of this directive. Nothing in the document would reasonably appear to threaten the status of these entities as distinct entities within the department or otherwise impair their ability to perform statutory missions. DHS's General Counsel has agreed, telling us that the applicability of the directive is a policy, not legal, matter. Excluding certain components from complying with management directives regarding the acquisition function hampers efforts to integrate the acquisition organization. The Coast Guard, for example, is one of the largest organizations within DHS. We have reported that DHS's principal organizations are, to a large extent, still functioning much as they did in pre-merger days with regard to acquisition-related functions. Embedded within the seven procurement organizations that came to DHS were, for the most part, the same contracting staffs that joined the department from their former agencies. In addition, the Chief Procurement Officer, who is held accountable for departmentwide management and oversight of the acquisition function, lacks the enforcement authority and has limited resources to ensure compliance with acquisition policies and processes. As of August 2006, according to DHS officials, only five staff were assigned to departmentwide oversight responsibilities. The officials told us that, because their small staff faces the competing demands of providing departmentwide oversight and providing acquisition support for urgent needs at the component level, they have focused their efforts on procurement execution rather than oversight. Our prior work shows that in a highly functioning acquisition organization, the chief procurement officer is in a position to oversee compliance by implementing strong oversight mechanisms. Adequate oversight of acquisition activities across DHS is imperative, in light of the department's mission and the problems that have been reported by us and inspectors general for some of the large components within the department. Some DHS organizations have large, complex, and high-cost acquisition programs--such as the Coast Guard's Deepwater program--that need to be closely managed. DHS's investment review process involves several different levels of review, depending on the dollar threshold and risk level of the program. Deepwater, for example, has been designated as a level 1 investment, meaning that it is subject to review at the highest levels within the department. We reported in 2005 that DHS's framework for reviewing its major investments adopts several best practices from lessons learned from leading commercial companies and successful federal programs that, if applied consistently, could refine its ability to reduce risk to meet cost and delivery targets. One of these best practices is a knowledge-based approach for managers to hold reviews at key decision points in order to reduce risk before investing resources in the next phase of a program's development. For example, DHS's investment review policy encourages program managers to demonstrate a product's design with critical design reviews prior to a production decision. However, we have found that, based on our extensive body of work on this knowledge-based approach, additional program reviews could be incorporated into the process as internal controls to better position DHS to make well-informed decisions on its major, complex investments. For example, DHS does not require a review to ensure that an investment's design performs as expected before investing in a prototype. We also reported that DHS review processes permitted low-rate initial production to be well underway before a mandatory review gave the go-ahead to proceed to production. A review prior to initiating low-rate initial production was not mandatory; rather, it was held at the discretion of the Investment Review Board (IRB). Our best practices work shows that successful investments reduce risk by ensuring that high levels of knowledge are achieved at these key points of development. We have found that investments that were not reviewed at the appropriate points faced problems--such as redesign--that resulted in cost increases and schedule delays. It is not clear how the Deepwater acquisition has been influenced by the department's investment review process. According to a DHS official, an IRB review of the Deepwater acquisition program baseline, scheduled for January 2007, was postponed. In its Performance and Accountability Report for fiscal year 2006, DHS stated that it has improved its process for investment reviews by providing greater clarity on DHS policies and procedures. It acknowledges that developing and maintaining the capability needed to achieve DHS missions requires a robust investment program. DHS also states that its components are now required to report on the status of major investments on a quarterly basis and to submit information to ensure that investments are staying within established baselines for cost, schedule, and performance. The report says that the department will identify and introduce acquisition best practices into the investment review process by the first quarter of fiscal year 2008. We have identified a series of systemic acquisition challenges for complex, developmental systems, based mostly on our reviews of Department of Defense programs. In principle, many may apply equally to DHS as it moves forward with its major, complex investments. Some of these challenges include: Program requirements are often set at unrealistic levels, then changed frequently as recognition sets in that they cannot be achieved. As a result, too much time passes, threats may change, and/or members of the user and acquisition communities may simply change their minds. The resulting program instability causes cost escalation, schedule delays, fewer quantities, and reduced contractor accountability. Program decisions to move into design and production are made without adequate standards or knowledge. Contracts, especially service contracts, often do not have measures in place at the outset in order to control costs and facilitate accountability. Contracts typically do not accurately reflect the complexity of projects or appropriately allocate risk between the contractors and the taxpayers. The acquisition workforce faces serious challenges (e.g. size, skills, knowledge, succession planning). Incentive and award fees are often paid based on contractor attitudes and efforts versus positive results, such as cost, quality, and schedule. Inadequate government oversight results in little to no accountability for recurring and systemic problems. The Deepwater program is the Coast Guard's major effort to replace or modernize its aircraft and vessels. It has been in development for a number of years. Between 1998 and 2001, three industry teams competed to identify and provide the assets needed to transform the Coast Guard. In 2001, we described the Deepwater project as "risky" due to the unique, untried acquisition strategy for a project of this magnitude within the Coast Guard. Rather than using the traditional approach of replacing classes of ships or aircraft through a series of individual acquisitions, the Coast Guard chose to use a system-of-systems acquisition strategy that would replace its deteriorating assets with a single, integrated package of aircraft, vessels, and unmanned aerial vehicles, to be linked through systems that provide C4ISR, and supporting logistics. In June 2002, the Coast Guard awarded the Deepwater contract to Integrated Coast Guard Systems (ICGS). ICGS--a business entity jointly owned by Northrop Grumman and Lockheed Martin--is a system integrator, responsible for designing, constructing, deploying, supporting, and integrating the Deepwater assets to meet Coast Guard requirements. The management approach of using a system integrator has been used on other government programs that require system-of-systems integration, such as the Army's Future Combat System, a networked family of weapons and other systems. This type of business arrangement gives the contractor extensive involvement in requirements development, design, and source selection of major system and subsystem subcontractors. Government agencies have turned to the system integrator approach when they believe they do not have the in-house capability to design, develop, and manage complex acquisitions. Giving contractors more control and influence over the government's acquisitions in a system integrator role creates a potential risk that program decisions and products could be influenced by the financial interest of the contractor (who is accountable to its shareholders), which may not match the primary interest of the government--maximizing its return on taxpayer dollars. The system integrator arrangement creates an inherent risk, as the contractor is given more discretion to make certain program decisions. Along with this greater discretion comes the need for more government oversight and an even greater need to develop well-defined outcomes at the outset. The proper role of contractors in providing services to the government is currently the topic of some debate. I believe there is a need to focus greater attention on what type of functions and activities should be contracted out and which ones should not. There is also a need to review and reconsider the current independence and conflict of interest rules relating to contractors. Finally, there is a need to identify the factors that prompt the government to use contractors in circumstances where the proper choice might be the use of civil servants or military personnel. Possible factors could include inadequate force structure, outdated or inadequate hiring policies, classification and compensation approaches, and inadequate numbers of full-time equivalent slots. The Deepwater program has also been designated as a performance-based acquisition. When buying services, federal agencies are currently required to employ--to the maximum extent feasible--this concept, wherein acquisitions are structured around the results to be achieved as opposed to the manner in which the work is to be performed. That is, the government specifies the outcome it requires while leaving the contractor to propose decisions about how it will achieve that outcome. Performance-based contracts for services are required to include a performance work statement; measurable performance standards (i.e., in terms of quality, timeliness, quantity, etc.) and the method of assessing contractor performance against these standards; and performance incentives, where appropriate. If performance-based acquisitions are not appropriately planned and structured, there is an increased risk that the government may receive products or services that are over cost estimates, delivered late, and of unacceptable quality. In 2001, we reported that the Deepwater project faced risks, including the ability to control costs in the contract's later years; ensuring that procedures and personnel were in place for managing and overseeing the contractor; and minimizing potential problems with developing unproven technology. We noted that the risks could be mitigated to varying degrees, but not without management attention. Our assessment of the Deepwater program in 2004 found that the Coast Guard had not effectively managed the program or overseen the system integrator. We reported last year that the Coast Guard had revised its Deepwater implementation plan to reflect additional homeland security responsibilities as a result of the September 11, 2001, terrorist attacks. The revised plan increased overall program costs from the original estimate of $17 billion to $24 billion. Overall, the acquisition schedule was lengthened by 5 years, with the final assets now scheduled for delivery in 2027. Our reported concerns in 2004 and in subsequent assessments in 2005 and 2006 have centered on three main areas: program management, contractor accountability, and cost control through competition. While we recognize that the Coast Guard has taken steps to address our findings and recommendations, aspects of the Deepwater program will require continued attention, such as the risk involved in the system-of-systems approach with the contractor acting as overall integrator. A project of this magnitude will likely continue to experience other problems as more becomes known. In 2004, we reported that more than a year and a half into the Deepwater contract, the key components needed to manage the program and oversee the system integrator had not been effectively implemented. For example, integrated product teams, comprised of government and contractor employees, are the Coast Guard's primary tool for managing the program and overseeing the contractor. We found that the teams had not been effective due to changing membership, understaffing, insufficient training, lack of authority for decision making, and inadequate communication among members. Although some efforts have been made to improve the effectiveness of the integrated product teams, we have found that the needed changes are not yet sufficiently in place. In 2005, we reported that decision making was to a large extent stove-piped, and some teams lacked adequate authority to make decisions within their realm of responsibility. One source of difficulty for some team members has been the fact that each of the two major subcontractors has used its own management systems and processes to manage different segments of the program. We noted that decisions on air assets were made by Lockheed Martin, while decisions regarding surface assets were made by Northrop Grumman. This approach can lessen the likelihood that a system-of-systems outcome will be achieved if decisions affecting the entire program are made without the full consultation of all parties involved. In 2006, we reported that Coast Guard officials believed collaboration among the subcontractors to be problematic and that ICGS wielded little influence to compel decisions among them. For example, when dealing with proposed design changes to assets under construction, ICGS submitted the changes as two separate proposals from both subcontractors rather than coordinating the separate proposals into one coherent plan. According to Coast Guard performance monitors, this approach complicates the government review of design changes because the two proposals often carried overlapping work items, thereby forcing the Coast Guard to act as the system integrator in those situations. In addition, we reported in 2004 that the Coast Guard had not adequately communicated to its operational personnel decisions on how new and old assets would be integrated and how maintenance responsibilities would be divided between government and contractor personnel. We also found that the Coast Guard had not adequately staffed its program management function. Despite some actions taken to more fully staff the Deepwater program, we reported that in January 2005 shortfalls remained. While 244 positions were assigned to the program, only 206 were filled, resulting in a 16 percent vacancy rate. In 2004, we found that the Coast Guard had not developed quantifiable metrics to hold the system integrator accountable for its ongoing performance and that the process by which the Coast Guard assessed performance after the first year of the contract lacked rigor. For example, the first annual award fee determination was based largely on unsupported calculations. Despite documented problems in schedule, performance, cost control, and contract administration throughout the first year, the program executive officer awarded the contractor an overall rating of 87 percent, which fell in the "very good" range. This rating resulted in an award fee of $4.0 million of the maximum of $4.6 million. We also reported in 2004 that the Coast Guard had not begun to measure the system integrator's performance on the three overarching goals of the Deepwater program--maximizing operational effectiveness, minimizing total ownership costs, and satisfying the customers. Coast Guard officials told us that metrics for measuring these objectives had not been finalized; therefore they could not accurately assess the contractor's performance against the goals. However, at the time, the Coast Guard had no time frame in which to accomplish this measurement. In 2004, we reported that, although competition among subcontractors was a key vehicle for controlling costs, the Coast Guard had neither measured the extent of competition among the suppliers of Deepwater assets nor held the system integrator accountable for taking steps to achieve competition. As the two major subcontractors to ICGS, Lockheed Martin and Northrop Grumman have sole responsibility for determining whether to provide the Deepwater assets themselves or to hold competitions--decisions commonly referred to as "make or buy." We noted that the Coast Guard's hands-off approach to make-or-buy decisions and its failure to assess the extent of competition raised questions about whether the government would be able to control Deepwater program costs. Failure to control costs can result in waste of taxpayer dollars. Along with my several colleagues in the accountability community, I have developed a definition of waste. As we see it, waste involves the taxpayers in the aggregate not receiving reasonable value for money in connection with any government funded activities due to an inappropriate act or omission by players with control over or access to government resources (e.g., executive, judicial or legislative branch employees, contractors, grantees or other recipients). Importantly, waste involves a transgression that is less than fraud and abuse and most waste does not involve a violation of law. Rather, waste relates primarily to mismanagement, inappropriate actions, or inadequate oversight. We made 11 recommendations in 2004 in the areas of management and oversight, contractor accountability, and cost control through competition. In April 2006, we reported that the Coast Guard had implemented five of them. Actions had been taken to revise the Deepwater human capital plan; develop measurable award fee criteria; implement a more rigorous method of obtaining input from Coast Guard monitors on the contractor's performance; include in the contractor's performance measures actions taken to improve the integrated product teams' effectiveness; and require the contractor to notify the Coast Guard of subcontracts over $10 million that were awarded to the two major subcontractors. The Coast Guard had begun to address five other recommendations by initiating actions to establish charters and training for integrated product teams; improving communications with field personnel regarding the transition to Deepwater assets; devising a time frame for measuring the contractor's progress toward establishing criteria to determine when to adjust the project baseline; and developing a plan to hold the contractor accountable for ensuring adequate competition among suppliers. We determined that, based on our work, these recommendations had not been fully implemented. The Coast Guard disagreed with and declined to implement one of our recommendations, to establish a baseline to determine whether the system-of-systems acquisition approach is costing the government more than the traditional asset replacement approach. While we stand behind our original recommendation, the Coast Guard maintains that the cost to implement this recommendation would be excessive. In addition to overall management issues discussed above, there have been problems with the design and performance of specific Deepwater assets. For example, in February 2006, the Coast Guard suspended design work on the Fast Response Cutter (FRC) due to design risks such as excessive weight and horsepower requirements. The FRC was intended as a long-term replacement for the legacy 110-foot patrol boats. Coast Guard engineers raised concerns about the viability of the FRC design (which involved building the FRC's hull, decks, and bulkheads out of composite materials rather than steel) beginning in January 2005. In February 2006, the Coast Guard suspended FRC design work after an independent design review by third-party consultants demonstrated, among other things, that the FRC would be far heavier and less efficient than a typical patrol boat of similar length, in part, because it would need four engines to meet Coast Guard speed requirements. In moving forward with the FRC acquisition, the Coast Guard will end up with two classes of FRCs. The first class of FRCs to be built would be based on an adapted design from a patrol boat already on the market to expedite delivery. The Coast Guard would then pursue development of a follow-on class that would be completely redesigned to address the problems in the original FRC design plans. Coast Guard officials now estimate that the first FRC delivery will slip to fiscal year 2009, at the earliest, rather than 2007 as outlined in the 2005 Revised Deepwater Implementation Plan. In addition to problems with the FRC design, problems have also been discovered with the long-term structural integrity of the National Security Cutter's (NSC) design, which could pose operational and financial impacts to the Coast Guard. The Commandant of the Coast Guard recently stated that internal reviews by Coast Guard engineers, as well as by independent analysts have concluded that the NSC as designed will need structural reinforcement to meet its expected 30-year service life. In addition, a recent report by the DHS Inspector General indicated that the NSC design will not achieve a 30-year service life based on an operating profile of 230 days underway per year in General Atlantic and North Pacific sea conditions and added that Coast Guard technical experts believe the NSC's design deficiencies will lead to increased maintenance costs and reduced service life. In an effort to address the structural deficiencies of the NSC, the Commandant has stated that the Coast Guard is taking a two-pronged approach. First, the Coast Guard is working with the contractors to enhance the structural integrity of hulls three through eight that have not yet been constructed. Second, after determining that the NSC's structural deficiencies are not related to the safe operation of the vessel in the near term, the Coast Guard has decided to address the deficiencies of hulls one and two as part of depot-level maintenance, planned for several years after they are delivered. The Commandant stated that he decided to delay the repairs to the first two NSC hulls in an effort to prevent further cost increases or delays in construction and delivery. Further, the Deepwater program's conversion of the legacy 110-foot patrol boats to 123-foot patrol boats has also encountered performance problems. The Coast Guard had originally intended to convert all 49 of its 110-foot patrol boats into 123-foot patrol boats in order to increase the patrol boats' annual operational hours. This conversion program was also intended to add additional capability to the patrol boats, such as enhanced and improved C4ISR capabilities, as well as stern launch and recovery capability for a small boat. However, the converted 123-foot patrol boats began to display deck cracking and hull buckling and developed shaft alignment problems, and the Coast Guard elected to stop the conversion process at eight hulls upon determining that the converted patrol boats would not meet their expanded post-9/11 operational requirements. The design and performance problems illustrated above have clear operational consequences for the Coast Guard. In the case of the 123-foot patrol boats, the hull performance problems cited above led the Coast Guard to suspend all normal operations of the eight converted normal 123- foot patrol boats effective November 30, 2006. The Commandant of the Coast Guard has stated that having reliable, safe cutters is "paramount" to executing its missions, such as search and rescue and migrant interdiction. The Coast Guard is exploring options to address operational gaps resulting from the suspension of the 123-foot patrol boat operations. In regard to the suspension of FRC design work, as of our June 2006 report, Coast Guard officials had not yet determined how changes in the design and delivery date for the FRC would affect the operations of the overall system-of-systems approach. However, because the delivery of Deepwater assets are interdependent within this acquisition approach, schedule slippages and uncertainties associated with potential changes in the design and capabilities of the new assets have increased the risks that the Coast Guard may not meet its expanded homeland security performance requirements within given budget parameters and milestone dates. Given the size of DHS and the scope of its acquisitions, we are continuing to assess the department's acquisition oversight process and procedures in ongoing work. For example, we are currently reviewing DHS's use of contractors to provide management and professional services, including the roles they are performing and how their performance is overseen. In addition, the conference report to the Department of Homeland Security Appropriations Act for Fiscal Year 2007 directed DHS's Chief Procurement Officer to develop a procurement oversight plan, identifying necessary oversight resources and how improvements in the department's performance of its procurement functions will be achieved. We have been directed to review the plan and provide our observations to congressional committees. We are also reviewing the department's use of performance- based acquisitions. We will also continue to review Deepwater implementation and contract oversight. We are currently reviewing aspects of the Deepwater program for the House and Senate Appropriations Committees' Subcommittees on Homeland Security. Our objectives are to review (1) the status of the development and delivery of the major aviation and maritime assets that comprise the Coast Guard's Deepwater program; (2) the history of the contract, design, fielding, and grounding of the converted 123-foot patrol boats and operational adjustments the Coast Guard making to account for the removal from service of the 123-foot patrol boats; and (3) the status of the Coast Guard's implementation of our 2004 recommendations on Deepwater contract management for improving Deepwater program management, holding the prime contractor accountable for meeting key program goals, and facilitating cost control through competition. We will share our results with those committees in April of this year. Due to the complexity of its organization, DHS is likely to continue to face challenges in unifying the acquisition functions of its components and overseeing their acquisitions--particularly those involving large and complex investments. Although the Coast Guard has taken actions to improve its management of the Deepwater program and oversight of the system integrator, problems continue to emerge as the program is implemented. DHS and the Coast Guard face the challenge of effectively managing this program to obtain desired outcomes while making decisions that are in the best interest of the taxpayer. Given its experience with Deepwater, the department would be wise to apply lessons learned to its other major, complex acquisitions, particularly those involving a system integrator. Mr. Chairman, that concludes my statement. I would be happy to respond to any questions you or other Members of the Committee may have at this time. For information about this testimony, contact Steve Caldwell at (202) 512- 9610 or John Hutton at (202) 512-7773. Other individuals making key contributions to this testimony include Michele Mackin, Christopher Conrad, and Adam Couvillion. 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.	In January 2003, GAO designated the Department of Homeland Security's (DHS) implementation and transformation as high risk because of the size and complexity of the effort and the existing challenges faced by the components being merged into the department. The success of the effort to integrate numerous agencies and organizations into one cabinet-level department rests in large part on DHS's ability to effectively acquire the wide range of goods and services it needs to achieve its mission of protecting the nation from terrorism. DHS is undertaking a number of large, complex investments as the federal government increasingly relies on contractors for roles and missions previously performed by government employees. One of the department's largest investments--the Deepwater program, now estimated to cost $24 billion--is the Coast Guard's major effort to replace or modernize its aircraft and vessels. Rather than using a traditional acquisition approach, the Coast Guard is using a system integrator to design, construct, deploy, support, and integrate the Deepwater assets. In this testimony, the Comptroller General discussed (1) the overarching challenges DHS faces in establishing an effective acquisition organization, (2) GAO's prior work on Coast Guard and contractor management of the Deepwater program, and (3) the status of GAO's ongoing reviews. GAO has reported in the past on acquisition management at several components of DHS and has assessed the department's overall acquisition management and oversight efforts. A common theme in these reports is DHS's struggle, from the outset, to provide adequate support to its mission components in acquiring goods and services and to provide departmentwide oversight of its acquisition function. DHS has a stated goal of integrating the acquisition function more broadly across the department. GAO has reported that this goal has not yet been accomplished and has identified key impediments to achieving it. A management directive intended to integrate the acquisition line of business did not provide the Chief Procurement Officer with the enforcement authority needed in practice, and it does not pertain to all component agencies. Also, the procurement organizations within the department remained somewhat autonomous, and centralized acquisition oversight had not been implemented. While DHS's review process for major investments adopts some best practices, key decision-making reviews at certain points are not required. Investments that are not reviewed at the appropriate points can face a range of problems--such as redesign--resulting in significant cost increases and schedule delays. The Coast Guard's Deepwater program illustrates problems that can occur when effective program management and contractor oversight are not in place. In 2001, GAO described the Deepwater project as "risky" due to the unique, untried acquisition strategy for a project of this magnitude within the Coast Guard--a system-of-systems approach with the contractor as the integrator. In 2004, GAO reported that well into the contract's second year, key components needed to manage the program and oversee the system integrator's performance had not been effectively implemented. For example, integrated product teams, comprised of government and contractor employees, are the Coast Guard's primary tool for managing the program and overseeing the contractor. GAO found that the teams had not been effective due to changing membership, understaffing, insufficient training, lack of authority for decision-making, and inadequate communication among members. GAO also reported that, despite documented problems in schedule, performance, cost control, and contract administration throughout the first year of the Deepwater contract, the contractor had received a rating of 87 percent, which fell in the "very good" range and resulted in an award fee of $4.0 million. GAO's more recent work found that, while the Coast Guard had taken steps to address some of the problems, concerns remained about program management and contractor oversight. In addition to these overall management issues, there have been problems with the design and performance of specific Deepwater assets. Given the size of DHS and the scope of its acquisitions, GAO is continuing to assess the department's acquisition oversight process and procedures in ongoing work. GAO is also currently reviewing the status of the Deepwater program's implementation and contractor oversight.	5,972	870
NARA's mission is to ensure "ready access to essential evidence" for the public, the president, the Congress, and the Courts. NARA's responsibilities stem from the Federal Records Act, which requires each federal agency to make and preserve records that document the organization, functions, policies, decisions, procedures, and essential transactions of the agency and provide the information necessary to protect the legal and financial rights of the government and of persons directly affected by the agency's activities. Federal records must be managed to ensure that the information that they contain is available when needed. According to NARA, without effective records management, the records needed to document citizens' rights, actions for which federal officials are responsible, and the historical experience of the nation will be at risk of loss, deterioration, or destruction. Records management is defined as the policies, procedures, guidance, tools and techniques, resources, and training needed to design and maintain reliable and trustworthy records systems. Records must be managed throughout their life cycle: from creation, through maintenance and use, to final disposition. Temporary records--those used in everyday operations but lacking historic value--are ultimately destroyed. Permanent records--those judged to be of historic value--are preserved through archiving. With NARA's oversight and assistance, each agency is responsible for managing its own records at all phases of the life cycle, with the exception of the archiving of permanent records (which is NARA's responsibility). issuing records management guidance; working with agencies to implement effective controls over the creation, maintenance, and use of records in the conduct of agency business; providing oversight of agencies' records management programs; and providing storage facilities for certain temporary agency records. The Federal Records Act also authorizes NARA to conduct inspections of agency records and records management programs. NARA works with agencies to identify and inventory records; to appraise their value; and to determine whether they are temporary or permanent, how long the temporary records should be kept, and under what conditions both the temporary and permanent records should be kept. This process is called scheduling. No record may be destroyed unless it has been scheduled. Thus, for temporary records the schedule is of critical importance, because it provides the authority to dispose of the record after a specified time. Records are governed by schedules that are either (1) specific to an agency or (2) general--that is, common to several agencies or across the government. According to NARA, records covered by general records schedules make up about a third of all federal records. For the other two thirds, NARA and the agencies must agree upon specific records schedules. Once a schedule has been approved, the agency must issue it as a management directive, train employees in its use, apply its provisions to temporary and permanent records, and evaluate the results. While the Federal Records Act covers documentary material regardless of physical form or media, records management and archiving were until recently largely focused on handling paper documents. With the advent of computers, both records management and archiving have had to take into account the creation of records in varieties of electronic formats. NARA's basic guidance for the management of electronic records is in the form of a regulation at 36 CFR Part 1234. This guidance is supplemented by the issuance of periodic NARA bulletins and a records management handbook, Disposition of Federal Records. For electronic records, NARA's guidance sets forth two basic requirements. First, agencies are required to maintain an inventory of all agency information systems. The inventory should identify (1) the system's name, (2) its purpose, (3) the agency programs supported by the system, (4) data inputs, sources, and outputs, (5) the information content of databases, and (6) the system's hardware and software environment. Second, NARA requires agencies to schedule the electronic records maintained in their systems. Agencies must schedule those records either under specific schedules (completed through submission and approval of Standard Form 115, Request for Records Disposition Authority) or pursuant to a general records schedule. NARA relies on this combination of inventory and scheduling requirements to ensure that management of agency electronic records is consistent with the Federal Records Act. NARA has also established a general records schedule for electronic records. General Records Schedule 20 (GRS 20) authorizes the disposal of certain categories of temporary electronic records. It has been revised several times over the years in response to developments in information technology, as well as legal challenges. GRS 20 applies to electronic records created both in computer centers engaged in large-scale data processing and in the office automation environment. GRS 20 authorizes the disposal of certain types of electronic records associated with large data base systems, (such as inputs, outputs, and processing files), as well as the deletion of the electronic version of records on word processing and electronic mail systems once a recordkeeping copy has been made. Since most agency recordkeeping systems are paper files, GRS 20 essentially authorizes agencies to destroy E-mail and word- processing files once they are printed. (Recall that records not covered by a general records schedule may not be destroyed unless authorized by a records schedule that has been approved by NARA.) GRS 20 does not address many common products of electronic information processing, particularly those that result from the now prevalent distributed, end-user computing environment. For example, although the guidance addresses the disposition of certain types of electronic records associated with large databases, it does not specifically address the disposition of electronic databases created by microcomputer users. In addition, GRS 20 does not address more recent forms of electronic records such as Web pages and portable document format (PDF) files. As the nation's archivist, NARA accepts for deposit to its archives those records of federal agencies, the Congress, the Architect of the Capitol, and the Supreme Court that are determined to have sufficient historical or other value to warrant their continued preservation by the U.S. government. NARA also accepts papers and other historical materials of the Presidents of the United States, documents from private sources that are appropriate for preservation (including electronic records, motion picture films, still pictures, and sound recordings), and records from agencies whose existence has been terminated. To ensure that permanent electronic records are preserved, each agency must transfer electronic records to NARA in accordance with the agency's records disposition schedule. NARA accepts for archiving electronic records that are in text-based formats, such as databases and certain text-based geographic information system (GIS) files. In addition, NARA accepts E-mail records and attachments, several forms of scanned images of text files, and PDF files. It does not accept Web pages, word processor files, or relational databases. (Although NARA does not as yet accept such files for archiving, they must still be scheduled.) In response to the difficulty of manually managing electronic records, agencies are turning to automated records management applications to help automate electronic records management lifecycle processes. The primary functions of these applications include categorizing and locating records and identifying records that are due for disposition, as well as storing, retrieving, and disposing of electronic records that are maintained in repositories. Also, some applications are beginning to be designed to automatically classify electronic records and assign them to an appropriate records retention and disposition category. The Department of Defense (DOD), which is pioneering the assessment and use of records management applications, has published application standards and established a certification program. DOD standard 5015.2, endorsed by NARA, includes the requirement that records management applications acquired by DOD components after 1999 be certified to meet this standard. NARA is pursuing other interrelated efforts that address records management (including electronic records). Three major initiatives are NARA's effort on Redesign of Federal Records Management; the Electronic Records Management initiative, one of 25 e- government initiatives sponsored by the Office of Management and Budget (OMB), and the acquisition of an advanced Electronic Records Archives (ERA). In 2000, NARA began a three-stage effort to redesign federal records management. First, in 2001, NARA produced a report based on information on federal records management that it collected and analyzed. Second, it used this report as a starting point to revise the regulations, policies, and processes for managing federal records and to develop a set of strategies to support federal records management. As a result of this analysis, in July 2002 NARA issued a draft proposal for the redesign of federal records management. Third, based on comments received on the proposal, it is developing a redesigned records scheduling, appraisal, and accessioning process, as well as prototype and functional requirements for automated tools for the redesigned process. The redesign is planned as a multiyear process (2003 to 2006), during which NARA intends to address the scheduling and appraisal of federal records in all formats. The overall purpose of the Electronic Records Management (ERM) initiative is to help agencies better manage their electronic records, so that records information can be effectively used to support timely and effective decision making, enhance service delivery, and ensure accountability. The initiative is intended to provide a variety of tools to address immediate and longer term agency needs. NARA is the managing partner agency for the overall ERM initiative. The goals for the advanced ERA system are that it will be able to preserve and provide access to any kind of electronic record, free from dependency on any specific hardware or software, so that the agency can carry out its mission into the future. NARA plans for ERA to be a distributed system, allowing storage and management of massive record collections at a variety of installations, with accessibility provided via the Internet. NARA is planning to build the system in five increments, with the last increment scheduled to be complete in 2010. The rapid evolution of information technology makes the task of managing and preserving electronic records complex and costly. Part of the challenge of managing electronic records is that they are produced by a mix of information systems, which vary not only by type but by generation of technology: the mainframe, the personal computer, and the Internet. Each generation of technology brought in new systems and capabilities without displacing the older systems. Thus, organizations have to manage and preserve electronic records associated with a wide range of systems, technologies, and formats. These records are stored in specific formats and cannot be read without software and hardware-- sometimes the specific types of hardware and software on which they were created. Several factors contribute to the challenge of managing and preserving electronic records: Massive volumes of electronic data require automated solutions. Electronic records are increasingly being created in volumes that pose a significant technical challenge to our ability to organize them and make them accessible. For example, among the candidates for archiving are military intelligence records comprising more than 1 billion electronic messages, reports, cables, and memorandums, as well as over 50 million electronic court case files. Managing such large volumes is clearly not possible without automation. Control of electronic records is difficult in a decentralized computing environment. The challenge of managing electronic records significantly increases with the decentralization of the computing environment. In the centralized environment of a mainframe computer, it is easier to identify, assess, and manage electronic records than it is in the decentralized environment of agencies' office automation systems, where every user is creating electronic files that may constitute a formal record and thus should be preserved. The complexity of electronic records precludes simple transfer to paper. Electronic records have evolved from simple text-based files to complex digital objects that may contain embedded images (still and moving), drawings, sounds, hyperlinks, or spreadsheets with computational formulas. Some portions of electronic records, such as the content of dynamic Web pages, are created on the fly from databases and exist only during the viewing session. Others, such as E-mail, may contain multiple attachments, and they may be threaded (that is, related E-mail messages are linked into send-reply chains). These records cannot be converted to paper or text formats without the loss of context, functionality, and information. Obsolescent and aging storage media put electronic records at risk. Storage media are affected by the dual problems of obsolescence and decay. They are fragile, have limited shelf life, and become obsolete in a few years. For example, few computers today have disk drives that can read information stored on 8- or 5 1/4-inch diskettes, even if the diskettes themselves remain readable. Electronic records are dependent on evolving software and hardware. Electronic records are created on computers with software ranging from word-processors to E-mail programs. As computer hardware and application software become obsolete, they may leave behind electronic records that cannot be read without the original hardware and software. In June 2002, we reported that NARA had responded to the challenges associated with managing and preserving electronic records. However, most electronic records--including databases of major federal information systems--remained unscheduled, and records of historical value were not being identified and provided to NARA; as a result, they were at risk of loss. A number of factors contributed to this condition: NARA acknowledged that its policies and processes on electronic records had not yet evolved to reflect the modern recordkeeping environment: records created electronically in decentralized processes. Records management programs were generally afforded low priority by federal agencies. A related issue was that agency management had not given priority to acquiring the more sophisticated and expensive information technology required to manage records in an electronic environment. NARA was also not performing systematic inspections of agency records programs. Such inspections are important as a means to evaluate individual agency records management programs, assess governmentwide progress in improving records management, and identify agency implementation issues and areas where guidance needs to be strengthened. We also provided some confirmation of NARA's findings regarding records scheduling and disposition: our review at four agencies (Commerce, Housing and Urban Development, Veterans Affairs, and State) elicited a collective estimate that less than 10 percent of mission-critical systems were inventoried. As a result, for these four agencies alone, over 800 systems had not been inventoried, and the electronic records maintained in them had not been scheduled. Scheduling the electronic records in a large number of major information systems presents an enormous challenge, particularly since it generally takes NARA, in conjunction with agencies, well over 6 months to approve a new schedule. Failure to inventory systems and schedule records places these records at risk. The absence of inventories and schedules means that NARA and agencies have not examined the contents of these information systems to identify official government records, appraised the value of these records, determined appropriate disposition, and directed and trained employees in how to maintain and when and how to dispose of these records. As a result, temporary records may remain on hard drives and other media long after they are needed or could be moved to less costly forms of storage. In addition, there is increased risk that these records may be deleted prematurely while still needed for fiscal, legal, and administrative purposes. Further, the lack of scheduling presents risks to the preservation of permanent records of historic significance. NARA acknowledged in 2001 that its policies and processes on electronic records had not yet evolved to reflect the modern recordkeeping environment: records created electronically in decentralized processes. Despite repeated attempts to clarify its electronic records guidance through a succession of bulletins, the guidance was incomplete and confusing. It did not provide comprehensive disposition instructions for electronic records maintained in many of the common types of formats produced by federal agencies, including Web pages and spreadsheets. To support their missions, many agencies had to maintain such records--often in large volumes--with little guidance from NARA. NARA's study concluded that records management was not even "on the radar scope" of agency leaders. Further, records officers had little clout and did not appear to have much involvement in or influence on programmatic business processes or the development of information systems designed to support them. New government employees seldom received any formal, initial records management training. One agency told NARA that records management was "number 26 on our list of top 25 priorities." Further, records management is generally considered a "support" activity. Since support functions are typically seen as the most dispensable in agencies, resources for and focus on these functions are often limited. Also, as NARA's study noted, federal downsizing may have negatively affected records management and staffing resources in agencies. In our June 2002 report, we recommended that the Archivist of the United States address the priority problem by developing a documented strategy for raising agency senior management awareness of and commitment to records management principles, functions, and programs. Related to the priority issue is the need for appropriate information technology tools to respond to the technical challenge of electronic records management: for electronic records to be managed effectively, agencies require a level of technology that was not necessary for paper-based records management programs. Unless management is focused on records management, priority is not given to acquiring or upgrading the technology required to manage records in an electronic environment. Agencies that do invest in electronic records management systems tend to do so because they value good records management and have a critical need to retrieve information efficiently. In other agencies, despite the growth of electronic media, agency records systems are predominantly in paper format rather than electronic. According to NARA's study, many agencies were either planning or piloting information technology initiatives to support electronic records management, but their movement to electronic systems is constrained by the level of financial support provided for records management. NARA is responsible, under the Federal Records Act, for conducting inspections or surveys of agency records and records management programs and practices. Its implementing regulations require NARA to select agencies to be inspected (1) on the basis of perceived need by NARA, (2) by specific request by the agency, or (3) on the basis of a compliance monitoring cycle developed by NARA. In all instances, NARA is to determine the scope of the inspection. Such inspections provide not only the means to assess and improve individual agency records management programs but also the opportunity for NARA to determine overall progress in improving agency records management and identify problem areas that need to be addressed in its guidance. In 2000, NARA changed its method of performing inspections: rather than performing a small number of comprehensive agency reviews, it instituted an approach that it refers to as "targeted assistance." NARA decided that its previous approach to inspections was basically flawed, because it could reach only about three agencies per year, and because the inspections were often perceived negatively by agencies, resulting in a list of records management problems that agencies then had to resolve on their own. Under the targeted assistance approach, NARA works with agencies, providing them with guidance, assistance, or training in any area of records management. However, we pointed out in our June 2002 report that this approach, although it may improve records management in the targeted agencies, is not a substitute for systematic inspections and evaluations of federal records programs. Targeted assistance has significant limitations because it is voluntary and, according to NARA, initiated by agency request. Thus, only agencies requesting assistance are evaluated, and the scope and the focus of the assistance are not determined by NARA but by the requesting agency. In light of these limitations, we recommended in June 2002 that the Archivist develop a documented strategy for conducting systematic inspections of agency records management programs to (1) periodically assess agency progress in improving records management programs and (2) evaluate the efficacy of NARA's governmentwide guidance. Since June 2002, NARA has taken steps to strengthen its guidance, to address the low priority accorded to records management programs and the associated lack of technology tools, and to revise its approach to inspections as part of a comprehensive strategy for assessing agencies' management of records. However, NARA's plans to implement its comprehensive new strategy are not yet complete. Although the strategy describes a reasonably systematic approach that allows NARA to focus its resources appropriately and to use inspections and other interventions to assess and improve federal records management, it does not yet include a description of how NARA will establish an ongoing program. Since our 2002 report, NARA has taken steps to update its guidance on electronic records management in various areas. For example, although 36 CFR Part 1234, the basic guidance on electronic records, has not been updated to reflect new types of electronic records, NARA has produced a variety of guidance on electronic records. A new General Records Schedule, GRS 24, "Information Technology Operations and Management Records," was issued on April 28, 2003. In addition, "Records Management Guidance for PKI- Unique Administrative Records," which was jointly developed by NARA and the Federal Public Key Infrastructure Steering Committee's Legal/Policy Working Group, was issued on March 14, 2003. As part of its e-government initiative, NARA has just released guidance on evaluating funding proposals for electronic records management systems through capital planning processes. NARA has also supplemented its disposition guidance as a result of the project on transfer of permanent electronic records under its e- government initiative: this guidance covers transferring permanent E-mail records and attachments, several forms of scanned images of text files, and PDF, and it expanded the methods by which agencies could transfer electronic records to NARA for archiving. NARA is also planning to expand the capability of its current systems for archiving electronic records by accommodating additional electronic record formats and volumes. However, according to NARA, agencies have not yet transferred electronic records in these formats to NARA; these records may not be scheduled or may not yet be eligible for transfer. In addition, as part of the policy analysis in its effort to redesign federal records management, NARA has stated that it plans to identify policies, procedures, regulations, and guidance that would need to be modified in light of the proposed redesign. In response to our recommendation that it develop a documented strategy for raising agency senior management awareness of records management, NARA devised a strategy intended to raise awareness of the importance of agency records management. The strategy includes two goals: increased senior-level awareness of the importance of records management, particularly electronic records management, across the federal government and in specific agencies, and increased senior-level understanding of how effective records management programs support the business needs of specific agencies and the federal government as a whole. As part of its strategy, NARA identified a number of activities that its senior leaders will conduct, including briefing agency program leaders on the importance of records and information management in general and on specific issues (such as electronic record keeping requirements, litigation exposure, and vital records), participating in establishing or closing out certain targeted assistance agreements, and pursuing promotional activities such as making speeches and holding conferences. NARA has also developed an implementation plan, which establishes goals, timeframes, and required resources for fiscal year 2003. For example, the plan contains a goal of conducting six agency briefings by the end of September; three have been completed to date, and a fourth has been scheduled for mid-July. A similar implementation plan for fiscal year 2004 is to be developed by September 1. NARA's strategy for raising senior agency management awareness appears reasonable, and if carried out effectively could help to mitigate the problem of the low priority given to records management. Since our June 2002 report, some steps have also been taken to address the lack of technology tools to manage electronic records. In January 2003, NARA recommended that agencies use version 2 of DOD standard 5015.2, which sets forth a set of requirements for records management applications, including that they be able to manage records regardless of their media. The effort to promulgate this standard was part of the electronic information management standards project under the ERM initiative. Under the standard, DOD is to certify records management applications as meeting the standard; as of the end of June 2003, DOD had certified 43 applications. The availability of applications that conform to the standard may be helpful in encouraging agencies to adopt records management systems that address electronic records. In response to its own mission needs and our recommendations of June 2002 regarding its inspection program, NARA has documented a new strategy for assessing agencies' management of records. This strategy is described in draft documents that describe NARA's plans for setting priorities and for conducting inspections and studies. The new approach is now being piloted with the Department of Homeland Security; the results of the pilot--expected by September 30, 2003--will determine whether it is extended governmentwide. The main features of the draft strategy are as follows: NARA will evaluate agencies and work processes in terms of risk to records, implications for legal rights and accountability, and the quantity and value of the permanent records; it will focus its resources on high-priority areas. This process of assessing risks and priorities will involve NARA staff with subject-matter and agency expertise, and it will address records management governmentwide. NARA plans to use a variety of means to address areas identified for attention through its risk and priority assessment. Among the means being considered are targeted assistance, records management studies, and inspections. The strategy indicates that NARA has changed its approach to targeted assistance: Rather than using it only when an agency requests assistance, NARA intends to recommend that an agency accept targeted assistance when NARA has identified records management issues at that agency that require attention. In addition, NARA plans to perform studies on records management best practices as a means not only to encourage good records management practices throughout government, but also to recognize agencies whose records management programs have exemplary features. According to the strategy, inspections will be conducted only under exceptional circumstances, when the risk to records is deemed high, and after other means have failed to mitigate risks (e.g., targeted assistance, training, and so on). NARA intends to focus on the core functions of the federal government, rather than on individual agencies. It will use as its starting point the business areas defined in the Business Reference Model of the Federal Enterprise Architecture. By focusing on the Business Reference Model's broad activities and work processes, which cut across agency lines, NARA may inspect a single agency or a group of agencies in one line of business. Although NARA's strategy appears to be a reasonably systematic approach that allows it to focus its resources appropriately and to use inspections and other interventions to assess and improve federal records management, it is not yet complete. Specifically, the draft strategy does not yet include a description of how NARA will establish an ongoing program. For example, the priority assessment plan does not indicate whether NARA will revise its risk identification process as circumstances warrant, or if this a single- time occurrence. NARA officials have said that the agency will update its priority and risk assessments periodically, but this is not yet reflected in the plan. Further, the strategy states that the results of studies may be used to improve guidance, but it does not create a similar feedback loop for inspection results. While records management guidance may benefit from the "best practices" identified in studies, inspection results could also identify areas where guidance needs to be clarified, augmented, and strengthened. Finally, no implementation plan or schedule for this new strategy has yet been devised. Without a strategy that provides for establishing an ongoing program that includes a feedback cycle, as well as complete implementation plans that fully reflect that strategy, NARA's efforts to assess records management programs may not provide it with the information that it needs to improve its guidance and to support its redesign of federal records management. In addition to its efforts to improve records management across the government, NARA is also acquiring ERA as a means to archive all types of electronic records and make them accessible, regardless of changes to hardware and software over time. However, NARA faces significant challenges in acquiring ERA. ERA will be a major information system; NARA has no previous experience in acquiring major information systems. Further, no comparable electronic archive system is now in existence, in terms of either complexity or scale. Finally, technology necessary to address some key requirements of ERA is not commercially available and will have to be developed. In light of these challenges, NARA will face significant difficulties in its ERA acquisition unless it addresses its information technology (IT) organizational capabilities; ERA system acquisition policies, plans, and practices; and its ability to control ERA's cost and schedule. NARA has indicated that it needs to strengthen its IT organizational capabilities and has been taking steps to do so in three key areas: IT investment management provides a systematic method for agencies to minimize risks while maximizing the return on IT investments. An enterprise architecture provides a description--in useful models, diagrams, and narrative--of the mode of operation for an agency. It provides a perspective on agency operations both for the current environment and for the target environment, as well as a transition plan for sequencing from the current to the target environment. Managed properly, an enterprise architecture can clarify and help optimize the dependencies and relationships among an agency's business operations and the underlying IT infrastructure and applications that support these operations. Information security is an important consideration for any organization that depends on information systems to carry out its mission. Our study of security management best practices found that leading organizations manage their information security risk through an ongoing cycle of risk management. NARA has made progress in strengthening these capabilities, but these efforts are incomplete. For example, NARA has improved its IT investment management. However, although it is continuing to develop an enterprise architecture, NARA does not plan to complete its target architecture in time to influence the ERA system definition and requirements. In addition, it has completed some elements of an information security program, but several key areas have not yet been addressed (such as individual system security plans), and NARA has not assessed the security risks to its major information systems. In addition, NARA has developed policies, plans, and practices to guide the ERA acquisition, but these do not consistently conform to industry standards and federal acquisition guidance. NARA has chosen to follow Institute of Electrical and Electronics Engineers (IEEE) standards in developing its policies, plans, and practices. Examples of these include (1) a concept of operations that describes the characteristics of a proposed system from the users' viewpoint and provides the framework for all subsequent activities leading to system deployment, (2) an acquisition strategy that establishes how detailed acquisition planning and program execution will be accomplished, and (3) a risk management plan to identify potential problems and adjusting the acquisition to mitigate them. However, key policy and planning documents are missing elements that are required by the standards and federal acquisition guidance: for example, the ERA acquisition strategy did not satisfy 15 of 32 content elements required by the relevant IEEE standard. Further, NARA is unable to track the cost and schedule of the ERA project. The ERA schedule does not include all program tasks and lacks a work breakdown structure, which would include detail on the amount of work and resources required to complete each task. Unless NARA can address these issues, the risk is increased that the ERA system will fail to meet user expectations, and that NARA may not have the information required to control the cost of the system or the time it will take to complete it. In light of these risks, our briefing included recommendations to NARA to address the weaknesses in its acquisition policies, plans and procedures and to improve its ability to adequately track the project's cost and schedule.	The difficulties of managing, preserving, and providing access to the vast and rapidly growing volumes of electronic records produced by federal agencies present challenges to the National Archives and Records Administration (NARA), the nation's recordkeeper and archivist. Complex electronic records are being created in volumes that make them difficult to organize and keep accessible. These problems are compounded as computer hardware, application software, and even storage media become obsolete, as they may leave behind electronic records that can no longer be read. As a result, valuable government information may be lost. GAO was requested to testify, among other things, on NARA's recent actions to address the challenges of electronic records management, including its effort to address the problem of preserving electronic records by acquiring an advanced Electronic Records Archive (ERA). As reported in GAO's past work, most electronic records--including databases of major federal information systems--remained unscheduled: that is, their value had not been assessed, and their disposition--to destruction or archives--had not been determined. In addition, records of historical value were not being identified and provided to NARA; as a result, they were at risk of loss. NARA has begun to address these problems by taking steps to improve federal records management programs; among other things, it has (1) updated guidance to reflect new types of electronic records, (2) devised a strategy for raising awareness among senior agency management of the importance of good federal records management, and (3) devised a comprehensive approach to improving agency records management that includes inspections and identification of risks and priorities. Through these and other actions, NARA is making progress, but its approach to improving records management does not include provisions for using inspections to evaluate the efficacy of its governmentwide guidance, and an implementation plan for the approach has yet to be established. Without these elements, the risk is increased that federal records management problems will persist. In addition to its efforts to improve records management, NARA is also acquiring ERA as a means to archive all types of electronic records and make them accessible. GAO found, however, that NARA faces significant challenges in acquiring ERA, a major information system. While NARA has made progress in building its organizational capabilities for acquiring major information systems, it has not developed adequate policies, plans and practices to guide the ERA acquisition or established the means to track the cost and schedule of the project. Unless NARA addresses these and other issues, the ERA system may not meet user expectations, and NARA may not have the information required to control the cost of the system or the time it will take to complete it.	6,602	554
The overriding problem in providing an opinion on IRS' financial statements, reporting on its internal controls, and reporting on its compliance with laws and regulations is that IRS has not yet been able to provide support for major portions of the information presented in its financial statements and, in some cases where it was able to do so, the information was found to be in error. The principal purpose of our financial audits is to attest to the reliability of information presented in the financial statements and to independently verify management's assertions about the effectiveness of internal controls and whether the agency complied with laws and regulations. When information that underpins the reported financial statements is not available for audit, it sometimes results in the auditor being unable to render an opinion on the financial statements as a whole. This is because the auditor cannot evaluate sufficient evidence as a basis for forming an opinion on whether the information presented in the financial statements is correct, determining whether all significant internal controls through which the information was managed and processed were effective, and testing whether or not the agency, in this case IRS, complied with laws and regulations. This situation was the case for IRS for fiscal year 1995. The following discusses the five material weaknesses we found. Each weakness was identified in IRS' Federal Managers' Financial Integrity Act (FMFIA) report for fiscal year 1995. Revenues, including the related refunds and accounts receivable, are the two key areas in IRS' efforts to report Custodial financial statements. IRS collects tax receipts, receives tax returns, makes tax refunds to, and corresponds with hundreds of millions of taxpayers each year. IRS also tries to obtain compliance by enforcing the tax laws through its monitoring of accounts receivable. These activities involve processing and tracking billions of paper documents and, in fiscal year 1995, handling a reported $1.4 trillion in tax receipts and a reported $122 billion in tax refunds. Processing this volume of money and paperwork requires substantive coordination among IRS' more than 600 offices worldwide, approximately 12,000 financial institutions, and 12 Federal Reserve Banks throughout the country. For fiscal year 1995, IRS made several attempts at extracting taxpayer information from its masterfiles--the only detailed record of taxpayer information IRS maintains--to support the amounts it reported for revenues in its financial statements. However, IRS has not been able to make these amounts agree to the amounts included in its financial management systems and Treasury records. Further, IRS is unable to determine that the correct amounts are transferred to the ultimate recipient of the collected taxes. For fiscal year 1995, the detailed transactions from its masterfile accounts were not provided to us in a timely manner to substantiate the reported amounts and thus we could not determine the amount of the differences. The core financial management control weaknesses that contribute greatly to these problems are that IRS does not have comprehensive documentation on how its financial management system works. It has not yet put into place the necessary procedures to routinely reconcile activity in its summary account records with that maintained in its detailed masterfile records of taxpayer accounts. This problem is further exacerbated by IRS' financial management system, which was not designed to support financial statement presentation, and thus significantly hinders IRS' ability to identify the ultimate recipient of collected taxes. This occurs because the system requires that corporate and individual taxpayers pay multiple taxes at the same time without readily identifying the application of the payments to the various taxes paid. As a result, IRS is forced to make the allocation of collections to the recipient based on the total tax owed as identified on the related tax return. The tax return is filed at a later date and may not contain sufficient information if the amount of taxes owed on the return does not agree with the amount paid, as is sometimes the case. IRS has developed computer programs to extract the detailed masterfile data from its records but continues to be unable to reconcile the detailed extracted data to the summary accounts. In an interim effort to prepare reliable financial statement information, IRS is attempting to demonstrate the maximum exposure likely attributable to the unexplained differences and provide the necessary information to fix the identified system flaws. This interim plan involves IRS continuing its efforts to develop detailed comprehensive documentation of its current financial management system. We are monitoring IRS' efforts closely, providing guidance and recommendations, and reporting at regular intervals to IRS' senior management on the agency's progress and actions needed to correct these problems in the short and long term. As reported since our audit of IRS' fiscal year 1992 financial statements, IRS cannot ensure that it distributes excise taxes based on collections, as required by law, because it bases these distributions on the amount reported on the tax return, that is, the assessed amount. However, during fiscal year 1995, IRS analyzed excise taxes by specific trust funds to determine if there were significant differences between taxes paid and amounts reported as owed on the return and found that these differences were insignificant. Because IRS completed this analysis after our audit was completed, we were unable to examine and determine the reliability of this information. For fiscal year 1995, IRS attempted to test a statistical sample of its inventory of open assessments to categorize them between financial accounts receivable and compliance assessments. For all the 4 fiscal years we have audited IRS' financial statements, IRS has had difficulty separating, in its masterfile records of taxpayer accounts, its financial accounts receivable, from the amounts it has assessed only for compliance purposes because the design of IRS' masterfiles commingles these amounts. In fiscal year 1995, IRS expanded its previous years' efforts by trying to first separate the inventory of assessments into accounts receivable and compliance assessments based on its coding of these assessments in its financial management system and then testing the accuracy of this coding to separate accounts receivable from compliance assessments on a taxpayer account basis. However, these efforts were unsuccessful because of mistakes made in performing the statistical tests and errors found in the coding of the assessments in IRS' financial management systems which made the sample results unreliable for projecting to the total inventory of outstanding assessments. Our tests of the fiscal year 1995 data found significant errors at levels that made the result of any projections from the samples taken unreliable. The actions needed to resolve the key financial management control weaknesses in accounts receivable are consistent with recommendations from our prior reports and are as follows: (1) better review and approval procedures are needed before assessment information is entered into IRS' masterfile system, (2) clearer lines of authority and responsibility are needed between IRS' taxpayer service and the Chief Financial Officer's operations to ensure that internal control procedures are properly identified and strictly adhered to, (3) procedures need to be developed for processing in-process accounts and properly applying them to the respective taxpayer accounts, and (4) periodic detailed taxpayer account reviews should be performed as a quality review measure to ensure that the proper coding is taking place for taxpayer accounts. In addition, IRS needs to (1) continue its efforts to review taxpayer accounts with amounts owed to ensure that they are properly coded and accounted for and (2) perform more macro analysis of its inventory of assessments to identify aberrations and other systemic problems that will need to be corrected to accurately report on accounts receivable. We will continue to monitor IRS' progress in this area and provide guidance and recommendations as it proceeds. For fiscal year 1995, IRS had a reported $8.1 billion in operating expenses and related assets and liabilities used and incurred in its administrative operations. The key asset in its administrative operations is its Fund Balance with Treasury accounts and the related Unexpended Appropriations accounts. Its operating expenses can be readily separated between its efforts to account for and report, in fiscal year 1995, its $5.3 billion in payroll costs and $2.8 billion in nonpayroll costs. IRS has made progress in accounting for and reporting its administrative operations. In fiscal year 1992, for the most part, we were unsuccessful in our attempts to audit IRS' records for its administrative operations. IRS' accounting records were in total disarray, and it could not substantiate large portions of the reported amounts. In addition, internal control policies and procedures were either nonexistent, inappropriately focused, or not followed. For fiscal year 1995, IRS had a core accounting system in place that tracked its financial management activity. Two critical problems, however, have continued to persist that were identified in our fiscal year 1992 audit: (1) IRS' Fund Balance with Treasury accounts remain unreconciled, though some progress has been made toward that end and (2) IRS has not been able to provide support as to whether and when certain nonpayroll goods and services paid for were received and, in instances where support existed, we found that the cost associated with the purchase was often recorded and reported in the wrong fiscal year. IRS' Fund Balance with Treasury accounts historically were not being reconciled. For the most part, IRS' personnel were only tracking the gross differences between their accounting records and what Treasury (the equivalent of their bank) reported to them for their administrative receipts and disbursements. This resulted in years of unreconciled amounts accumulating that were never researched and resolved and that were made difficult to research and resolve when the amounts were required to be audited. These accounts have been unreconciled in each of the years of our prior audits--1992 through 1994--with net reconciling differences in the millions of dollars that were made up of gross reconciling differences in the hundreds of millions of dollars. We were not provided the information to fully determine the gross amount of the differences for fiscal year 1995 and, thus, while we do know the accounts remain unreconciled, we do not know by how much. Over the last 2 fiscal years, IRS has made adjustments to its accounting records to write off large portions of the gross unreconciled amounts where it could not determine what the correct disposition of the difference should be after several efforts at researching the items. In addition, it hired a contractor to identify the differences between its accounting records and what it had reported to Treasury as its activity in its Fund Balance with Treasury accounts. IRS, though, has still not fully reconciled its differences between its records and Treasury's records that are reported to IRS through its budget clearing accounts--for items that are more than 6 months old that remain unreconciled--and that are identified on its statement of differences--for similar items that are less than 6 months old. Similarly, IRS still needs to investigate and resolve amounts in its suspense accounts, many of which have been in suspense for 1 year or more. In addition, IRS has not disposed of some of the reconciling items between its accounting records and what it reported to Treasury that were identified by the contractor. Through further contractor assistance or more intensified internal efforts, IRS must get these accounts fully reconciled. In addition, IRS needs to look more closely at the skill mix of its staff assigned with the responsibility of completing this reconciliation process. If these accounts remain unreconciled, it will continue to be difficult to provide an opinion on either IRS' administrative financial statements or management's assertion about the effectiveness of internal controls. It will also continue to be impossible to determine whether IRS has complied with all of the appropriate laws and regulations to which it is subject. Notwithstanding the problems these unreconciled accounts present for rendering an opinion, these accounts make it impossible, or at best difficult, for IRS or anyone else to know whether its operating funds have been improperly spent and calls into question the accuracy of its reported operating expenses, assets, and liabilities. IRS did not provide support as to whether and when it received goods and services for significant portions of its nonpayroll operating expenses and, in several instances where the support was provided, we found that the cost should have been included in another period. Simply stated, this situation is much like when IRS audits a taxpayer. If the taxpayer cannot show independent evidence that an expense that was deducted on the tax return was incurred in the year under audit, the expense would be disallowed and the taxpayer's tax liability increased. Likewise, when IRS cannot provide support for its reported expenses or the support shows that the expenses should be properly included in a different fiscal year, the auditor cannot provide an opinion on the amounts. Simply put, we cannot determine whether this expense was an expense of the current period--when no support exists--or whether it must be adjusted from the current year's expenses--when the support shows it is in the wrong period. Our interim testing of IRS' accounting records covering the first 10 months of fiscal year 1995 showed significant amounts of nonpayroll costs that were either unsupported or recorded in the wrong period. IRS' nonpayroll expenses that we reviewed included purchases from other federal agencies as well as from commercial vendors for printing services, postage, computer equipment, and many other costs. IRS' lack of control over receipt and acceptance of goods and services, combined with its problems in linking the controls over goods and services purchased to the payment for these goods and services, makes it especially vulnerable to vendors, both federal and commercial, billing IRS for goods and services not provided or for amounts in excess of what was provided. This would be comparable to an individual or business receiving an invoice and paying it without verifying that the purchased item had been received and accepted, based on an assumption that someone else in the household or business received it. For example, IRS has an inventory management system that tracks when printed tax forms are received and used. However, the information tracked in this system is not used or integrated with the payment system for making vendor payments nor with any other system used to account for and report IRS' operating expense for printing these forms. In our prior year reports, we stated that IRS' computer security environment was inadequate. Our review of controls over IRS' computerized information systems, done to support our fiscal year 1995 audit, found that IRS has made some progress in addressing and initiating actions to resolve prior years' computer security issues; however, some of the fundamental security weaknesses we previously identified continued to exist in this fiscal year. We will be studying these issues further and reporting on them in greater detail in a future report. These deficiencies in internal controls may adversely affect any decision by management which is based, in whole or in part, on information that is inaccurate because of the deficiencies. Unaudited financial information reported by the Internal Revenue Service, including budget information, also may contain misstatements resulting from these deficiencies. As described above, we are unable to give an opinion on the Principal Financial Statements for fiscal year 1995. In addition, we were unable to give an opinion on the Principal Financial Statements for fiscal year 1994. We gained an understanding of internal controls designed to safeguard assets against loss from unauthorized acquisition, use, or assure the execution of transactions in accordance with laws governing the use of budget authority and with other laws and regulations that have a direct and material effect on the Principal Financial Statements or that are listed in Office of Management and Budget (OMB) audit guidance and could have a material effect on the Principal Financial Statements; and properly record, process, and summarize transactions to permit the preparation of reliable financial statements and to maintain accountability for assets. For fiscal years 1995 and 1994, we do not express an opinion on internal controls because the scope of our work was limited to determining our procedures for auditing the financial statements, not to express an opinion on internal controls. However, we found that the material weaknesses, described in the Significant Matters section of this report, resulted in ineffective controls that could lead to losses, noncompliance, or misstatements that are material in relation to the financial statements. Our internal control work would not necessarily disclose all material weaknesses. Because of the limitations on the scope of our work as discussed above, we were unable to test the laws we considered necessary; accordingly, we are unable to report on IRS' compliance with laws and regulations. In our prior year reports (see footnote 1), we made 59 recommendations aimed at resolving IRS' financial management problems. In our assessment this year, we determined that IRS had completed 17 of these recommendations. See appendix I for the status of IRS' implementation efforts on the 59 recommendations from our prior year reports. IRS has stated its intention to commit the necessary resources and management oversight to resolve its financial management weaknesses and receive its first opinion on the fiscal year 1996 financial statements. In this regard, we are providing advice to IRS on how to resolve its long-standing and pervasive financial management problems. preparing the annual financial statements in conformity with the basis of accounting described in note 1 of the Administrative and Custodial financial statements; establishing, maintaining, and assessing the internal control structure to provide reasonable assurance that the broad control objectives of the Federal Managers' Financial Integrity Act (FMFIA) are met; and complying with applicable laws and regulations. We attempted to perform audit procedures on the limited information IRS was able to provide; however, for the reasons stated above, we were unable to perform the necessary audit procedures to opine on IRS' Principal Financial Statements. Except for the limitations on the scope of our work on (1) the Principal Financial Statements, (2) internal controls, and (3) compliance with laws and regulations described above, we did our work in accordance with generally accepted government auditing standards and OMB Bulletin 93-06, "Audit Requirements for Federal Financial Statements." We requested written comments on a draft of this report from you or your designee. Your office provided us with written comments which are discussed in the following section and reprinted in appendix II. In commenting (see appendix II) on a draft of this report, IRS generally agreed with the facts as stated in our report. In addition, IRS reaffirmed its commitment to ensuring the integrity of its financial data. Statement of Financial Position (Administrative) Statement of Operations (Administrative) Notes to Principal Financial Statements (Administrative) Statement of Financial Position (Custodial) Notes to Financial Statements (Custodial) Statement of Financial Position (Revolving Fund) Note to Financial Statements (Revolving Fund) The results of our efforts to audit IRS' fiscal year 1992, 1993, and 1994 Principal Financial Statements were presented in our reports entitled Financial Audit: Examination of IRS' Fiscal Year 1992 Financial Statements (GAO/AIMD-93-2, June 30, 1993), Financial Audit: Examination of IRS' Fiscal Year 1993 Financial Statements (GAO/AIMD-94-120, June 15, 1994), and Financial Audit: Examination of IRS' Fiscal Year 1994 Financial Statements (GAO/AIMD-95-141, August 4, 1995). The system and internal control weaknesses identified in the 1992 report and recommendations to correct them were discussed in more detail in six reports. In fiscal year 1993, we issued one report that included the system and internal control weaknesses and recommendations. For fiscal year 1994, we issued one report that contained no new recommendations. We determined the status of the following recommendations based on our audit work at IRS during fiscal year 1995 and on our discussions with IRS officials. Our assessments of IRS' actions for the most significant recommendations are discussed in the report. However, we have not fully assessed the appropriateness or effectiveness of all of the responses identified in the following table. We plan to update our assessment of IRS' responses as part of our fiscal year 1996 audit. Financial Audit: IRS Significantly Overstated Its Accounts Receivable (GAO/AFMD-93-42, May 6, 1993) Provide the IRS Chief Financial Officer authority to ensure that IRS accounting system development efforts meet its financial reporting needs. At a minimum, the Chief Financial Officer's approval of related system designs should be required. (continued) Take steps to ensure the accuracy of the balances reported in IRS financial statements. In the long term, this will require modifying IRS systems so that they are capable of (1) identifying which assessments currently recorded in the Master File System represent valid receivables and (2) designating new assessments that should be included in the receivables balance as they are recorded. Until these capabilities are implemented, IRS should rely on statistical sampling to determine what portion of its assessments represent valid receivables. Clearly designate the Chief Financial Officer as the official responsible for coordinating the development of performance measures related to receivables and for ensuring that IRS financial reports conform with applicable accounting standards. Modify the IRS methodology for assessing the collectibility of its receivables by --including only valid accounts receivable in the analysis; --eliminating, from the gross receivables balance, assessments determined to have no chance of being collected; --including an analysis of individual taxpayer accounts to assess their ability to pay; --basing group analyses on categories of assessments with similar collection risk characteristics; and --considering current and forecast economic conditions, as well as historical collection data, in analyses of groups of assessments. (continued) Once the appropriate data are accumulated, IRS may use modeling to analyze collectibility of accounts on a group basis, in addition to separately analyzing individual accounts. Such modeling should consider factors that are essential for estimating the level of losses, such as historical loss experience, recent economic events, and current and forecast economic conditions. In the meantime, statistical sampling should be used as the basis for both individual and group analyses. IRS Information Systems: Weaknesses Increase Risk of Fraud and Impair Reliability of Management Information (GAO/AIMD-93-34, September 22, 1993) Limit access authorizations for individual employees to only those computer programs and data needed to perform their duties and periodically review these authorizations to ensure that they remain appropriate. Monitor efforts to develop a computerized capability for reviewing user access activity to ensure that it is effectively implemented. Establish procedures for reviewing the access activity of unit security representatives. Use the security features available in IRS' operating systems software to enhance system and data integrity. Require that programs developed and modified at IRS headquarters be controlled by a program librarian responsible for (1) protecting such programs from unauthorized changes including recording the time, date, and programmer for all software changes, and (2) archiving previous versions of programs. (continued) Establish procedures requiring that all computer program modifications be considered for independent quality assurance review. Formally analyze Martinsburg Computing Center's computer applications to ensure that critical applications have been properly identified for purposes of disaster recovery. Test the disaster recovery plan. Monitor service center practices regarding the development, documentation, and modification of locally developed software to ensure that such software use is adequately controlled. Review the current card key access system in the Philadelphia Service Center to ensure that only users who need access to the facilities protected by the system have access and that authorized users each have only one unique card key. Establish physical controls in the Philadelphia Service Center to protect computers with access to sensitive data that are not protected by software access controls. (continued) Financial Management: IRS' Self-Assessment of Its Internal Control and Accounting Systems Is Inadequate (GAO/AIMD-94-2, October 13, 1993) The Senior Management Council should coordinate, monitor, or oversee activities to (1) establish and implement proper written procedures that provide for the identification, documentation, and correction of material weaknesses, (2) provide classroom training and guidance materials to all review staff, (3) develop effective corrective action plans that address the fundamental causes of the weaknesses, and (4) verify the effectiveness of corrective actions before removing reported weaknesses from IRS' records. Financial Management: Important IRS Revenue Information Is Unavailable or Unreliable (GAO/AIMD-94-22, December 21, 1993) Develop a method to determine specific taxes collected by trust fund so that the difference between amounts assessed and amounts collected is readily determinable and excise tax receipts can be distributed as required by law. This could be done by obtaining specific payment detail from the taxpayer, consistent with our April 1993 FTD report. Alternatively, IRS might consider whether allocating payments to specific taxes based on the related taxpayer returns is a preferable method. Determine the trust fund revenue information needs of other agencies and provide such information, as appropriate. If IRS is precluded by law from providing needed information, IRS should consider proposing legislative changes. (continued) Identify reporting information needs, develop related sources of reliable information, and establish and implement policies and procedures for compiling this information. These procedures should describe any (1) adjustments that may be needed to available information and (2) analyses that must be performed to determine the ultimate disposition and classification of amounts associated with in-process transactions and amounts pending investigation and resolution. Establish detailed procedures for (1) reviewing manual entries to the general ledger to ensure that they have been entered accurately and (2) subjecting adjusting entries to supervisory review to ensure that they are appropriate and authorized. Monitor implementation of actions to reduce the errors in calculating and reporting manual interest, and test the effectiveness of these actions. Give a priority to the IRS efforts that will allow for earlier matching of income and withholding information submitted by individuals and third parties. Financial Management: IRS Does Not Adequately Manage Its Operating Funds (GAO/AIMD-94-33, February 9, 1994) Monitor whether IRS' new administrative accounting system effectively provides managers up-to-date information on available budget authority. Promptly resolve differences between IRS and Treasury records of IRS' cash balances and adjust accounts accordingly. Promptly investigate and record suspense account items to appropriate appropriation accounts. (continued) Perform periodic reviews of obligations, adjusting the records for obligations to amounts expected to be paid, and removing expired appropriation balances from IRS records as stipulated by the National Defense Authorization Act for Fiscal Year 1991. Monitor compliance with IRS policies requiring approval of journal vouchers and enforcing controls intended to preclude data entry errors. Review procurement transactions to ensure that accounting information assigned to these transactions accurately reflects the appropriate fiscal year, appropriation, activity, and sub-object class. Provide (1) detailed written guidance for all payment transactions, including unusual items such as vendor credits, and (2) training to all personnel responsible for processing and approving payments. Revise procedures to require that vendor invoices, procurement orders, and receipt and acceptance documentation be matched prior to payment and that these documents be retained for 2 years. Revise procedures to incorporate the requirements that accurate receipt and acceptance data on invoiced items be obtained prior to payment and that supervisors ensure that these procedures are carried out. Revise document control procedures to require IRS units that actually receive goods or services to promptly forward receiving reports to payment offices so that payments can be promptly processed. Monitor manually computed interest on late payments to determine whether interest is accurately computed and paid. (continued) Enforce existing requirements that early payments be approved in accordance with OMB Circular A-125. Require payment and procurement personnel, until the integration of AFS and the procurement system is completed as planned, to periodically (monthly or quarterly) reconcile payment information maintained in AFS to amounts in the procurement records and promptly resolve noted discrepancies. Require the description and period of service for all invoiced items to be input in AFS by personnel responsible for processing payments, and enhance the edit and validity checks in AFS to help prevent and detect improper payments. Establish procedures, based on budget categories approved by OMB, to develop reliable data on budget and actual costs. Use AFS' enhanced cost accumulation capabilities to monitor and report costs by project in all appropriations. Financial Management: IRS Lacks Accountability Over Its ADP Resources (GAO/AIMD-93-24, August 5, 1993) Provide the agency's CFO with the authority to ensure that data maintained by IRS' ADP inventory system meet its management and reporting needs. Provide that any software purchases, development, or modifications related to this system are subject to the CFO's review and approval. (continued) Develop and implement standard operating procedures that incorporate controls to ensure that inventory records are accurately maintained. Such controls should include -- establishing specific procedures to ensure the prompt and accurate recording of acquisitions and disposals in IRS' ADP fixed asset system, including guidance addressing the valuation of previously leased assets; -- reconciling accounting and inventory records monthly as an interim measure until the successful integration of inventory and accounting systems is completed as planned; and -- implementing mechanisms for ensuring that annual physical inventories at field locations are effectively performed, that discrepancies are properly resolved, and that inventory records are appropriately adjusted. Oversee IRS efforts for ensuring that property and equipment inventory data, including telecommunications and electronic filing equipment, is complete and accurate. Determine what information related to ADP resources, such as equipment condition and remaining useful life, would be most useful to IRS managers for financial management purposes and develop a means for accounting for these data. Develop an interim means to capture relevant costs related to in-house software development. (continued) Financial Audit: Examination of IRS' Fiscal Year 1993 Financial Statements (GAO/AIMD-94-120, June 15,1994) Ensure that system development efforts provide reliable, complete, timely, and comprehensive information with which to evaluate the effectiveness of its enforcement and collection programs; Establish and implement procedures to analyze the impact of abatements on the effectiveness of assessments from IRS' various collection programs; and Reconcile detailed revenue transactions for individual taxpayers to the master file and general ledger. Establish and implement procedures to proactively identify errors that occur during processing of data, and design and implement improved systems and controls to prevent or detect such errors in the future. Monitor its systems and controls to regularly identify problems as they occur by establishing clear lines of responsibility and communication from top management to the lowest staff levels, Develop action plans that are agreed upon by all affected groups and individuals to correct problems identified, and Continuously monitor corrective actions to ensure that progress is achieved. Periodically compare information in payroll records to supporting personnel information, Use current information to periodically update estimated future TSM costs, and (continued) Develop reliable detailed information supporting its reported accounts payable balances. Develop and implement systems and standard operating procedures that incorporate controls to ensure that seized asset inventory records are accurately maintained, which include Establishing specific procedures to ensure the prompt and accurate recording of seizures and disposals, including guidance addressing the valuation of seized assets; Reconciling accounting and inventory records monthly as an interim measure until the successful integration of inventory and accounting systems is completed; and Implementing mechanisms for ensuring that annual physical inventories at field locations are effectively performed, that discrepancies are properly resolved, and that inventory records are appropriately adjusted. Determine what information related to seized assets, such as proceeds and liens and other encumbrances, would be most useful to IRS managers for financial management purposes and develop a means for accounting for these data. 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.	Pursuant to a legislative requirement, GAO reviewed the Internal Revenue Service's (IRS) financial statements for fiscal years 1995 and 1994. GAO found that: (1) it could not express an opinion of the 1995 IRS financial statement due to limitations in the scope of its work; (2) the information in the 1995 statement may be unreliable; (3) ongoing financial management problems include IRS inability to verify or reconcile taxpayer revenue and refunds to accounting records, substantiate amounts reported for various types of taxes collected, verify nonpayroll operating expenses, and reconcile reported appropriations with Department of the Treasury records, and determine the unreliability of estimated accounts receivable balances; (4) IRS has not resolved many of its financial management problems, but it has developed software to capture detailed revenue and refund transactions and is completing documentation of its financial management systems to aid in system improvements; (5) significant material weaknesses in IRS controls over recordkeeping exist, including lax computer security; (6) it could not test IRS compliance with applicable laws and regulations; and (7) IRS has completed 17 of 59 recommendations for improving its financial management systems.	6,782	239
Section 233 of the National Defense Authorization Act for Fiscal Year 2014 required DOD to report on various regional BMD topics, including the eight specific elements presented in table 1, by June 24, 2014. DOD identified its current approach to regional BMD in the 2010 Ballistic Missile Defense Review Report. In that report, DOD stated it would match U.S. BMD strategies, policies, and capabilities to the requirements of current and future threats and use that information to inform BMD planning, budgeting, and oversight. DOD also noted that phased, adaptive approaches to BMD would enable a flexible, scalable response to BMD threats around the world by incorporating new technologies quickly and cost-effectively, and described the advantages of mobile BMD assets that can be readily transported from one region to another, over fixed assets. In addition, DOD indicated that new assets would undergo testing that enables assessment under realistic operational conditions, prior to deployment. Finally, DOD emphasized working with regional allies to strengthen BMD and its deterrent value. The 2010 Ballistic Missile Defense Review Report indicates that the United States would pursue a phased, adaptive approach to missile defense within each region that is tailored to the threats and circumstances unique to each region. An area of emphasis in the 2010 Ballistic Missile Defense Review Report was on the EPAA--the U.S. approach to regional BMD in Europe. In the 2010 Ballistic Missile Defense Review Report, DOD also discussed the development of regional phased, adaptive approaches to BMD in the Asia-Pacific and the Middle East. The 2010 report highlighted differences among the ballistic missile threat posed to each region, as well as the differences among the regional defensive arrangements that exist between the United States and its partners. In an August 2013 report on regional BMD issues, DOD stated that its process of working with regional allies and partners was well under way and included the participation, along with the United States, of some allies and partners in regional command and control centers that conduct BMD operations. In the Pacific, DOD noted that cooperation is most robust with Japan, that other allies and partners participate to varying degrees, and that allies and partners in the Asia-Pacific region generally have exhibited an increasing interest in enhanced cooperation with DOD. DOD's August 2013 report also noted that in the Middle East the United States is working with a number of Gulf Cooperation Council States on a bilateral basis, including supporting the purchase of BMD systems through the Foreign Military Sales program. DOD's regional BMD effort consists of a number of specific weapon systems or elements that compose the BMD system as a whole. They are the following: Command and Control, Battle Management, and Communications (C2BMC): a system that integrates individual BMD elements and allows users to plan BMD operations, maintain situational awareness and communications, and manage networked sensors. Army Navy/Transportable Radar Surveillance and Control Model 2 (AN/TPY-2) X-Band Radar: a sensor that tracks ballistic missiles in flight. Aegis BMD Weapons System: a ship-based weapon system that consists of a radar, software, and processors to track threat missiles and cue Aegis Standard Missile-3 (SM-3) interceptors. Aegis Ashore: a land-based version of the Aegis BMD interceptor system, which will employ Aegis BMD Weapons System upgrades and SM-3 upgrades as they become available. Standard Missile-3 (SM-3): a family of defensive missiles that intercept regional threat missiles of various ranges. Terminal High Altitude Area Defense (THAAD): a mobile, ground- based missile defense system that includes a fire control and communications system, a radar, interceptors, and other support equipment. Patriot Advanced Capability-3 (PAC-3): a mobile defense against short-range missiles. It is now operated and fielded by the U.S. Army and may be used in a variety of regional BMD approaches. According to DOD, various versions of these weapon systems are being deployed in Europe, the Asia-Pacific region, and in the Middle East, but the EPAA is the only regional approach described extensively in the 2010 Ballistic Missile Defense Review Report. To support Phase 1 of the EPAA for operations in Europe, by December 2011 MDA delivered an AN/TPY-2 X-band radar, an Aegis BMD ship with SM-3 Block IA missiles, and an upgrade to C2BMC. As we reported in March 2014,the EPAA are intended to provide improved integration and interoperability among sensors and interceptor systems, which would expand the area being defended, as well as improve the ability to defend against attacks involving a larger number of incoming missiles. Specifically, for Phase 2, MDA plans to deploy improved versions of the Aegis BMD Weapons System on ships and Aegis Ashore in Romania with the next generation of SM-3 interceptor, called SM-3 Block IB. MDA also plans to field improvements to C2BMC, upgrading an existing version in the 2015 time frame and fielding a new version in 2017. For Phase 3, MDA is developing further improvements to the Aegis BMD system, including a new version of the weapons system and new interceptor, called SM-3 Block IIA, as well as an additional Aegis Ashore installation in Poland and further improvements to C2BMC for fielding in 2018. Figure 1 depicts the weapon systems that DOD plans to deploy in and around Europe in support of the EPAA in its three phases. DOD, Report to Congress: Regional Ballistic Missile Defense. Compared to the statutory reporting requirements, DOD's June 2014 regional BMD report addressed five of the eight required reporting elements, and partially addressed the remaining three elements. DOD addressed elements that describe the overall risk assessment from the Global Integrated Air and Missile Defense Assessment, the role of regional missile defenses in the homeland defense mission, the integration of offensive and defensive capabilities, and two elements on the roles and contributions of allies. DOD partially addressed the remaining three reporting elements, regarding the alignment of regional approaches to missile defense with combatant command integrated priorities, the concept of operations for EPAA, and the testing and development of key EPAA elements. Table 2 summarizes our assessment of DOD's report. Additionally, through interviews with DOD officials and from our application of generally accepted standards that define a sound and complete defense research study, we found that DOD's report did not include key details for some required reporting elements that we believe could have benefitted congressional defense committees' oversight of DOD's regional BMD programs. Generally accepted standards that define a sound and complete defense research study include that a report provide complete, accurate, and relevant information for the client and stakeholders. However, DOD's report does not consistently meet this standard, based on GAO's review. For example, the standards for the presentation of results state that findings should be complete and accurate, but we found that key information regarding the characterization of the testing and development of EPAA systems was incomplete. DOD's June 2014 report could have provided additional details for several of the required reporting elements. Specifically: In support of element F, regarding integration of offensive and defensive capabilities, the report described some plans regarding implementation of the imperatives suggested in the Joint Integrated Air and Missile Defense Vision for 2020. We determined that DOD's report met the statutory requirement to describe the manner in which enhanced integration of offensive and defensive capabilities will fit into regional missile defense planning and force structure assessments. Although not required, we found the report did not provide comprehensive information on how DOD will identify and address potential capability and capacity shortfalls in support of air and missile defense missions, nor did it provide a description of policies to increase cooperation among partners and allies, as emphasized by the Joint Integrated Air and Missile Defense Vision for 2020, which is information that provides more insight into how DOD manages regional BMD resources and risks. In support of elements G and H, regarding allied contributions to regional BMD, DOD's report included some information that did not relate to regional missile defense and characterized a number of allied contributions as notional, which could misrepresent the extent to which particular allies and partners contribute to regional BMD. For example, the report mentions Denmark hosting an Upgraded Early Warning Radar in Greenland as an allied contribution to European missile defense, but that radar is used exclusively for supporting the homeland defense BMD mission. Additionally, the report did not include estimates of actual or potential cost savings derived from taking advantage of economies of scale or a reduced number of U.S. deployments due to allied capabilities. For instance, Japan's effort to develop and deploy the Aegis BMD Weapon System on Japanese ships is mentioned by the report, but without concrete information on the effect that may have on U.S. resources. Appendix I highlights U.S. and allied contributions to regional BMD operations. Additionally, we determined that DOD's report omitted key details regarding its approach to regional BMD for the three elements that it partially addressed in the report, regarding the combatant commands' force structure and deployment options, concepts for operating with NATO, and the development of EPAA systems. We believe that by not including these details, although not required, DOD reduced the report's usefulness to the congressional defense committees and to their oversight of DOD's regional BMD programs. In support of element B, regarding the combatant commands' deployment options, as stated earlier, we determined that DOD's report partially addressed the required reporting element because it did not include key details about U.S. European Command's and U.S. Pacific Command's planned options to increase BMD capability in response to an imminent threat, nor did the report provide a comprehensive analysis regarding how the various regional approaches to BMD will meet combatant command integrated priorities. DOD's report also did not provide an analysis of the BMD assets that each combatant command needs to meet their respective integrated priorities, nor did it describe how many assets each combatant command has in-theater to address these requirements, or identify how many assets DOD could reasonably deploy into the area if additional capability were needed during a crisis. U.S. Strategic Command and the Joint Staff track the deployment and availability of BMD forces, such as the Aegis BMD Weapon System, THAAD, and PAC- 3, and make priority recommendations for their deployment, so that senior DOD decision makers can assess risk and priorities when allocating assets among regions. In support of element C, related to operational control of assets in Europe, we found that DOD's report lacked key details about how command of assets are allocated between U.S. European Command and NATO. For example, in the briefing referenced by the report, DOD provides some description of how Aegis ships would be transferred from one command's authority to the other and provides the current operational control status for the forward-based AN/TPY-2 X-band radar. However, neither the report nor the briefing contain the operational details that are important to fully understanding the circumstances under which each of the relevant BMD systems could be transferred from one command's authority to another. This information is important to fully understanding the implications of how control of BMD assets is allocated, as well as the effect those circumstances have on various BMD systems. In support of element D, regarding the development and testing of BMD systems that are part of EPAA, DOD's report did not include details about C2BMC and Aegis BMD testing and development issues, and the lack of such detail may limit Congress' ability to understand the extent to which the EPAA system can be integrated: C2BMC: The 2010 Ballistic Missile Defense Review Report and MDA's acquisition and system engineering documentation underscore the importance of C2BMC for all regional approaches, since it is the system that enables system-level capabilities. In EPAA, C2BMC is necessary to link allied systems, such as NATO's Active Layered Theater Ballistic Missile Defense, with the U.S. systems. It also controls the AN/TPY-2 X-band radar, and integrates Aegis BMD ships, as well as additional sensors and an Aegis Ashore as they become available in Phases 2 and 3. As the integrator, C2BMC allows the BMD system to defend against more missiles simultaneously, to conserve interceptor inventory, and to defend a larger area than individual systems operating independently. For Phase 2 of the EPAA, MDA plans to upgrade the C2BMC system in 2015 to address new threats and, in 2017, to integrate additional sensors and improve the ability of Aegis BMD to launch an interceptor before its shipboard radar acquires a threat missile. In 2018, for Phase 3 of the EPAA, MDA plans additional C2BMC upgrades, including some that would enable the Aegis BMD to intercept missiles based on tracks passed through C2BMC from forward-based AN/TPY-2 X-band radars, without having to detect the threat with its own radar. However, our current and previous work indicates that some capability upgrades to C2BMC for Phase 3 of the EPAA have been deferred indefinitely, which DOD did not reference in its June 2014 report. For example, according to our analysis of MDA's system engineering documentation, we found that MDA has deferred the delivery of a key C2BMC capability that would further integrate the BMD system and improve its management of limited BMD resources by allowing C2BMC to directly send engagement commands to interceptor systems. According to the Director, Operational Test and Evaluation, effective "battle management" requires C2BMC to not only collect and process information from sensors and weapons, as it currently does, but to also determine which threats should be engaged by which weapon to produce the highest probability of engagement success and then transmit this information back to the sensors and weapons. Aegis BMD Weapon System: DOD's report did not fully describe the performance and acquisition risks to the Aegis BMD systems slated for Phase 2 of the EPAA, which we have identified through our prior work. Aegis BMD is the primary interceptor system for EPAA. MDA plans upgrades for Phase 2 of the EPAA that increase the types and number of threats it can engage. However, in April 2014, we found that one SM-3 Block 1B failed in flight during an interceptor test in September 2013, which, according to our current work, could increase reliability risk. Since then, DOD officials told us that MDA is seeking to maintain reliability of the interceptor by developing a redesign; it is unclear when this redesign will be flight-tested. MDA told us that it plans to ground-test the redesign. Moreover, our reviews of MDA's Aegis BMD Baseline Execution Reviews from April 2013, August 2013, and June 2014 indicated that the certification of a new version of Aegis BMD software called Aegis BMD 4.1, which is needed for Phase 2, had been delayed at least 3 months past Phase 2 declaration. Additionally, based on our analysis of MDA's August 2013 and June 2014 Baseline Execution Reviews, MDA continues to discover software defects faster than it is able to fix them for another version of Aegis BMD, also planned for Phase 2 of the EPAA. Furthermore, although DOD officials told us that the Aegis Ashore program is on track, our review of MDA's March 2014 test documentation identified schedule slips that delayed Aegis Ashore's participation in key interoperability tests, compressing the time to rectify issues should they be discovered prior to the planned Phase 2 declaration in 2015. DOD officials who developed the June 2014 regional BMD report told us that they used their best judgment in determining the appropriate level of detail for the report. The officials added that their goal was to address each of the required reporting elements concisely. Furthermore, they explained that they regularly provide more detailed analysis on some of these topics to congressional defense committees via periodic briefings, and that they did not want to provide duplicative or unnecessary information. Although we recognize the need for professional judgment by DOD officials when preparing the report, our review concluded that DOD's report did not include details that we believe could have made the report more useful to Congress in its oversight of DOD's regional BMD programs. However, DOD's report was prepared in response to a onetime, nonrecurring mandate, and therefore we are not making any recommendations to amend the report and provide additional detail. DOD reviewed a draft of this report, but did not provide formal agency comments. DOD did provide technical comments, and we incorporated these changes as appropriate. We are sending copies of this report to the appropriate congressional committees and to the Secretary of Defense; the Chairman, Joint Chiefs of Staff; the Commander, U.S. Strategic Command; and the Director, MDA. This report is also 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 202-512-9971 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. Appendix I: Allied Contributions to Regional Ballistic Missile Defense (BMD) Figure 2 summarizes key information provided by the Department of Defense (DOD) regarding the contributions of allies to regional BMD. In addition to the contact named above, Kevin O'Neill, Assistant Director; David Best; Patricia Donahue; Amie Lesser; Randy Neice; Wiktor J. Niewiadomski; Richard Powelson; Terry Richardson; Mike Shaughnessy; and Jina Yu made key contributions to this report. Ballistic Missile Defense: Actions Needed to Address Implementation Issues and Estimate Long-Term Costs for European Capabilities. GAO-14-314. Washington, D.C.: April 11, 2014. Missile Defense: Mixed Progress in Achieving Acquisition Goals and Improving Accountability. GAO-14-351. Washington, D.C.: April 1, 2014. Regional Missile Defense: DOD's Report Provided Limited Information; Assessment of Acquisition Risks is Optimistic. GAO-14-248R. Washington, D.C.: March 14, 2014. Missile Defense: Opportunity to Refocus on Strengthening Acquisition Management. GAO-13-432. Washington, D.C.: April 26, 2013. Missile Defense: Opportunity Exists to Strengthen Acquisitions by Reducing Concurrency. GAO-12-486. Washington, D.C.: April 20, 2012. Ballistic Missile Defense: Actions Needed to Improve Training Integration and Increase Transparency of Training Resources. GAO-11-625. Washington, D.C.: July 18, 2011. Missile Defense: Actions Needed to Improve Transparency and Accountability. GAO-11-372. Washington, D.C.: March 24, 2011. Ballistic Missile Defense: DOD Needs to Address Planning and Implementation Challenges for Future Capabilities in Europe. GAO-11-220. Washington, D.C.: January 26, 2011. Missile Defense: European Phased Adaptive Approach Acquisitions Face Synchronization, Transparency, and Accountability Challenges. GAO-11-179R. Washington, D.C.: December 21, 2010. Defense Acquisitions: Missile Defense Program Instability Affects Reliability of Earned Value Management Data. GAO-10-676. Washington, D.C.: July 14, 2010. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-10-388SP. Washington, D.C.: March 30, 2010. Defense Acquisitions: Missile Defense Transition Provides Opportunity to Strengthen Acquisition Approach. GAO-10-311. Washington, D.C.: February 25, 2010.	Regional BMD constitutes an essential element in deterring enemies from using ballistic missiles and supporting defense commitments to U.S. allies and partners. DOD's 2010 Ballistic Missile Defense Review Report noted that the United States would pursue phased, tailored, and adaptive approaches to regional BMD in Europe, the Asia-Pacific region, and the Middle East. A provision in the National Defense Authorization Act (NDAA) for Fiscal Year 2014 mandated DOD to submit within 180 days a report to the congressional defense committees on eight elements related to the status and progress of regional BMD programs and efforts. The Joint Explanatory Statement accompanying the NDAA mandated that GAO provide its views on DOD's report. Separately, GAO was requested to provide its results in a written, publicly releasable form. This report assesses the extent to which DOD's report addressed the required reporting elements and provides views on other key information, if any, that DOD could have included in the report. GAO used a scorecard methodology to compare the required reporting elements to the information in DOD's BMD report. Further, GAO reviewed the 2010 Ballistic Missile Defense Review Report , combatant commander integrated priority lists, and other DOD documents and policy, and interviewed DOD officials to gain further insight on DOD's regional BMD efforts. The Department of Defense's (DOD) June 2014 regional ballistic missile defense (BMD) report addressed five of the eight required reporting elements, and partially addressed the remaining three required reporting elements. DOD's report addressed elements relating to a BMD risk assessment, the role that regional missile defenses play in the homeland defense mission, the integration of offensive and defensive capabilities, and two elements on the roles and contributions of allies. DOD's report partially addressed the required reporting elements regarding the alignment of regional approaches to missile defense with combatant command-integrated priorities, the concept of operations for the European Phased Adaptive Approach (EPAA), and the testing and development of key EPAA elements. Additionally, GAO determined that DOD's report did not include key details for some elements that would have benefitted the congressional defense committees' oversight of DOD's regional BMD efforts. Generally accepted research standards for preparing sound and complete defense studies include providing complete, accurate, and relevant information. However, DOD's report does not consistently meet this standard, based on GAO's review. For example, the explanation in DOD's report of the North Atlantic Treaty Organization's transfer of authority process did not include sufficient detail to clearly convey the process. DOD's report also did not include details regarding the combatant commands' requirements, nor did it fully describe issues affecting the testing and development of key regional BMD systems (see fig.). DOD officials told GAO that the report was intended to address each of the eight required reporting elements concisely, that DOD regularly provides more detailed analysis on some of these topics to Congress via periodic briefings, and that they did not want to provide duplicative information in this report. GAO recognizes that judgment is needed in preparing reports to Congress; however, DOD's report did not include details on key BMD assets and risks to the EPAA schedule, which limits the report's utility to the congressional defense committees in their oversight of DOD's regional BMD programs. Because DOD prepared its report in response to a nonrecurring mandate, GAO is not making recommendations.	4,400	764
Section 302 of the Ethics Reform Act of 1989 (31 U.S.C. 1353) provides that the Administrator of GSA, in consultation with the Director of OGE, prescribe by regulation the conditions under which an agency or employee may accept payment from nonfederal sources for travel, subsistence, and related expenses with respect to attendance at any meeting or similar function relating to the official duties of the employee. In the request for comments on the implementing regulations, GSA stated that it expected OGE to review agency implementation of section 302 in connection with its ongoing reviews of agency ethics programs. GSA promulgated interim regulations in 41 C.F.R. 304 to implement section 302. These regulations, which have been in effect from March 8, 1991, through the present, include a definition of what constitutes conditions for accepting travel reimbursements, a description of payment methods, and a requirement that all instances of nonfederally reimbursed travel in excess of $250 be reported semiannually to OGE. Initially, these reports were to include the name and position of the employee, nature of the event, dates of travel, and amount of payment. However, GSA amended its regulations effective December 9, 1992, by adding a few additional requirements, including a provision that reports to OGE should also contain the dates of the events and itemized expenses. Commerce and FTC have established regulations that require adherence to GSA's regulations. Private companies, universities, and other organizations often want federal employees with expertise in such areas as weather forecasting and antitrust and trade regulations to participate in meetings and other events. When these employees receive offers of reimbursed travel, subsistence, or related expenses for a trip to such an event, the employees are supposed to prepare a travel order to obtain approval for the trip and a form requesting approval to accept the offer of reimbursement. At Commerce and FTC, the forms requesting approval for reimbursement, referred to as request forms, require the inclusion of details concerning the trip. These details include the name of the source offering reimbursements, dates and nature of the event, and types and amounts of expenses that will be reimbursed. This information is to be used by the employees' supervisors and other higher level reviewing officials. If a trip meets the applicable GSA regulations for authorizing travel on a reimbursable basis, a travel order can be approved. At Commerce, all travel reimbursement offers made to the Secretary of Commerce are reviewed by the Department's Office of General Counsel, while reimbursement offers made to other Commerce employees are reviewed in their respective offices. At FTC, travel reimbursement offers made to any employee are reviewed by FTC's Office of General Counsel. During the period of March 8, 1991, when GSA's interim regulations became effective, through September 30, 1993, Commerce had 3,104 nonfederally reimbursed trips, or an average of 1,242 trips per fiscal year. We sampled 160 of these trips and found that the average amount of reimbursed expenses was $1,100 per trip. Reimbursements varied from covering all of the trip's expenses to some portion, such as airfare or lodging. During the period of October 1, 1992, through September 30, 1993, FTC had 59 nonfederally reimbursed trips. The average amount of reimbursed expenses for FTC employees was $677 per trip. Additional details on our scope and methodology follow. To determine the adequacy of Commerce's administration of employees' acceptance of travel funds from nonfederal sources, we reviewed two random samples of nonfederally reimbursed trips at Commerce. First, because of the Subcommittee's interest in travel by high-level officials, we reviewed available documentation for a sample of 60 of the 112 trips reported during the period from March 8, 1991, through September 30, 1993, by these officials. We defined "high level" as those officials in the Office of the Secretary or the highest level official in all other Commerce offices. We compared these documents, including travel requests, orders, vouchers, and receipts, to the regulations in effect at the time the trips were taken and reported. Second, we reviewed similar information for a sample of 100 of the 2,992 trips reported during the same period by Commerce employees who were not high-level officials. We limited our review to the travel reimbursed on or after March 8, 1991, because the GSA interim regulations implementing Section 302 of the Ethics Reform Act of 1989 took effect at that time. We included travel reported through September 30, 1993, since these were the latest trips identified in OGE's reports when we began our review. As agreed with the Subcommittee, we also reviewed how the procedures governing reimbursed travel were administered within Commerce's Office of the Secretary and at the three offices with most of the reimbursed travel during the period. Collectively, the International Trade Administration (ITA), National Oceanic and Atmospheric Administration (NOAA), and National Institute of Standards and Technology (NIST) accounted for about 79 percent of Commerce's trips. We did this work to better understand the procedures and policies in place for administering reimbursed travel at individual offices. The Subcommittee selected FTC for review in part because it had a centralized system for reviewing travel requests as compared to Commerce's decentralized system. Because the decision to include FTC was made during the latter part of our review, we limited our review to all FTC employee trips that were reimbursed during fiscal year 1993 to ensure records would be readily available. We performed this review at Commerce, ITA, and FTC headquarters in Washington, D.C.; NOAA headquarters in Silver Spring, MD; and NIST headquarters in Gaithersburg, MD. We obtained comments from Commerce and FTC that are discussed on page 11 and presented in appendixes II and III. Our work was conducted from December 1993 to September 1994 in accordance with generally accepted government auditing standards. Although our review of Commerce's handling of reimbursed travel showed that applicable requirements were generally complied with, we found some instances of noncompliance. The most common of these instances was that Commerce sometimes approved employees' travel orders without first reviewing travel requests to obtain all of the necessary information about the trip to be taken. Although less frequent, we also identified certain deficiencies in how Commerce reported these reimbursements to OGE and in how internal controls governing reimbursed travel were applied. While no individual reporting deficiency occurred consistently, a number of the reports had at least one type of deficiency. The frequency and types of these deficiencies are shown later in this section. Under GSA regulations, authorization to accept payment from a nonfederal source should be given in advance of the travel. As GSA states in its regulations, the requirement for advance approval is consistent with the long-standing practice of approving an employee's official travel plans in advance. Moreover, there is less risk that an employee will receive an improper payment on behalf of the agency if advance approval is required. Our review showed that travel orders indicating the existence of reimbursed travel were almost always approved before the beginning of the trip. However, our samples of 60 high-level officials and 100 other employees identified a total of 36 trips, 13 and 23, respectively, where the travel order was approved without first reviewing a travel request form. Nine of these 36 trips in the samples were in the National Weather Service in NOAA. Weather Service officials told us that they (1) require the employee to include a statement identifying the expenses that will be reimbursed by the nonfederal source on the travel order and (2) allow the employee to complete the travel request form after the trip is complete. The problem with such an approach is that there is no assurance that all of the information necessary to assess conflict-of-interest situations is submitted with the travel order. It should be noted that three of the Weather Service's nine travel orders did not contain such important information as the identity of the reimbursing organization and/or the amount and type of expenses to be paid. Also, 17 of the other 27 trips had travel orders that did not include some of this important information. GSA's regulation governing the semiannual reporting of nonfederally reimbursed travel to OGE requires 18 specific items of information to be reported for each trip. These items include the name of the nonfederal source, the nature of the event, the dates of the employee's travel, an itemization of benefits received, and the amount of each benefit. The regulations also require that the expenses reported must be the actual amount paid by check or the value of in-kind services, other than for meals. While Commerce's Office of General Counsel, which is responsible for providing the semiannual reports of reimbursed travel to OGE, has several procedures in place to ensure that all reimbursed travel is reported to OGE, we identified some deficiencies in the reported information. Specifically, we found 27 deficiencies that were contained in 23 of the 160 trips in our sample. These deficiencies are shown in table 1. An official in Commerce's Office of General Counsel said that many of the deficiencies were due to the December 9, 1992, change in GSA's regulations, which is discussed on pages 2 and 3 of this report. In corroboration of this point, we found that all 12 of the deficiencies involving the dates of events and itemized expenses did occur shortly after the regulations were changed. However, the other deficiencies did not appear to be related to the revised regulations. The individual Commerce offices are responsible for the accuracy of expenses reported to the Office of General Counsel. In 11 of the 160 trips (9 in the all-employee sample and 2 in the high-level officials' sample) the reported amounts differed from the amounts recorded in the receipts. The reported amount was less than the receipts in five instances, ranging in difference from $7 to $523. In the other six instances, the reported amount exceeded the receipts by $12 to $350. Four of the nine instances of differing amounts in the all-employee sample occurred in ITA. The ITA Director of the Office of Organization and Management Support commented on these four trips. For the trip that resulted in the largest variance, she said that it was possible the employee reported the government rate for the airfare rather than the actual amount paid. She also said that the other three instances, none of which was greater than $15, could have been attributed to math errors. It should be noted that we could not always determine whether the actual costs of the trips were reported in Commerce's semiannual reports because receipts are not required for expenses paid in-kind. About 71 percent of the 160 reports included in-kind reimbursements. Commerce could improve its controls over travel expenses paid, either by check or in-kind, by ensuring that employees submit receipts and travel vouchers for all reimbursed expenses. The Federal Travel Regulations (Part 301-11) require employees to provide receipts for allowable cash expenditures in excess of $25. Receipts are also required for certain expenditures regardless of amount, including fees relating to travel outside of the United States. When receipts are not available, the only documentation for expenditures is the travel voucher. While the GSA regulations on nonfederally reimbursed travel do not address the need for receipts, both Commerce and FTC believe that the Federal Travel Regulations apply to expenses initially incurred by the employee and the government and later reimbursed by check from the nonfederal source. There were 16 and 36 trips in the high-level officials and all-employee samples at Commerce, respectively, that included expenses that were reimbursed either partially or fully by check. Of these 52 trips, files for 11 cases contained no evidence of receipts' being obtained to support the expenses that were claimed. According to several Commerce officials, receipts are used to bill the sources of the reimbursements and may have been sent to them. Also, for another 11 of the 160 trips in our sample, Commerce indicated that travel vouchers had never been prepared by the employees. Commerce officials said that the vouchers were not prepared in these 11 cases because all of the expenses were paid in-kind and, thus, there was no cost to the government and no need to account for the expenses incurred. However, since receipts are generally not obtained for in-kind expenses, the travel voucher serves as the only source of information for identifying the actual expenses incurred when reporting to OGE. GSA regulations governing nonfederally reimbursed travel require the actual amounts of expenses paid, in-kind and by check, to be reported to OGE. Of the 160 trips in our sample, 128 included in-kind reimbursements. Since GSA regulations do not require travelers to obtain receipts for in-kind expenses, Commerce did not have receipts for 99 of these trips and thus, there was no assurance that the estimates of reimbursed travel coincided with the actual costs incurred. We did not identify any deficiencies in FTC's acceptance of reimbursed expenses for the 59 trips we reviewed. FTC also generally complied with all GSA requirements for reporting and documenting reimbursed travel. However, FTC could have improved its reporting by more fully describing the nature of the event in 17 reports to OGE. FTC also had internal controls in place, including the use of letters of commitment to monitor expenses. As previously discussed in the background section, GSA regulation 41 C.F.R. 304-1.9 governing reports of nonfederally reimbursed travel to OGE requires specific information in each report, including the nature of the event. In the 17 reports to OGE where FTC did not fully describe the nature of the event, FTC only stated the name of the organization conducting the event, followed by a term such as "meeting," "conference," or "symposium." The FTC Deputy Ethics Official responsible for the report said that he believes FTC's practice to be in compliance with GSA regulations. A GSA official in the division responsible for administering the regulations said that providing a specific description of the event's nature, such as an American Bar Association meeting on foreign trade tariffs, allows OGE and the public to better understand the employee's reason for attending the meeting. As previously discussed above, the GSA travel regulations do not require employees to obtain receipts for expenses reimbursed in-kind, but do require the actual value of in-kind services be reported to OGE. FTC obtains letters of commitment before the trips that provide estimates of the expenses to be paid and relies on the employees to inform FTC if the actual value of expenses paid in-kind deviates from the estimate. OGE is responsible for providing overall direction of executive branch policies related to preventing conflicts of interest on the part of officers and employees of any executive agency. Specific responsibilities include developing and reviewing statutes and regulations pertaining to conflicts of interest and monitoring agency ethics programs. During a review of Commerce's ethics program in 1992, Commerce officials denied OGE access to records and supporting documents relating to acceptances of travel, subsistence, and related expenses from nonfederal sources under 31 U.S.C. 1353. According to OGE officials, OGE made two verbal requests for the records and sent a letter with their final report on October 15, 1992. OGE's letter expressed the need for OGE to have access to such records and asked Commerce to reconsider its decision. OGE's letter also argued that the law requires GSA to consult with OGE in the development of the regulations and requires agencies to submit semiannual reports of payments accepted under the authority to OGE. Given OGE's involvement in those areas, combined with its overall oversight responsibilities regarding ethical standards and conduct, OGE believed its authority encompassed reviewing agency compliance with the regulation for nonfederally reimbursed travel. Commerce's General Counsel responded to OGE's letter with a letter dated November 5, 1992. The General Counsel's letter stated that Commerce officials did not provide documents related to nonfederally reimbursed travel because such information seemed to be outside the scope of OGE's audit. The letter further stated that regulations governing such travel are not found in ethics regulations but in GSA travel regulations. Therefore, Commerce believed that oversight was the responsibility of GSA rather than OGE. Since it is OGE's responsibility to monitor executive agency compliance with the statutory and regulatory requirements governing travel reimbursement from nonfederal sources, we believe that OGE is entitled to access to all records related to such reimbursed travel that an agency may possess. Commerce now agrees with our position. In May 1994, in response to our inquiries, Commerce's Assistant General Counsel for Administration sent us a letter stating that Commerce's "position is that OGE has authority to review records relating to travel expenses accepted under the authority of the Ethics Reform Act, including supporting documents. Any past misunderstandings concerning this issue have been resolved." In addition, OGE conducted a review of Commerce's Patent and Trademark Office this year, and OGE was given access to the office's records of nonfederally reimbursed travel. Commerce's denial did not adversely affect OGE's reviews of other agencies' nonfederally reimbursed travel. Other agencies did not refuse OGE access in reviews of reimbursed travel conducted during or after Commerce's denial. Although Commerce generally complied with the requirements for nonfederally reimbursed travel, some of its procedures can be strengthened to reduce the risk of conflict of interest and improve internal controls. Specifically, Commerce could better ensure that (1) employees have approved travel requests containing all of the necessary information before trips are taken; (2) travel reports to OGE accurately disclose the circumstances of each travel incident, including the nature, dates, and itemized costs of the trips; and (3) trips are adequately documented with receipts and vouchers. FTC's procedures for accepting and reporting reimbursed travel were basically sound. However, FTC's semiannual reports sometimes could have better described the nature of the event to be attended. By including a better description, FTC could enable OGE to better form an opinion as to whether the employee's attendance may appear to constitute a conflict of interest. The issue of OGE's access to records relating to reimbursed travel expenses at Commerce has been resolved. Commerce's letter stating that OGE has authority to review these records and OGE's recently completed audit of such records at Commerce's Office of Patent and Trademark indicate that Commerce and OGE are in accord. The overall effect of Commerce's temporary denial of access was minimal in that OGE eventually received access to Commerce records, and OGE has not been denied access to such records at any other agency. We recommend that the Secretary of Commerce take actions to ensure that all Commerce employees' travel requests containing all of the necessary information, such as the name of the payer and the amount and type of expenses to be paid, are reviewed and approved before a trip; the Office of General Counsel, as part of its responsibilities for submitting semiannual reports to OGE, ensure that these reports include the required information, including the dates and nature of events attended and expenses paid; and Commerce offices require (1) travel vouchers and (2) receipts for reimbursed expenses, except for meals since they are not required by Federal Travel Regulations to be supported in this manner. Also, we recommend that the Chairman, Federal Trade Commission require the Office of General Counsel to ensure that the agency's reports to OGE more completely describe the nature of the events attended. Commerce and FTC provided written comments on a draft of this report. These comments are summarized below and included in their entirety, along with our specific responses, in appendixes II and III. Commerce agreed to implement our recommendations that the Department ensure that (1) all Commerce employees' travel requests be reviewed and approved before beginning a trip, (2) the Office of General Counsel ensure that reports to OGE include the required information, and (3) Commerce offices require receipts for those expenses reimbursed by check. Also, Commerce offered an alternative to our recommendation that its offices require travel vouchers by proposing that it require receipts and other evidence for all reimbursed expenses regardless of whether they were paid in-kind or reimbursed by check. We consider Commerce's proposal to be an adequate response to our concern that expenses reported to OGE are accurate. However, because a travel voucher is the established way for employees to submit travel receipts and other related information to management, we continue to believe that Commerce should require their use. FTC agreed to implement our recommendation that it ensure that reports to OGE more completely describe the nature of the events attended. We are sending copies of this report to the Secretary of Commerce, the Chairman of FTC, and other interested parties and will also make copies available to others upon request. The major contributors to this report are listed in appendix IV. If you have any questions about this report, please contact me on (202) 512-5074. This office administers the operations of all the offices in the Department of Commerce. ITA is involved in issues concerning import administration, international trade and commercial policy, and trade promotion. Specific operations include conducting a trade adjustment assistance program that provides financial assistance in the form of grants to selected firms and communities, developing and carrying out policies and programs to promote world trade, and strengthening the international trade and investment position of the United States. NOAA has five major program areas, each with its own mission related to some aspect of oceanic and atmospheric conditions. Our review focused on the two offices with the most employees, the National Marine Fisheries Service and the National Weather Service. The Fisheries Service is responsible for promoting the conservation, management, and development of living marine resources for commercial and recreational use. The program includes the management of a nationwide financial assistance program in the form of loan guaranties and a capital construction fund. The Weather Service is responsible for monitoring and predicting the state of the atmospheric and hydrologic environment. The Weather Service has contracts for computers and other services with private entities. NIST's primary mission is to promote economic growth in the United States by working with industry to develop and apply technology, measurements, and standards. NIST programs include an advanced technology effort that includes entering into contracts and cooperative agreements with businesses. NIST has eight laboratories whose roles range from establishing standards for information processing and various forms of radiation to analyzing the performance of building and construction materials. NIST now works with industry and other federal agencies in four major areas: (1) transferring technology, (2) helping smaller manufacturers tap into regional and national sources of information, (3) recognizing U.S. companies that have successful quality management systems, and (4) assisting federal agencies and industry with specific technically based trade issues related to standards and conformity assessment. FTC is involved in investigation, rule making, and enforcement of laws for organizations engaged in or whose businesses affect commerce, except banks, savings and loans, federal credit unions, and common carriers. FTC utilizes its statutory powers to enforce both consumer protection and antitrust laws. For example, FTC is responsible for keeping the marketplace free from unfair, deceptive, or fraudulent practices by investigating alleged law violations and, when appropriate, taking administrative enforcement action or seeking judicial enforcement. The following are GAO's comments on Commerce's letter dated October 12, 1994. 1. Although it is true that our review did not identify any conflicts of interest, it needs to be recognized that identifying such situations was not the specific purpose of our review. The focus of our review was to determine how well these controls over reimbursed travel were being implemented. 2. Commerce said that these issues arose with respect to only a few of its operating units. As stated in our scope and methodology section, we reviewed the procedures governing reimbursed travel at these offices because they accounted for 79 percent of the reimbursed travel by Commerce employees. 3. We understand Commerce's reluctance to have the Office of General Counsel audit all of the travel gift reports. We believe that obtaining receipts for all reimbursed expenses would improve the accuracy of reported amounts and preclude the need for a General Counsel audit. 4. We believe that the FTC's favorable experience with securing letters from nonfederal sources listing the expenses to be paid prior to the trip demonstrates that this suggestion is feasible. However, we withdrew this draft recommendation in deference to Commerce and FTC views that the added administrative burden would outweigh the benefits of better assuring that the actual amount of reimbursed expenses was being reported to OGE. The following are GAO's comments on FTC's letter dated October 3, 1994. 1. With respect to FTC's concern that the draft report's title appeared to focus on the few negative aspects of our review, we modified the title to reflect that FTC and Commerce generally complied with requirements but some improvements are needed. 2. We disagree with FTC's contention that the potential for "double charging" does not exist. FTC said that the traveling employee would not receive a receipt for a travel-related expense paid in-kind by a nonfederal source and would, therefore, not have the documentation needed to charge the government for the same expense. Our review of FTC trips in 1993 found that employees had been able to obtain receipts for in-kind expenses for three of the trips. In addition, Commerce proposed in its comments that employees obtain receipts for in-kind expenses to better document travel expenses. While it appears that the employees can obtain receipts for some in-kind expenses, we believe that FTC's practice of obtaining a letter from the nonfederal source citing expenses to be paid is a sufficient internal control against an employee's double charging the government. 3. While it is true that there is no evidence that travelers inaccurately report in-kind payments received from nonfederal sources, there is also little evidence that they reported accurately. There were no receipts for 25 of the 28 trips by FTC employees in fiscal year 1993 that involved in-kind expenses. Nevertheless, we withdrew our draft recommendation regarding the verification letter, deferring to FTC's and Commerce's views that the added administrative burden may outweigh the benefit of improved controls over accurately reporting the receipt of in-kind expenses. Alan N. Belkin, Assistant General Counsel James M. Rebbe, Attorney The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (301) 258-4097 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.	Pursuant to a congressional request, GAO reviewed the Department of Commerce's and the Federal Trade Commission's (FTC) controls over the acceptance and reporting of nonfederally reimbursed travel by their employees, focusing on: (1) whether Commerce and FTC met their review and reporting requirements; and (2) the implications of Commerce denying the Office of Government Ethics (OGE) access to its records of reimbursed travel in 1992. GAO found that: (1) although Commerce generally met applicable requirements for accepting and reporting travel reimbursements, certain procedural improvements could be implemented in the receipt and reporting of these funds; (2) Commerce did not ensure that travel requests contained all of the required information, were prepared and reviewed before trips were approved, accurately disclosed the circumstances of each trip, or adequately documented the actual expenses reimbursed; (3) although FTC consistently met the requirements for controlling the acceptance and reporting of travel reimbursements by its employees, it could improve its reporting by better detailing the nature of events attended by FTC employees; (4) Commerce's decision to deny OGE access to its travel records was based on its view that OGE was not responsible for the applicable travel regulations; and (5) although Commerce changed its position and acknowledged that OGE did have the authority to review such records, the overall effect of Commerce's temporary denial of access was minimal.	5,833	281
In recent years, reservists have regularly been called on to augment the capabilities of the active-duty forces. The Army is increasingly relying on its reserve forces to provide assistance with military conflicts and peacekeeping missions. As of April 2003, approximately 148,000 reservists from the Army National Guard and the U.S. Army Reserve were mobilized to active duty positions. In addition, other reservists are serving throughout the world in peacekeeping missions. The involvement of reservists in military operations of all sizes, from small humanitarian missions to major theater wars, will likely continue under the military's current war-fighting strategy and its peacetime support operations. The Army has designated some Army National Guard and U.S. Army Reserve units and individuals as early-deploying reservists to ensure that forces are available to respond rapidly to an unexpected event or for any other need. Usually, those designated as early-deploying reservists would be the first troops mobilized if two major ground wars were underway concurrently. The units and individual reservists designated as early- deploying reservists change as the missions or war plans change. The Army estimates that of its 560,000 reservists, approximately 90,000 are reservists who have been individually categorized as early-deploying reservists or are reservists who are assigned to Army National Guard and U.S. Army Reserve units that have been designated as early-deploying units. The Army must comply with the following six statutory requirements that are designed to help ensure the medical and dental readiness of its early- deploying reservists. All reservists including early-deployers are required to have a 5-year physical examination, and complete an annual certificate of physical condition. All early-deploying reservists are also required to have a biennial physical examination if over age 40, an annual medical screening, an annual dental screening, and dental treatment. Army regulations state that the 5- and 2-year physical examinations are designed to provide the information needed to identify health risks, suggest lifestyle modifications, and initiate treatment of illnesses. While the two examinations are similar, the biennial examination for early- deploying reservists over age 40 contains additional age-specific screenings such as a prostate examination, a prostate-specific antigen test, and a fasting lipid profile that includes testing for total cholesterol, low- density lipoproteins, and high-density lipoproteins. The Army pays for these examinations. The examinations are also used to assign early-deploying reservists a physical profile rating, ranging from P1 to P4, in six assessment areas: (a) Physical capacity, (b) Upper extremities, (c) Lower extremities, (d) Hearing-ears, (e) Vision-eyes, and (f) Psychiatric. (See app. I for the Army's Physical Profile Rating Guide.) According to the Army, P1 represents a non-duty-limiting condition, meaning that the individual is fit for duty and possesses no physical or psychiatric impairments. P2 means a condition may exist; however, it is not duty-limiting. P3 or P4 means that the individual has a duty-limiting condition in one of the six assessment areas. P4 means the individual functions below the P3 level. A rating of either P3 or P4 puts the reservist in a nondeployable status or may result in the changing of the reservist's job classification. Army regulations that implement the statutory certification requirement provide that all reservists--including early-deploying reservists--certify their physical condition annually on a two-page certification form. Army early-deploying reservists must report doctor or dentist visits since their last examination, describe current medical or dental problems, and disclose any medications they are currently taking. In addition, the Army is required to conduct an annual medical screening for all early-deploying reservists. According to Army regulations, the Army is to meet the annual medical screening requirement by reviewing the medical certificate required of each early-deploying reservist. Further, Army early-deploying reservists are required to undergo, at the Army's expense, an annual dental examination. The Army is also required to provide and pay for the dental treatment needed to bring an early- deploying reservist's dental status up to deployment standards--either dental class 1 or 2. Reservists in dental class 3 and 4 are not deployable. Class 3 reservists could have dental emergencies in the next 12 months, and reservists in class 4 have not had the required annual dental examination. The Army has not consistently carried out the requirements that early- deploying reservists undergo 5- or 2-year physical examinations, and the required dental examination. In addition, the Army has not required early- deploying reservists to complete the annual medical certificate of their health condition, which provides the basis for the required annual medical screening. Accordingly, the Army does not have sufficient health information on early-deploying reservists. Furthermore, the Army does not have the ability to maintain information from medical and dental records and annual medical certificates at the aggregate or individual level, and therefore does not know the overall health status of its early- deploying reservists. We found that the Army has not consistently met the statutory requirements to provide early-deploying reservists physical examinations at 5- or 2-year intervals. At the seven Army early-deploying reserve units we visited, about 66 percent of the medical records were available for our review. Based on our review of these records, 13 percent of the reservists did not have a current 5-year physical examination on file. Further, our review of the available records found that approximately 68 percent of early-deploying reservists over age 40 did not have a record of a current biennial examination. Army early-deploying reservists are required by statute to complete an annual medical certificate of their health status, and regulations require the Army to review the form to satisfy the annual screening requirement. In performing our review of the records on hand, we found that none of the units we visited required that its reservists complete the annual medical certificate, and consequently, none of them were available for review. Furthermore, Army officials stated that reservists at most other units have not filled out the certification form and that enforcement of this requirement was poor. The Army is also statutorily required to provide early-deploying reservists with an annual dental examination to establish whether reservists meet the dental standards for deployment. At the seven early-deploying units we visited, we found that about 49 percent of the reservists whose records were available for review did not have a record of a current dental examination. The Army's two automated information systems for monitoring reservists' health do not maintain important medical and dental information for early- deploying reservists--including information on the early-deploying reservists' overall health status, information from the annual medical certificate form, dental classifications, and the date of dental examinations. In one system, the Regional Level Application Software, the records provide information on the dates of the 5-year physical examination and the physical profile ratings. In the other system, the Medical Occupational Database System, the records provide information on HIV status, immunizations, and DNA specimens. Neither system allows the Army to review medical and dental information for entire units at an aggregate level. The Army is aware of the information shortcomings of these systems and acknowledges that having sufficient, accurate, and current information on the health status of reservists is critical for monitoring combat readiness. According to Army officials, in 2003 the Army plans to expand the Medical Occupational Database System to provide access to current, accurate, and relevant medical and dental information at the aggregate and individual level for all of its reservists-- including early-deploying reservists. According to Army officials, this information will be readily available to the U.S. Army Reserve Command. Once available, the Army can use this information to determine which early-deploying reservists meet the Army's health care standards and are ready for deployment. Medical experts recommend physical and dental examinations as an effective means of assessing health. For some people, the frequency and content of physical examinations vary according to the specific demands of their job. Because Army early-deploying reservists need to be healthy to fulfill their professional responsibilities, periodic examinations are useful for assessing whether they can perform their assigned duties. Furthermore, the estimated annual cost to conduct periodic examinations--about $140--is relatively modest compared to the thousands of dollars the Army spends for salaries and training of early- deploying reservists--an investment that may be lost if reservists can not perform their assigned duties. Such information is also needed by VA to adjudicate disability claims and to provide health benefits. Physical and dental examinations are geared towards assessing and improving the overall health of the general population. The U.S. Preventive Services Task Force and many other medical organizations no longer recommend annual physical examinations for adults--preferring instead a more selective approach to detecting and preventing health problems. In 1996, the task force reported that while visits with primary care clinicians are important, performing the same interventions annually on all patients is not the most clinically effective approach to disease prevention. Consistent with its finding, the task force recommended that the frequency and content of periodic health examinations should be based on the unique health risks of individual patients. Today, many health associations and organizations are recommending periodic health examinations that incorporate age-specific screenings, such as cholesterol screenings for men (beginning at age 35) and women (beginning at age 45) every 5 years, and clinical breast examinations every 3 to 5 years for women between the ages of 19 and 39. Further, oral health care experts emphasize the importance of regular 6- to 12-month dental examinations. Both the private and public sectors have established a fixed schedule of physical examinations for certain occupations to help ensure that workers are healthy enough to meet the specific demands of their jobs. For example, the Federal Aviation Administration requires commercial pilots to undergo a physical examination once every 6 months. U.S. National Park Service personnel who perform physically demanding duties have a physical examination once every other year for those under age 40, and on an annual basis for those over age 40. Additionally, guidelines published by the National Fire Protection Association recommend that firefighters have an annual physical examination regardless of age. In the case of Army early-deploying reservists, the goal of the physical and dental examinations is to help ensure that the reservists are fit enough to be deployed rapidly and perform their assigned jobs. Furthermore, the Army recognizes that some jobs are more demanding than others and require more frequent examinations. For example, the Army requires that aviators undergo a physical examination once a year, while marine divers and parachutists have physical examinations once every 3 years. While governing statutes and regulations require physical examinations at specific intervals, the Army has raised concerns about the appropriate frequency for them. In a 1999 report to the Congress, the Offices of the Assistant Secretaries of Defense for Health Affairs and Reserve Affairs stated that while there were no data to support the benefits of conducting periodic physical examinations, DOD was reluctant to recommend a change to the statutory requirements. The report stated that additional research needs to be undertaken to identify and develop a more cost- effective, focused health assessment tool for use in conducting physical exams for reservists--in order to ensure the medical readiness of reserve forces. However, as of February 2003, DOD had not conducted this research. For its early-deploying reservists, the Army conducts and pays for physical and dental examinations and selected dental treatments at military treatment facilities or pays civilian physicians and dentists to provide these services. The Army could not provide us with information on the cost to provide these services at military hospitals or clinics primarily because it does not have a cost accounting system that records or generates cost data for each patient. However, the Army was able to provide us with information on the amount it pays civilian providers for these examinations under the Federal Strategic Health Care Alliance program (FEDS_HEAL )--an alliance of private physicians and dentists and other physicians and dentists who work for VA and HHS's Division of Federal Occupational Health. FEDS_HEAL is a program that allows Army early-deploying reservists to obtain required physical and dental examinations and dental treatment from local providers. Using FEDS_HEAL contract cost information, we estimate the average cost of the examinations to be about $140 per early-deploying reservist per year. We developed the estimate over one 5- year period by calculating the annual cost for those early-deploying reservists requiring a physical examination once every 5 years, calculating the cost for those requiring a physical examination once every 2 years, and calculating the cost for those requiring an initial dental examination and subsequent yearly dental examinations. The FEDS_HEAL cost for each physical examination for those under 40 is about $291, and for those over 40 is about $370. The Army estimates that the cost of annual dental examinations under the program to be about $80 for new patients and $40 for returning patients. The Army estimates that it would cost from $400 to $900 per reservist to bring those who need treatment from dental class 3 to dental class 2. For the Army, there is likely value in conducting periodic examinations because the average cost to provide physical and dental examinations per early-deploying reservist--about $140 annually over a 5-year period--is relatively low compared to the potential benefits associated with such examinations. These examinations could help protect the Army's investment in its early-deploying reservists by increasing the likelihood that more reservists will be deployable. This likelihood is increased when the Army uses examinations to identify early-deploying reservists who do not meet the Army's health standards and are thus not fit for duty. The Army can then intervene by treating, reassigning, or dismissing these reservists with duty-limiting conditions--before their mobilization and before the Army needs to rely on the reservists' skills or occupations. Furthermore, by identifying duty-limiting conditions or the risks for developing them, periodic examinations give early-deploying reservists the opportunity to seek medical care for their conditions--prior to mobilization. Periodic examinations may provide another benefit to the Army. If the Army does not know the health condition of its early-deploying reservists, and if it expects some of them to be unfit and incapable of performing their duties, the Army may be required to maintain a larger number of reservists than it would otherwise need in order to fulfill its military and humanitarian missions. While data are not available to estimate these benefits, the benefit associated with reducing the number of reservists the Army needs to maintain for any given objective could be large enough to more than offset the cost of the examinations and treatments. The proportion of reservists whom the Army maintains but who cannot be deployed because of their health may be significant. For instance, according to a 1998 U.S. Army Medical Command study, a "significant number" of Army reservists could not be deployed for medical reasons during mobilization for the Persian Gulf War (1990-1991). Further, according to a study by the Tri-Service Center for Oral Health Studies at the Uniformed Services University of the Health Sciences, an estimated 25 percent of Army reservists who were mobilized in response to the events of September 11, 2001, were in dental class 3 and were thus undeployable. In fact, our analysis of the available current dental examinations at the seven early-deploying units showed a similar percentage of reservists--22 percent--who were in dental class 3. With each undeployable reservist, the Army loses, at least temporarily, a significant investment that is large compared to the cost of examining and treating these reservists. The annual salary for an Army early-deploying reservist in fiscal year 2001 ranged from $2,200 to $19,000. The Army spends additional amounts to train and equip each reservist and, in some cases, provides allowances for subsistence and housing. Additionally, for each reservist it mobilizes, the Army spends about $800. If it does not examine all of its early-deploying reservists, the Army risks losing its investment because it will train, support, and mobilize reservists who might not be deployed because of their health. Both VBA and VHA need health assessment data obtained by the Army to adjudicate disability claims and provide medial care. In general, a reservist who is disabled while on active duty, or on inactive duty for training, is eligible for service-connected disability compensation, and can file a claim at one of VBA's 57 regional offices. To provide such disability compensation, VBA needs to determine that each claimed disability exists, and that each was caused or aggravated by the veteran's military service. The evidence needed to prove service connection includes records of service to identify when the veteran served and records of medical treatment provided while the veteran was in military service. More timely and accurate health information collection by the Army and the other military services can help VBA provide disabled reservists with more timely and accurate decisions on their claims for disability compensation. Complete and accurate health data can also help VHA provide medical care to reservists who become eligible for veterans benefits. Army reservists have been increasingly called upon to serve in a variety of operations, including peacekeeping missions and the current war on terrorism. Given this responsibility, periodic health examinations are important to help ensure that Army early-deploying reservists are fit for deployment and can be deployed rapidly to meet humanitarian and wartime needs. However, the Army has not fully complied with statutory requirements to assess and monitor the medical and dental status of early- deploying reservists. Consequently, the Army does not know how many of them can perform their assigned duties and are ready for deployment. The Army will realize benefits by fully complying with the statutory requirements. The information gained from periodic physical and dental examinations, coupled with age-specific screenings and information provided by early-deploying reservists on an annual basis in their medical certificates, will assist the Army in identifying potential duty-limiting medical and dental problems within its reserve forces. This information will help ensure that early-deploying reservists are ready for their deployment duties. Given the importance of maintaining a ready force, the benefits associated with the relatively low annual cost of about $140 per reservist to conduct these examinations outweighs the thousands of dollars spent in salary and training costs that are lost when an early- deploying reservist is not fit for duty. The Army's planned expansion, in 2003, of an automated health care information system is critical for capturing the key medical and dental information needed to monitor the health status of early-deploying reservists. Once collected, the Army will have additional information to conduct the research suggested by DOD's Offices of Health Affairs and Reserve Affairs to determine the most effective approach, which could include the frequency of physical examinations, for determining whether early-deploying reservists are healthy, can perform their assigned duties, and can be rapidly deployed. While our work focused on the Army's efforts to assess the health status of its early-deploying reservists, it also has implications for veterans. Implementing our recommendations that DOD comply with the statutory requirements, which DOD has agreed to, will also be of benefit to VA. VA's ability to perform its missions to provide medical care to veterans and compensate them for their service-connected disabilities could be hampered if the Army's medical surveillance system contains inadequate or incomplete information. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions you or other members of the subcommittee may have. For further information regarding this testimony, please contact Marjorie E. Kanof at (202) 512-7101. Michael T. Blair, Jr., Aditi S. Archer, Richard J. Wade, and Gregory D. Whitney also contributed to this statement. Upper extremities Strength, range of motion, and general efficiency of upper arm, shoulder girdle, and upper back, including cervical and thoracic vertebrae. Lower extremities Strength, range of movement, and efficiency of feet, legs, lower back, and pelvic girdle. Hearing-ears Auditory sensitivity and organic disease of the ears. Vision-eyes Visual acuity and organic disease of the eyes and lids. No loss of digits or limitation of motion; no demonstrable abnormality; able to do hand-to- hand fighting. No loss of digits or limitation of motion; no demonstrable abnormality; able to perform long marches, stand over long periods, and run. Audiometer average level for each ear not more than 25 dB at 500, 1000, or 2000 Hz with no individual level greater than 30 dB. Not over 45 dB at 4000 Hz. Uncorrected vision acuity 20/200 correctable to 20/20 in each eye. Psychiatric Type, severity, and duration of the psychiatric symptoms or disorder existing at the time the profile is determined. Amount of external precipitating stress. Predispositions as determined by the basic personality makeup, intelligence, performance, and history of past psychiatric disorder impairment of functional capacity. No psychiatric pathology; may have history of transient personality disorder. Upper extremities Slightly limited mobility of joints, muscular weakness, or other musculo- skeletal defects that do not prevent hand-to- hand fighting and do not disqualify for prolonged effort. Lower extremities Slightly limited mobility of joints, muscular weakness, or other musculo- skeletal defects that do not prevent moderate marching, climbing, timed walking, or prolonged effort. Vision-eyes Distant visual acuity correctable to not worse than 20/40 and 20/70, or 20/30 and 20/100, or 20/20 and 20/400. Psychiatric May have history of recovery from an acute psychotic reaction due to external or toxic causes unrelated to alcohol or drug addiction. Defects or impairments that require significant restriction of use. Defects or impairments that require significant restriction of use. Hearing-ears Audiometer average level for each ear at 500, 1000, or 2000 Hz, not more than 30 dB, with no individual level greater than 35 dB at these frequencies, and level not more than 55 dB at 4000 Hz; or audiometer level 30 dB at 500 Hz, 25 dB at 1000 and 2000 Hz, and 35 dB at 4000 Hz in better ear. (Poorer ear may be deaf.) Speech reception threshold in best ear not greater than 30 dB HL measured with or without hearing aid, or chronic ear disease. Uncorrected distant visual acuity of any degree that is correctable to not less than 20/40 in the better eye. Functional level below P3. Functional level below P3. Functional level below P3. Functional level below P3. Satisfactory remission from an acute psychotic or neurotic episode that permits utilization under specific conditions (assignment when outpatient psychiatric treatment is available or certain duties can be avoided). Functional level below P3. Defense Health Care: Army Needs to Assess the Health Status of All Early-Deploying Reservists. GAO-03-347. Washington, D.C.: April 15, 2003. Military Personnel: Preliminary Observations Related to Income, Benefits, and Employer Support for Reservists During Mobilizations. GAO-03-549T. Washington, D.C.: March 19, 2003. Defense Health Care: Most Reservists Have Civilian Health Coverage but More Assistance Is Needed When TRICARE Is Used. GAO-02-829. Washington, D.C.: September 6, 2002. Reserve Forces: DOD Actions Needed to Better Manage Relations between Reservists and Their Employers. GAO-02-608. Washington, D.C.: June 13, 2002. Veterans' Benefits: Despite Recent Improvements, Meeting Claims Processing Goals Will Be Challenging. GAO-02-645T. Washington, D.C.: April 26, 2002. VA and Defense Health Care: Military Medical Surveillance Policies in Place, But Implementation Challenges Remain. GAO-02-478T. Washington, D.C.: February 27, 2002. Reserve Forces: Cost, Funding, and Use of Army Reserve Components in Peacekeeping Operations. GAO/NSAID-98-190R. Washington, D.C.: May 15, 1998. Defense Health Program: Future Costs Are Likely to Be Greater than Estimated. GAO/NSIAD-97-83BR. Washington, D.C.: February 21, 1997. Wartime Medical Care: DOD Is Addressing Capability Shortfalls, but Challenges Remain. GAO/NSIAD-96-224. Washington, D.C.: September 25, 1996. Reserve Forces: DOD Policies Do Not Ensure That Personnel Meet Medical and Physical Fitness Standards. GAO/NSIAD-94-36. Washington, D.C.: March 23, 1994. Operation Desert Storm: Problems With Air Force Medical Readiness. GAO-03-549T. Washington, D.C.: December 30, 1993. Defense Health Care: Physical Exams and Dental Care Following the Persian Gulf War. GAO/HRD-93-5. Washington, D.C.: October 15, 1992. 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.	During the 1990-91 Persian Gulf War, health problems prevented the deployment of a significant number of Army reservists. As required by the National Defense Authorization Act for Fiscal Year 2002, GAO reported on the Army's efforts to assess the health status of its early-deploying reservists (Defense Health Care: Army Needs to Assess the Health Status of All Early-Deploying Reservists ( GAO-03-437 , Apr. 15, 2003)). GAO was asked to testify on its findings on the Army's health status assessments efforts and the implications of those assessments for the Department of Veterans Affairs (VA). Specifically, GAO was asked to determine if the Army is collecting and maintaining information on reservists' health and review the value and advisability of providing examinations. For its report, GAO reviewed medical records at seven Army early-deploying reserve units to determine the number of required examinations that have been conducted and obtained expert opinion on the value of periodic examinations. The Army has not consistently carried out the statutory requirements for monitoring the health and dental status of its early-deploying reservists. As a result, the Army does not have sufficient information to know how many reservists can perform their assigned duties and are ready for deployment. At reserve units GAO visited, approximately 66 percent of the medical records were available for review. At those locations, GAO found that about 13 percent of the 5-year physical examinations had not been performed, about 49 percent of early-deploying reservists lacked current dental examinations, and none of the annual medical certificates required of reservists were completed by them and reviewed by the units. Medical experts recommend periodic physical and dental examinations as an effective means of assessing health. Army early-deploying reservists need to be healthy to meet the specific demands of their occupations; examinations and other health screenings can be used to identify those who cannot perform their assigned duties. Without adequate examinations, the Army may train, support, and mobilize reservists who are unfit for duty. DOD concurred with GAO's recommendations to comply with statutory requirements to conduct medical and dental examinations and provide dental treatment. VA's ability to perform its missions to provide medical care to veterans and compensate them for their service-connected disabilities could be hampered if the Army's medical surveillance system contains inadequate or incomplete information.	5,845	530
An EMP is a burst of high power electromagnetic radiation resulting from the detonation of nuclear and non-nuclear devices that are designed to intentionally disrupt or destroy electronic equipment. EMP events may be further categorized into a number of different types, based on their specific source of initiation. The threat focused on primarily by the EMP Commission is the high-altitude EMP (HEMP). A HEMP event is caused by the detonation of a nuclear device at a high-altitude, about 40 to 400 kilometers, above the Earth's atmosphere. A HEMP attack is not intended to cause direct physical impacts at the Earth's surface, such as injury or damage directly from heat or blast, but instead interacts with the atmosphere to create an intense electromagnetic energy field that can overload computer circuitry and could cause significant damage to critical electrical infrastructure. In addition to manmade EMPs, naturally occurring solar weather events can also cause related electromagnetic impacts that can adversely affect components of the commercial electric grid. This type of event is commonly referred to as a geomagnetic disturbance (GMD). In 1989, a GMD caused wide-scale impacts on the Hydro-Quebec power system in Canada which caused the electric grid to collapse within 92 seconds and left six million customers without power for 9 hours. As noted in Presidential Policy Directive 21 (PPD-21), energy sector infrastructure is uniquely critical due to the enabling functions it provides to other critical infrastructure sectors. Given this interdependency, an EMP or major GMD event that disrupts the electric grid could also result in potential cascading impacts on fuel distribution, transportation systems, food and water supplies, and communications and equipment for emergency services, as well as other communication systems which utilize the civilian infrastructure. PPD-21 also recognizes that DHS has numerous responsibilities to protect critical infrastructure, including such things as analyzing threats to, vulnerabilities of, and potential consequences from all hazards on critical infrastructure. Within DHS, the National Protection and Programs Directorate (NPPD) is responsible for working with public and industry infrastructure partners and leads the coordinated national effort to mitigate risk to the nation's infrastructure through the development and implementation of the infrastructure protection program. NPPD has two principal offices with responsibilities to facilitate protection of critical infrastructure that could be at risk from EMP and GMD events--the Office of Infrastructure Protection (IP) and the Office of Cyber Security and Communications (CS&C). In addition, DHS's Federal Emergency Management Agency (FEMA) and Science and Technology Directorate (S&T) have roles related to addressing potential impacts to the electric grid, which could include EMP and GMD threats. DOE also has a significant role as the sector-specific agency for the energy sector, which includes critical infrastructure and key resources related to electricity. For example, DOE is responsible for developing an Energy Sector Specific Plan--in collaboration with other stakeholders, including DHS--that applies the NIPP risk management model to critical infrastructure and key resources within the sector. Within DOE, the Office of Electricity Delivery and Energy Reliability leads national efforts to increase the security and reliability of the energy infrastructure and facilitate recovery from disruptions to the energy supply. DOE national laboratories also provide research support and technical expertise to federal and industry stakeholders regarding EMP and GMD impacts. Other principal federal agencies working to address the threat of EMP and GMD include the Department of Defense (DOD) and the Federal Energy Regulatory Commission (FERC), as well as the National Oceanic and Atmospheric Administration (NOAA), and National Aeronautics and Space Administration (NASA). Electrical infrastructure is primarily operated by private industry which owns approximately 85 percent of the nation's critical electrical infrastructure. Industry entities are represented, in part, through membership in industry associations such as the American Public Power Association and the Edison Electric Institute. The North American Electric Reliability Corporation (NERC) also serves as the delegated authority to regulate the protection and improvement of the reliability and security of the electrical infrastructure. As of July 2015, DHS reported taking several actions that could help address electromagnetic threats to the electric grid, but these efforts were conducted independently of the 2008 EMP Commission recommendations. Our preliminary analysis of DHS's actions indicates that they generally fell under four categories of effort: (1) developing reports, (2) identifying mitigation efforts, (3) strategy development and planning, and (4) conducting training exercises. Since 2008, DHS has produced three reports that specifically address electromagnetic threats to the electric grid. Below is a summary of each report. Electromagnetic Pulse Impacts on Extra High Voltage Power Transformers. This 2010 report analyzed the potential impact of an EMP on extra high voltage transformers--focusing primarily on transformer equipment designs and identifying specific mitigation efforts such as blocking devices that minimize the impact of geomagnetically induced currents (GIC) on the electric grid. The report concluded that the similarity of EMP effects, regardless of source, indicates that geomagnetic storms provide a useful basis for transformer impact analysis and that selective installation of blocking devices would minimize the impacts of GIC on transformers, among other findings. Impacts of Severe Space Weather on the Electric Grid. This 2011 report assessed the impacts of space weather on the electric grid, seeking to understand how previous solar storms have affected some power grids, and what cost-effective mitigation efforts are available to protect the electric grid, among other topics. Some of the key findings and recommendations include the need for a rigorous risk assessment to determine how plausible a worse-case scenario may be and additional research to better understand how transformers may be impacted by electromagnetic threats. This report also recommended installation of blocking devices to minimize the impacts of GIC. Sector Resilience Report: Electric Power Delivery. This 2014 report summarizes an analysis of key electric power dependencies and interdependencies, such as communications, transportation, and other lifeline infrastructure systems. The report included an assessment of, and best practices for, improving infrastructure resilience such as: modeling to identify potential vulnerabilities, conducting a cost-benefit analysis of alternative, technology-based options, and installing protective measures and hardening at-risk equipment, among others. DHS identified two specific efforts implemented since 2008 that could help to mitigate electromagnetic impacts to the electric grid. They are: (1) Recovery Transformer Project (RecX), and (2) Cyber Emergency Response Team. RecX. In 2012, S&T partnered with industry to develop a prototype transformer that could significantly reduce the time to transport, install, and energize a transformer to aid recovery from power outages associated with transformer failures from several months to less than one week. S&T, along with industry partners, demonstrated the RecX prototype for 2.5 years, ending in September 2014. DHS reported that RecX proved to be successful in an operational environment and has the capacity to reduce the impact of power outages. Cyber Emergency Response Team. CS&C operates the Industrial Control Systems-Cyber Emergency Response Team to assist critical infrastructure owners in the 16 sectors, including the energy sector, to improve overall cybersecurity posture of their control systems.Industrial control systems are among the types of critical electrical infrastructure that could be impacted in the event of an EMP attack. DHS has taken actions to support the development of two key strategies and plans that could help to address electromagnetic threats. These include areas: 1) Power Outage Incident Annex, and 2) the National Space Weather Strategy. Power Outage Incident Annex. In 2014, FEMA began developing a Power Outage Incident Annex (incident annex) to provide incident- specific information, which supplements the National Response Framework. According to FEMA officials, the incident annex will describe the process and organizational constructs that the federal government will utilize to respond to and recover from loss of power resulting from deliberate acts of terrorism or natural disasters. Among other tasks, the incident annex is designed to identify key federal government capabilities and resources, prioritize core capabilities, and outline response and recovery resource requirements. FEMA officials reported that the incident annex is scheduled to be completed by October 2015. National Space Weather Strategy. In collaboration with the White House Office of Science and Technology Policy and NOAA, DHS has been working since 2014 to help develop a National Space Weather Strategy. As a co-chair of the Space Weather Operations, Research and Mitigation Task Force, DHS is in the process of developing a strategy to achieve several goals, including efforts to establish benchmarks for space weather events, improve protection and mitigation efforts, and improve assessment, modeling, and prediction of impacts on critical infrastructure, among other goals. According to officials at S&T, a draft of the National Space Weather Strategy is currently being updated to incorporate stakeholder comments and is scheduled to be completed in September 2015. DHS has also conducted two training exercises that could help address the potential impact of power outages caused by electromagnetic events, GridEx II and Eagle Horizon. GridEx II. In November 2013, DHS, along with the Federal Bureau of Investigation, DOE, and other relevant government agencies, participated in an industry-wide exercise assessing the readiness of the electricity industry to respond to a physical or cyber attack on the bulk power system. The key goals of GridEx II were to review existing command, control, and communication plans and tools, incorporate lessons learned from a previous exercise, and to identify potential improvements in cyber and physical security plans and programs. Upon completing the exercises, participants identified key lessons learned, which included the need for enhanced information sharing, and clarification of roles and responsibilities during a physical or cyber attack. Eagle Horizon. Since 2004, FEMA has conducted a mandatory, annual continuity exercise for all federal executive branch departments and agencies to ensure the preservation and continuing performance of essential functions. Key objectives of the training exercise include: assessing the implementation of continuity plans, demonstrating communication capabilities, and examining broader national continuity capabilities with state, local, and private sector partners. For our ongoing review, DHS did not identify its actions as specifically responsive to the EMP Commission's recommendations; nonetheless, some of the actions DHS has taken since 2008 could help to mitigate some electromagnetic impacts to the electric grid. For example, the three identified reports provide some insights on how the electric grid may be impacted by electromagnetic threats. Additionally, the RecX project provided a functional prototype that may facilitate industry efforts to further develop more mobile transformers and assist with recovery efforts in the event of an electromagnetic attack on the electric grid. Similarly, DHS planning efforts to develop the power outage incident annex and space weather strategy are also steps that could help to mitigate the negative effects of an electromagnetic threat to the electric grid by improving critical planning and response efforts. While DHS has taken several positive steps to address electromagnetic threats to the electric grid since the EMP Commission issued its recommendations in 2008, our preliminary analysis indicates that these actions may fall short of the expectations for DHS regarding overall responsibilities to oversee and coordinate national efforts to protect critical electrical infrastructure, consistent with PPD-21 and the NIPP. For example, DHS's efforts to clearly identify agency roles and responsibilities to date have been limited. Specifically, DHS has had difficulty identifying the relevant DHS components, officials, or ongoing internal DHS activities with an EMP nexus. For example, DHS officials were unable to determine internally which component would serve as the lead--S&T or NPPD--in regards to addressing EMP threats. In addition, NPPD has not yet identified its specific roles and activities in addressing electromagnetic threats even though it has been identified by the DHS Office of Policy as the proposed risk analysis "owner" relative to space weather threats. We recognize that DHS does not have a statutory obligation to address the specific recommendations of the EMP Commission and many of these recommendations were also directed to DOE. Nevertheless, we believe that implementation of them could help mitigate electromagnetic impacts to the electric grid, such as helping to assure the protection of high-value transmission assets. Moreover, PPD-21 articulates DHS's roles and responsibilities to safeguard the nation's critical infrastructure, which are consistent with such recommendations. For example, PPD-21 states that DHS, in carrying out its responsibilities under the Homeland Security Act of 2002, as amended, is to, among other things, evaluate national capabilities, opportunities, and challenges in protecting critical infrastructure; analyze threats to, vulnerabilities of, and potential consequences from all hazards on critical infrastructure; identify security and resilience functions that are necessary for effective stakeholder engagement with all critical infrastructure sectors; integrate and coordinate federal cross-sector security and resilience activities; and identify and analyze key interdependencies among critical infrastructure sectors. Moreover, PPD-21 calls for DHS to specifically consider sector dependencies on energy and communications systems, and identify pre- event and mitigation measures or alternate capabilities during disruptions to those systems in updating the NIPP. To date, our preliminary analysis suggests that DHS has not fully addressed some key responsibilities related to effectively preparing for and responding to electromagnetic threats to the electric grid, in conjunction with DOE as the sector-specific agency for the energy sector, which is responsible for critical electrical infrastructure. Specifically, DHS did not identify any efforts it conducted to support the identification of key electrical infrastructure assets or assess cross-sector dependencies on these assets, for which DHS would be expected to play a key role. According to officials within NPPD and the DHS Office of Policy, factors such as competing priorities and a focus on all hazards may contribute to limited efforts being taken by DHS to specifically address electromagnetic threats. We will continue to assess the extent to which DHS's efforts align with the EMP Commission recommendations as well as the extent to which DHS's current and planned actions align with its own risk management framework, as identified in the NIPP, as we complete our work. We will report our final results later this year. Our preliminary analysis indicates that since the EMP Commission issued its recommendations in 2008, DHS has coordinated with federal and industry stakeholders to address some, but not all risks to the electric grid. Specifically, DHS has not fully coordinated with stakeholders in certain areas such as identifying critical assets or collecting information necessary to assess electromagnetic risks. Our preliminary work has identified eight projects in which DHS coordinated with other federal agencies or industry to help protect the electric grid. These projects encompass a range of different protective efforts, including the development of plans to address long term power outages, participation in exercises, and research and development activities which address the resiliency of electrical infrastructure (See Appendix II for a list of projects we identified.) Four of the eight projects we identified were initiated within the past 2 years and three specifically address the risks associated with an EMP or GMD event. The three EMP or GMD-related projects include 1) participation in a White House Task Force to support development of an interagency space weather action plan; 2) collaboration with NASA to develop precise, localized forecasts that can help utilities better respond to solar weather events; and 3) development of EMP protection guidelines for critical equipment, facilities, and communications/data centers. In addition to the specific projects identified above, DHS also coordinates with sector stakeholders through the Energy Sector Government Coordinating Council (EGCC)--which it co-chairs with DOE--and the Electricity Subsector Coordinating Council (ESCC) through the Critical Infrastructure Partnership Advisory Council. While federal officials generally identified that EMP and GMD issues have been discussed via these groups in recent years, they noted that the EMP threat has not been an area of particular focus. Although DHS participation in the identified projects is a positive step to help mitigate some potential impacts of electromagnetic threats, our preliminary work suggests that DHS has not fully coordinated with stakeholders in other areas to help facilitate EMP and GMD protective efforts. Specifically, our preliminary analysis indicates that DHS has not fully coordinated with stakeholders to address electromagnetic threats to the electric grid in the following areas: Providing threat information. DHS has not identified any efforts to specifically provide EMP-related threat information to industry stakeholders. Industry officials we spoke with generally stated that they do not have sufficient threat information to determine the extent to which specific actions should be taken to mitigate the effects of an EMP event. Whereas industry officials reported having a greater understanding of the potential likelihood of a major GMD caused by solar weather, they noted that applicable EMP threat briefings by DOD or DHS could help them to better justify to their management or stockholders the level of investment required to take protective actions. According to the Quadrennial Energy Review, incomplete or ambiguous threat information may lead to inconsistency in physical security among grid owners, inefficient spending on security measures, or deployment of security measures against the wrong threat. This concern generally aligns with previous work related to cyber threats in which we reported that federal partners' efforts to share information did not consistently meet industry's expectations, in part, due to restrictions on the threat information that can be shared with industry partners. generally concurred with our prior recommendations directed at strengthening its partnership and information-sharing efforts, and has since taken steps to enhance its information sharing activities, including granting security clearances, and establishing a secure mechanism to share cyber threat information. We will continue to assess DHS's actions regarding providing threat information on EMP as part of our ongoing work. Identifying key infrastructure assets. Our preliminary analysis indicates that DHS and DOE have not taken action to identify the most critical substations and transformers on the electric grid. According to the NIPP risk management framework, such information is important to better understand system dependencies and cascading impacts, as well as help determine priorities for collecting additional information on specific asset vulnerabilities or potential mitigation actions. GAO, Critical Infrastructure Protection, Observations on Key Factors in DHS's Implementation of its Partnership Approach, GAO-14-464T (Washington, D.C.: March 6, 2014). and other federal agencies regarding the identification of key infrastructure assets. Collecting risk information. DHS has not fully leveraged existing programs or utilized collaboration opportunities with federal partners to collect additional vulnerability and consequence information related to potential impacts to the electric grid. For example, DHS-IP has not fully leveraged the Infrastructure Survey Tool and Regional Resiliency Assessment Program (RRAP) to help collect additional information related to infrastructure vulnerabilities and impacts related to electromagnetic threats. As we have concluded previously, coordination with other federal partners may also help ensure an integrated approach to vulnerability assessment activities.fully leveraged other agency efforts such as DOD's Defense Critical Infrastructure Protection program which could provide useful information about potential consequences of electric grid failure. According to the NIPP, to assess risk effectively, critical infrastructure partners--including owners and operators, sector councils, and government agencies--need timely, reliable, and actionable information regarding threats, vulnerabilities, and consequences. As part of our ongoing work, we will continue to assess actions by DHS and other federal agencies regarding the collection of applicable risk information. For example, DHS has also not Engaging with industry to identify research priorities and funding mechanisms. Enhanced collaboration among federal and industry partners is critical to help identify and address key research gaps and priorities, and leverage available funding mechanisms. Our preliminary analysis identified two areas--assessing transformer impacts and development of mitigation tools--where DHS has not fully pursued opportunities to collaborate with federal and industry stakeholders on research, testing and identifying funding sources that could help facilitate efforts to address electromagnetic threats to the electric grid. With respect to transformer impacts, industry and government officials identified the need for additional modeling and assessment as the most critical research gap. For example, the 2012 NERC GMD Task Force found that modeling the effects of GIC flows on transformers during a GMD event is not sufficiently developed. Stakeholders also noted that additional action is needed for evaluating and testing equipment that could help mitigate electromagnetic impacts to key infrastructure assets. Specifically, stakeholders identified that there are limited sites available for large-scale testing, and opportunities may exist to further leverage DOE research laboratories and other federal resources, including potential funding mechanisms. In our ongoing review, we will continue to evaluate federal and industry actions to determine where specific coordination efforts could be improved and we will report the final results later this year. 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. interdependencies and interactions, along with the effects of various EMP attack scenarios. In particular, the Commission recommended that such research include a strong component of interdependency modeling. Funding could be directed through a number of avenues, including the Department of Homeland Security (DHS) and National Science Foundation. 2. Expand activities to address the vulnerability of Supervisory Control and Data Acquisition (SCADA) systems to other forms of electronic assault, such as EMP. 3. It is vital that DHS, as early as practicable, make clear its authority and responsibility to respond to an EMP attack and delineate the responsibilities and functioning interfaces with all other governmental institutions with individual jurisdictions over the broad and diverse electric power system. This is necessary for private industry and individuals to act to carry out the necessary protections assigned to them and to sort out liability and funding responsibility. 4. DHS particularly needs to interact with the Federal Energy Regulatory Commission (FERC), North American Electric Reliability Corporation (NERC), state regulatory bodies, other governmental institutions at all levels, and industry in defining liability and funding relative to private and government facilities, such as independent power plants, to contribute their capability in a time of national need, yet not interfere with market creation and operation to the maximum extent practical. 5. DHS must establish the methods and systems that allow it to know, on a continuous basis, the state of the infrastructure, its topology, and key elements. Testing standards and measurable improvement metrics should be defined as early as possible and kept up to date. 6. Working closely with industry and private institutions, DHS should provide for the necessary capability to control the system in order to minimize self-destruction in the event of an EMP attack and to recover as rapidly and effectively as possible. For questions about this statement, please contact Chris Currie at (404) 679-1875 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include Dawn Hoff (Assistant Director), Chuck Bausell, Kendall Childers, Josh Diosomito, Ryan Lambert, Tom Lombardi, and John Rastler. Additional support was provided by Andrew Curry, Katherine Davis, Linda Miller, and Steven Putansu. 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.	The threat posed by an electromagnetic pulse (EMP) or solar weather event could have a debilitating impact on the nation's critical electrical infrastructure, as well as other key assets that depend on electricity. These events could lead to power outages over broad geographic areas for extended durations. Addressing these risks requires collaboration among multiple government and industry stakeholders; with DHS in the lead role for overall infrastructure protection efforts, working in coordination with DOE. The EMP Commission, established by statute and comprised of subject matter experts, issued recommendations in 2008 addressing the preparation, protection and recovery of critical infrastructures against a possible EMP attack. The majority of these recommendations were made to DHS and DOE. This testimony is based on preliminary observations from GAO's ongoing review of DHS's efforts to address electromagnetic threats. Specifically, this testimony addresses the extent to which DHS has: (1) taken action to address recommendations from the 2008 EMP Commission Report and (2) coordinated with other principal federal agencies, such as DOE and industry stakeholders to mitigate risks to the electric grid from electromagnetic threats. GAO reviewed EMP Commission recommendations and DHS program documents, and interviewed relevant stakeholders who provided insights on key issues and coordination activities with the federal government to address these threats. As of July 2015, the Department of Homeland Security (DHS) reported taking several actions that could help address electromagnetic threats to the electric grid. GAO's preliminary analysis of DHS's actions indicates that they generally fell under four categories: (1) developing reports, (2) identifying mitigation efforts, (3) strategy development and planning, and (4) conducting exercises. For example: Impacts of Severe Space Weather on the Electric Grid . This 2011 report evaluated how previous solar storms have affected electric grids, and identified potential cost-effective mitigation equipment available to protect these grids, among other topics. RecX . In 2012, DHS Science &Technology partnered with industry to develop a prototype transformer that could significantly reduce the time to transport, install, and energize a transformer to aid recovery from power outages associated with transformer failures from several months to less than one week. DHS reported its actions were not taken in response to the 2008 recommendations of the Commission to Assess the Threat to the United States from Electromagnetic Pulse Attack (EMP Commission). GAO also recognizes that DHS does not have a statutory obligation to specifically address the recommendations, but implementation of them could help mitigate electromagnetic impacts to the electric grid, such as helping to assure the protection of high-value transmission assets. Moreover, GAO's preliminary work suggests that DHS, in conjunction with the Department of Energy (DOE), has not fully addressed a key critical infrastructure protection responsibility--identification of clear internal agency roles and responsibilities related to addressing electromagnetic threats. For example, although DHS recognized one component as the lead for assessing solar weather risks, the component has not yet identified any specific roles related to collecting or analyzing risk information. DHS has also coordinated with federal and industry stakeholders to address some, but not all risks to the electrical grid since the EMP Commission issued its recommendations. GAO preliminarily identified eight projects in which DHS coordinated with stakeholders to help protect the grid including developing plans to address long term power outages, participation in exercises, and research and development activities. Although these are positive steps, GAO's preliminary work indicates that DHS has not effectively coordinated with stakeholders to identify critical assets or collect necessary risk information, among other responsibilities. GAO will continue to assess the issues in this statement as it completes its work and will issue a report with the final results later this year.	4,927	771
At first glance, it might seem premature to discuss preparations for the decennial census; after all, Census Day, April 1, 2020, is still almost 8 years away. However, our reviews of the 1990, 2000, and the 2010 Censuses have shown that early planning, the use of leading management practices, and strong congressional oversight can help reduce the costs and risks of the national headcount. Indeed, the characteristics of the decennial census--long-term, large-scale, complex, high-risk, and politically sensitive--together make a cost-effective enumeration of the nation's population and housing a monumental project-planning and management challenge. Despite the complexity, cost, and importance of the census, however, recent enumerations were not planned well. Indeed, shortcomings with managing and planning the 2000 and 2010 enumerations led to acquisition problems, cost overruns, and other issues, and, as a result, we placed both enumerations on our list of high-risk programs. For example, leading up to the 2010 Census, we found that additional costs and risks associated with the data capture technologies used in the 2010 Census were related to a failure to adequately link specifications for key information technology systems to requirements. Additionally, the lack of skilled cost estimators for the 2010 Census led to unreliable life- cycle cost estimates, and some key operations were not tested under census-like conditions. GAO, Information Technology: Census Bureau Needs to Improve Its Risk Management of Decennial Systems, GAO-08-79 (Washington, D.C.: Oct. 5, 2007). program difficult and hampered accountability, succession planning, and staff development. Since then, we and other organizations--including the Bureau itself-- have stated that fundamental changes to the design, implementation, and management of the census must be made in order to address these operational and organizational challenges. For its part, the Bureau has stated that to contain costs and maintain quality, bold innovations in both planning and design of the 2020 Census will be required, and has launched a number of change initiatives. Some of these efforts are directed at transforming the Bureau's organization, while others focus on reexamining the fundamental approach to the 2020 Census. Although bold reform plans are critical steps in the right direction, the Bureau's past experience has shown that the more difficult challenge will be sustaining those efforts throughout the course of the decade. Indeed, preparations for both the 2000 and 2010 Censuses started with ambitious plans that gave reason for optimism that major improvements were on the way. However, in the subsequent ramp-up to those enumerations, the Bureau had difficulty identifying and implementing promising innovations, progress on reforms slowed, and as Census Day drew closer, the success of those head-counts became an open question. In our April 2011 testimony, we noted that based on the results of prior enumerations, simply refining current methods--some of which have been in place for decades--will not bring about the reforms needed to control costs while maintaining accuracy given ongoing and newly emerging societal trends such as concerns over personal privacy and an increasingly diverse population.reconsider the nation's approach to the census including rethinking such activities as how it plans, tests, implements, monitors, and evaluates enumeration activities. The Bureau concurred and its 2020 Census business plan states that the Bureau needs substantial innovation to achieve its cost and quality targets and to meet its strategic goals. Consequently, the Bureau will need to As one example, with respect to its research and testing efforts, the Bureau plans to use the American Community Survey--an ongoing Bureau survey of population and housing characteristics that is administered monthly throughout the decade--as a vehicle to test certain decennial census processes and information technology (IT) systems. According to the Bureau, this approach will enable it to conduct many small tests throughout the decade in a production environment instead of relying on a small number of large, expensive tests as was the case in past decennial planning cycles. According to the Bureau, refining systems in the American Community Survey reduces the risk of building one-use systems for the decennial that need to operate flawlessly the first time they are put into production. With respect to implementing the census, among other activities, the Bureau is researching potential electronic methods of promoting the census and collecting data, including with the Internet via social networking sites, e-mail, and text messages, as well as with automated phone systems. For the 2010 Census, the Bureau initially investigated the use of an Internet response option but dropped plans based on concerns over information technology security, and after completing a cost-benefit analysis that led the Bureau to conclude that Internet data collection would not significantly improve the overall response rate or reduce field data collection. The Bureau is also researching how it can use administrative records to reduce the cost of certain decennial activities. Administrative records from government agencies, including driver licenses and school records, can be used to identify persons associated with a particular household address. Administrative records could save the Bureau money because they could help reduce the need for certain costly and labor-intensive door-to-door visits by Bureau employees to collect data in-person from non-respondents. During the 2010 Census, the Bureau made only limited use of administrative records. Expanding their use to supplement respondent data on a national level will present a certain degree of risk, and issues concerning data quality and access to records must first be resolved. With so many innovations underway at the Bureau, strong and continuing stewardship at the senior level will be critical for ensuring they stay on track moving forward. However, the announced resignation of the Director coming up this August could mean that it will be a number of months before an agency head appointed by the President and confirmed by the Senate will be in place. As with the heads of all federal agencies, it will be important for the Bureau Director to possess the requisite leadership and management skills and background to successfully address the challenges facing the Bureau in the years ahead. On the basis of our knowledge of past and present census operations and a review of readily available literature, certain general stewardship roles that the Director, as a senior executive, will play in managing the institution, and their related qualifications, merit particular attention in this regard. These roles and qualifications are not necessarily unique to the Bureau, and it is unlikely that any one person will excel in all of these areas. That said, based on our knowledge of past and present census operations and review of available literature on leadership--particularly of federal agencies--we identified the following characteristics of a successful leader: Strategic leader. As the head of the Census Bureau, the Director is responsible for, among other activities, (1) leading change and (2) leading people. In leading change, the Director will be expected to build a shared vision or long-term view for the organization among its stakeholders, as well as be a catalyst for developing and implementing the Bureau's mission statement and strategic goals, and be cognizant of the forces affecting the Bureau. Moreover, in addition to the decennial census, the Bureau is also responsible for a number of other vital national data gathering and statistical programs such as the American Community Survey. As a result, it will be important for the Director to ensure the Bureau's information products continue to meet the current and emerging needs of its numerous and diverse customers, including Congress, state, local and federal government organizations, and a wide array of other public and private organizations. In leading people, the Director should ensure that human resource strategies, including recruitment, retention, training, incentive, and accountability initiatives are designed and implemented in a manner that supports the achievement of the organization's mission and goals and addresses any mission critical skill gaps. In particular, it will be important for the Director to motivate headquarters, field, and temporary staff to ensure they function as an integrated team rather than a stovepiped bureaucracy. Technical professional. It is logical to expect that the Director would have at least a general background in statistics or a related field. Although no one person will have the full range of knowledge needed to answer the many methodological and technical questions that the Director may face, it is important that he or she have sufficient technical knowledge to direct the Bureau's statistical activities. In addition, the Director should manage for results by developing and using performance measures to assess and improve the Bureau's operations. Administrator. Like other agency heads, the Director is responsible for acquiring and using the human, financial, and information technology resources needed to achieve its goals and mission. The Director should, for example, be capable of setting priorities based on funding levels. Further, because the Bureau's product is information, the Director should ensure that the Bureau leverages technology, such as the Internet, to improve the collection, processing, and dissemination of census information. Collaborator. It will be important for the Director to continually expand and develop working relationships and partnerships with those in governmental, political and professional circles to obtain their input, support, and participation in the Bureau's activities. For example, it will be important for the Director to continue working with local government officials to have them play a more active role in taking the census. We previously found that leveraging such data as local response rates, census socio-demographic information, as well as other data sources and empirical evidence, might help control costs and improve accuracy by providing information on ways the Bureau could more efficiently allocate its resources. For example, some neighborhoods might require a greater level of effort to achieve acceptable results while in other areas those same results might be accomplished with fewer resources. The 2010 Census had several census-taking activities tailored to specific population groups. As one example, the Bureau budgeted around $297 million on paid media to raise awareness and encourage public participation in the census. To determine where paid media efforts might have the greatest impact, the Bureau developed predictive models based on 2000 Census data and other sources. Other efforts included mailing a bilingual English/Spanish questionnaire in some areas, and sending a second "replacement" census questionnaire to about 53 million households in areas with historically lower response rates. Preliminary Bureau evaluations suggest that some of these targeted efforts contributed to an increased awareness of the census and were associated with higher questionnaire mail-back response rates. For the 2020 Census, the Bureau is considering expanding its targeting efforts to activities such as address canvassing, an operation where Bureau employees go door-to-door across the country verifying street addresses and identifying possible additions or deletions to its address list. This operation is important for building an accurate address list. In the 2010 Census, address canvassing was conducted at the vast majority of housing units. For the 2020 Census, the Bureau believes it might be able to generate cost savings by using existing address records for those neighborhoods that have been stable, and only canvass those areas where significant changes have occurred. We previously found that studying the value added of a particular operation, such as the extent to which it reduced costs and/or enhanced data quality, could help the Bureau make more cost-effective use of its resources. As one example, in addition to address canvassing, the Bureau has several other operations to help it build a complete and accurate address list. This is to help ensure that housing units missed in one operation get included in a subsequent operation. However, the extent to which each individual operation contributes to the overall accuracy of the address list is uncertain. This in turn makes it difficult for the Bureau to fully assess the extent to which potential reforms such as targeted address canvassing or other operations might affect the quality of the address list. Indeed, the Bureau's formal program of assessing and evaluating various 2010 Census operations and activities, with which it expects to have completed over 100 studies by early in 2013, has only a few studies designed to produce information describing the return on investment. Designing future studies to better isolate the return on investment would help the Bureau further tailor its operations to specific population groups and locations and potentially generate substantial cost savings. A key priority for the Bureau will be to continue to address those shortcomings that led us to designate the 2010 Census a high-risk area in 2008, including strengthening its ability to develop reliable life-cycle cost estimates and following key practices important for managing information technology (IT) so that they do not recur in 2020. In February 2011, we removed the high-risk designation from the 2010 Census because of the Bureau's progress and strong commitment to and top leadership support for addressing problems, among other actions. The Bureau has made progress in these areas. However, additional efforts are needed. Processes for developing a life-cycle cost estimate. In our January 2012 report, we found that the Bureau had not yet established policies, procedures, or guidance for developing the 2020 Census life cycle cost estimate and is at risk of not following related best practices. A reliable cost estimating process, according to our Cost Estimating and Assessment Guide, is necessary to ensure that cost estimates are comprehensive, well documented, accurate, and credible. The Bureau intends to use our cost guide as it develops cost estimates for 2020 and follow best practices wherever practicable; however, as we reported, the Bureau has not yet documented how it plans to conduct its cost estimates and could not provide a specific time when such documentation would be finalized. Developing this necessary guidance will help ensure the Bureau has a reliable life-cycle cost estimate, which in turn will help ensure that Congress, the administration, and the Bureau itself can have reliable information on which to base decisions. IT management issues. As the Bureau prepares for 2020, it will be important for it to continue to improve its ability to manage its IT investments. Leading up to the 2010 Census, we made numerous recommendations to the Bureau to improve its IT management procedures by implementing best practices in risk management, requirements development, and testing.many of our recommendations, but not our broader recommendation to institutionalize these practices at the organizational level. The challenges experienced by the Bureau in acquiring and developing IT systems during the 2010 Census further demonstrate the importance of establishing and enforcing a rigorous IT systems development and management policy Bureau-wide. In addition, it will be important for the Bureau to improve its ability to consistently perform key IT management practices, such as IT investment management, system development and management, and enterprise architecture management. The effective use of these practices can better ensure that future IT investments will be pursued in a way that optimizes mission performance. We have ongoing reviews of the Bureau's early 2020 Census planning for its IT investment management, as well as its information security program, which we expect to report out in the months ahead. As we noted in our May 2012 report, the Bureau's early planning and preparation efforts for the 2020 Census are consistent with most leading practices in each of three management areas we reviewed-- organizational transformation, long-term planning, and strategic workforce planning. For example, the Bureau is in the middle of a major organizational transformation of its decennial operations, and consistent with our leading practices, top Bureau leadership has been driving the transformation through such activities as issuing a strategic plan for the 2020 Census, incorporating annual updates of its business plan, and chartering an organizational change management council comprised of Bureau-wide executives and senior managers. The Bureau also has focused on a key set of principles as it begins to roll-out the transformation strategy to staff, and has created a timeline to build momentum and show progress. Although the decennial directorate is progressing with its organizational transformation, the person responsible for this effort--the Bureau's organizational change manager--is responsible for a number of tasks, including transformation planning and implementation, and leading two working groups. At this point in the process, the amount of change-related activity the Bureau is considering may exceed the resources the Bureau has allocated to plan, coordinate, and carry it out. As a result, the planned transformation efforts could be difficult to sustain. We also noted in May 2012 that the Bureau is taking steps consistent with many of the leading practices for long-term project planning, such as issuing a series of planning memorandums in 2009 and 2010 that laid out a high-level framework documenting goals, assumptions, and timing of the remaining four phases of the 2020 Census. The Bureau also created a high-level schedule of program management activities for the remaining phases, documented key elements such as the Bureau's decennial mission, vision, and guiding principles, and produced a business plan to support budget requests, which is being updated annually. These are important steps forward that, if continued, could help the Bureau's planning stay on track for 2020. However, the Bureau's schedule does not include milestones or deadlines for key decisions needed to support transition between the planning phases which could result in later downstream planning activity not being based on evidence from such sources as early research and testing. Also in the area of long-term planning, to help incorporate lessons learned, in 2011 the Bureau created a recommendation follow-up process, built around a database it created containing various oversight and internal Bureau recommendations. Not having a formal process for recommendation follow-up for prior censuses made it difficult to ensure that recommendations were considered by those at the Bureau best able to act on them. The Bureau has provided these recommendations to relevant Bureau research and testing teams and is beginning to take steps to hold the teams accountable for reporting on how they are considering them. The Bureau is also taking steps consistent with leading practices for strategic workforce planning, including identifying current and future critical occupations with a pilot assessment of the competencies of selected information technology 2020 Census positions. However, the Bureau has done little yet either to identify the goals that should guide workforce planning or to determine how to monitor, report, and evaluate its progress toward achieving them, which could help the Bureau identify and avoid possible barriers to implementing its workforce plans. While the Bureau's efforts are largely consistent with leading practices in each of these areas, in our May 2012 report, we noted that additional steps could be taken going forward to build on these early planning efforts. Specifically, we recommended that the Director take a number of actions to make 2020 Census planning more consistent with key practices in the three management areas, such as examining planned transformation activity to ensure its alignment with resources, developing a more-detailed long-term schedule to smooth transition to later planning phases, and setting workforce planning goals and monitor them to ensure their attainment. The Department of Commerce concurred with our findings and recommendations and has taken steps to address our recommendations. For example, to support to its organizational transformation activities the Bureau has added additional staff and contractor support. The Bureau is moving forward along a number of fronts to secure a more cost-effective 2020 enumeration. Many components are already in place, a number of assessment and planning activities are underway, and the Bureau has been responsive to our past recommendations. Further, the Bureau is generally applying key leading practices in the areas of organizational transformation, long-term project planning, and strategic workforce planning, although additional efforts are needed in the months ahead. In short, the Bureau continues to make noteworthy progress in reexamining both the fundamental design of the census as well as its own management and culture. While this news is encouraging, it is still early in the decade, and the Bureau's experience in planning earlier enumerations has shown how ambitious preparations at the start of the census life-cycle can derail as Census Day draws near. Thus, as the Bureau's 2020 planning and reform efforts gather momentum, the effectiveness of those efforts will be determined in large measure by the extent to which they enhance the Bureau's ability to control costs, ensure quality, and adapt to future technological and societal changes. Likewise, it will be important for Congress to hold the Bureau accountable for results, weighing-in on key design decisions, providing the Bureau with resources the Congress believes are appropriate to support that design, and ensuring that the progress made to date stays on track. The Bureau's initial preparations for 2020 are making progress. Nonetheless, continuing congressional oversight remains vital. Chairman Carper, Ranking Member Brown, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have at this time. If you have any questions on matters discussed in this statement, please contact Robert Goldenkoff at (202) 512-2757 or by e-mail at [email protected]. Other key contributors to this testimony include Richard Hung, Ty Mitchell, Lisa Pearson, Mark Ryan, and Timothy Wexler. 2020 Census: Additional Steps Are Needed to Build on Early Planning. GAO-12-626. Washington, D.C.: May 17, 2012. Decennial Census: Additional Actions Could Improve the Census Bureau's Ability to Control Costs for the 2020 Census. GAO-12-80. Washington, D.C.: January 24, 2012. 2010 Census: Preliminary Lessons Learned Highlight the Need for Fundamental Reforms. GAO-11-496T. Washington, D.C.: April 6, 2011. 2010 Census: Data Collection Operations Were Generally Completed as Planned, but Long-standing Challenges Suggest Need for Fundamental Reforms. GAO-11-193. Washington, D.C.: December 14, 2010. 2010 Census: Follow-up Should Reduce Coverage Errors, but Effects on Demographic Groups Need to Be Determined. GAO-11-154. Washington, D.C.: December 14, 2010. 2010 Census: Key Efforts to Include Hard-to-Count Populations Went Generally as Planned; Improvements Could Make the Efforts More Effective for Next Census. GAO-11-45. Washington, D.C.: December 14, 2010. 2010 Census: Plans for Census Coverage Measurement Are on Track, but Additional Steps Will Improve Its Usefulness. GAO-10-324. Washington, D.C.: April 23, 2010. 2010 Census: Data Collection Is Under Way, but Reliability of Key Information Technology Systems Remains a Risk. GAO-10-567T. Washington, D.C.: March 25, 2010. 2010 Census: Key Enumeration Activities Are Moving Forward, but Information Technology Systems Remain a Concern. GAO-10-430T. Washington, D.C.: February 23, 2010. 2010 Census: Census Bureau Continues to Make Progress in Mitigating Risks to a Successful Enumeration, but Still Faces Various Challenges. GAO-10-132T. Washington, D.C.: October 7, 2009. 2010 Census: Census Bureau Should Take Action to Improve the Credibility and Accuracy of Its Cost Estimate for the Decennial Census. GAO-08-554. Washington, D.C.: June 16, 2008. Information Technology: Significant Problems of Critical Automation Program Contribute to Risks Facing 2010 Census. GAO-08-550T. Washington, D.C.: March 5, 2008. Information Technology: Census Bureau Needs to Improve Its Risk Management of Decennial Systems. GAO-08-259T. Washington, D.C.: December 11, 2007. 2010 Census: Census Bureau Has Improved the Local Update of Census Addresses Program, but Challenges Remain. GAO-07-736. Washington, D.C.: June 14, 2007. Information Technology Management: Census Bureau Has Implemented Many Key Practices, but Additional Actions Are Needed. GAO-05-661. Washington, D.C.: June 16, 2005. 21st Century Challenges: Reexamining the Base of the Federal Government. GAO-05-325SP. Washington, D.C.: February 1, 2005. Information Technology Investment Management: A Framework for Assessing and Improving Process Maturity. GAO-04-394G. Washington, D.C.: March 1, 2004. Comptroller General's Forum, High-Performing Organizations: Metrics, Means, and Mechanisms for Achieving High Performance in the 21st Century Public Management Environment. GAO-04-343SP. Washington, D.C.: February 13, 2004. 2010 Census: Cost and Design Issues Need to Be Addressed Soon. GAO-04-37. Washington, D.C.: January 15, 2004. Human Capital: Key Principles for Effective Strategic Workforce Planning. GAO-04-39. Washington, D.C.: December 11, 2003. 2000 Census: Lessons Learned for Planning a More Cost-Effective 2010 Census. GAO-03-40. Washington, D.C.: October 31, 2002. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.	Obtaining an accurate census in the face of societal trends such as increased privacy concerns and a more diverse population has greatly increased the cost of the census. At $13 billion, 2010 was the costliest census in U.S. history. Without changes, future enumerations could be fiscally unsustainable. GAO's past work noted that early planning, leading management practices, and strong congressional oversight, can help reduce the costs and risks of the enumeration. GAO also identified four key lessons learned from 2010 that could help secure a more cost-effective 2020 Census. The Bureau agreed and is taking steps to address them. As requested, this testimony focuses on the Bureau's progress on these lessons learned and what remains to be done going forward. It is based on GAO's completed work, including an analysis of Bureau documents, interviews with Bureau officials, and field observations of census operations in urban and rural locations across the country. Overall, the U.S. Census Bureau's (Bureau) planning efforts for 2020 are off to a good start, as the Bureau made noteworthy progress within each of the four lessons learned from the 2010 Census. Still, additional steps will be needed within each of the lessons learned in order to sustain those reforms. 1. Reexamine the nation's approach to taking the Census. The Bureau has used a similar approach to count most of the population for decades. However, the approach has not kept pace with changes to society. Moving forward, the Bureau has begun to rethink its approach to planning, testing, implementing, and monitoring the census. For example, the Bureau is researching how it can use administrative records, such as data from other government agencies, to locate and count people including nonrespondents. Use of administrative records could help reduce the cost of field operations, but data quality and access issues must first be resolved. 2. Assess and refine existing operations focusing on tailoring them to specific locations and population groups. The 2010 Census had several operations tailored to specific population groups or locales. For example, the Bureau mailed bilingual English/Spanish forms to some areas and sent a second questionnaire to areas with historically lower response rates. Preliminary evaluations show these targeted efforts contributed to an increased awareness of the census and higher mail-back response rates. For 2020, the Bureau is considering expanding these efforts. Designing future studies to better isolate the return on investment of key census operations would help the Bureau further target its operations to specific population groups and locations and potentially gain significant cost savings. 3. Institutionalize efforts to address high-risk areas. Focus areas for the Bureau include improving its ability to manage information technology (IT) investments and develop a reliable cost estimates. In January 2012, GAO reported that the Bureau did not have policies and procedures for developing the 2020 Census cost estimate. In moving forward, it will be important for the Bureau to improve its IT acquisition management policies and develop better guidance to produce more reliable cost estimates. 4. Ensure that the Bureau's management, culture, and business practices align with a cost-effective enumeration. In May 2012, GAO reported that the Bureau's early planning efforts for the 2020 Census were consistent with most leading practices for organizational transformation, long term planning, and strategic workforce planning. Nevertheless, GAO found that additional steps could be taken to build on these early efforts. For example, the Bureau's schedule does not include milestones for key decisions to support the transition between planning phases. These milestones are important and could help with later downstream planning. GAO is not making new recommendations in this testimony, but past reports recommended that the Bureau strengthen its testing of key IT systems, develop policies and procedures for its cost estimates, and take actions to make 2020 Census planning more consistent with leading management practices. The Bureau generally agreed with GAO's findings and recommendations and is taking steps to implement them.	5,342	815
Processing: IRS processes millions of paper and electronically-filed (e-filed) tax returns and validates key pieces of information during the tax filing season. The overwhelming majority of returns are e-filed through IRS's Modernized e-File (MeF) system. Beginning last filing season, IRS and taxpayers benefitted from IRS's switch from weekly to daily tax return processing on its Individual Master File (IMF) legacy system which allowed for faster refund processing for more taxpayers. IRS is continuing to transition from its antiquated IMF legacy system to a more modern return processing system known as the Customer Account Data Engine 2 (CADE 2). Telephone: Taxpayers can call to speak directly with an IRS customer service representative (CSR) to obtain information about their accounts or ask tax law questions. Taxpayers can also listen to recorded tax information using automated telephone menus. Automated services are provided on IRS's 149 Tele-tax lines for tax law topics and 71 phone lines for account information. CSRs are also responsible for responding to paper correspondence from taxpayers. IRS tries to respond to paper correspondence within 45 days of receipt, and considers correspondence that is not addressed within that time to be overage. Minimizing the amount of overage correspondence is important because delayed responses may prompt taxpayers to write again or call IRS. Website: On IRS.gov, taxpayers can download forms, instructions, and publications and research tax law issues using interactive tools. Taxpayers can use interactive tools to check the status of their refunds, request transcripts (which are copies of a taxpayer's account information), and apply for IAs. Face-to-Face Assistance: Taxpayers can obtain face-to-face assistance at IRS's 390 Taxpayer Assistance Centers (TAC) or at more than 13,000 sites staffed by volunteer partners. At TACs, IRS staff provide answers to basic tax law questions, review and adjust taxpayer accounts, take payments, authenticate Individual Taxpayer Identification Number applicants and identity theft victims, and prepare returns for qualified taxpayers. At the sites staffed by volunteers, taxpayers can receive return preparation assistance as well as financial literacy information. Taxpayers can enter into IAs to pay their tax debts after filing their return with a balance due. IAs are an important tool for IRS to collect revenue. IRS assesses and collects billions of dollars each year through IAs. IAs can be established, paid off, defaulted on, reinstated, or terminated at any time during the year. IRS provides four types of IAs--Guaranteed, Streamlined, Regular/Routine, and Partial Payment--with different eligibility and payment requirements. IAs allow taxpayers to pay off their tax liabilities gradually over time and can encompass multiple years. Failure to adhere to the terms of the IA can cause default, termination, The most common type of IA by and more expensive collection actions.far is the streamlined agreement, which provides taxpayers with flexibility in paying off liabilities. Appendix I provides additional information on the types and characteristics of IAs. IRS defines a non-filer as a taxpayer who has a legal obligation to file a return, but fails to file a return by the filing deadline (either April or October depending on whether the taxpayer filed for an extension). IRS is authorized to issue a notice requesting a delinquent return and it can send up to four notices to taxpayers. Despite late tax law changes which delayed the start of filing season and compressed the time that IRS had available to process tax returns, IRS officials and external stakeholders such as large tax preparation firms reported relatively smooth processing, with a few exceptions. IRS usually begins processing tax returns in early to mid-January; this year, it started processing most returns January 30, 2013. Table 1 shows that IRS achieved an 84 percent e-file rate for individual returns, and processed 11 percent fewer paper returns compared to last year. Continued increases in e-filing are important because processing costs are lower for e-filed returns. According to IRS, in fiscal year 2012, it cost 23 cents to process an e-filed return, as opposed $3.36 for returns filed on paper. IRS relied solely on MeF this filing season, and attributed this success to expanded testing of the system which improved the MeF's stability and facilitated return processing. External stakeholders confirmed IRS's assertion about the reason for MeF's success. Although operations were relatively smooth, IRS and others reported issues that delayed processing for tax returns filed with Form 8863 (Education Credits), and with Form 5405 (First-time Homebuyer Credit). While IRS was able to resolve processing delays for about 700,000 tax returns filed with the Form 8863, multiple class action suits have been filed against a large tax preparation firm regarding the issues involved in the processing delays.about 88,000 returns filed with Form 5405 that were caused by a compliance filter that resulted in additional scrutiny. Table 2 shows that, in 2013, IRS received 93.5 million calls-- a 5 percent decrease from 2012 but higher than 2009 through 2011. Compared to 2012, IRS answered almost 9 percent fewer calls using automated services. Officials attributed some of the reduction in automated calls answered to fewer e-file personal identification number requests. Answering as many calls as possible through automation is important because IRS estimates that it costs 38 cents per call to provide an automated answer, but about $33 per call to use a live assistor. Table 2 also shows that callers experienced a shorter average wait time to speak to an IRS assistor this year compared to the same period last year, but the time was still much longer than 2008 through 2011. The percentage of callers seeking live help who received it stayed the same as 2012 at 68 percent. In 2010, we found that that IRS sets its annual goal based on factors such as resource availability, the expected number and complexity of calls, and anticipated volume of taxpayer correspondence, but not on an analysis of what taxpayers would consider to be good service. At that time, we recommended that IRS determine a telephone standard based on the quality of service provided by comparable organizations, what matters most to the customer, and resources required to achieve this standard based on input from Congress and other stakeholders. IRS disagreed saying its current process of developing a planned level of telephone service takes into consideration many factors, including its budget and assumptions about call demand. We noted, however, that such a standard would allow IRS to communicate to Congress what it believes constitutes good service. Further, since 2010, the IRS Oversight Board has said than an acceptable level of service (LOS) should be about 80 percent. However, IRS has yet to set such a standard. As shown in Table 3, the amount of correspondence received between 2009 and 2013 increased from 19 to 21 million (a 10.5 percent increase) and the percentage of overage correspondence nearly doubled to 47 percent in 2013 from 25 percent in 2009. As noted earlier, IRS generally considers paper correspondence that is not resolved within 45 days to be overage. In December 2010, we concluded that providing timely responses to paper correspondence remains critical to taxpayer service because if IRS's responses take too long taxpayers may write again or call IRS for additional assistance. We recommended that IRS establish a performance measure that includes providing timely correspondence service to taxpayers. IRS agreed to this recommendation, and is beginning to take steps to implement it. Since we made that recommendation, the percentage of overage correspondence has continued to increase. IRS officials attribute the increase in the percentage of overage correspondence to budget constraints (less overtime for CSRs who provide both telephone assistance and work paper correspondence), and more complex taxpayer inquiries such as correspondence related to identity theft cases which can be more time consuming to address. IRS has taken some steps to identify why taxpayers write in. Based on a recent small, judgmental sample of correspondence cases, IRS found that the top three most common reasons taxpayers write in are: balance due payoffs, penalty abatements, and miscellaneous account inquiries. In that same sample, IRS found that its own processes, such as the wording of notices or requirements for a paper signature, influenced taxpayers to write in. IRS officials told us they are currently analyzing a statistically valid sample of correspondence to identify additional factors that influence the level of correspondence. Use of IRS.gov continues to increase, with IRS receiving approximately 374 million visits to its website through July 2013, an increase of nearly 26 percent over the same period in 2012. IRS officials attribute this increase to the launch of the redesigned website, introduction of new online tools such as Where's My Amended Return, and implementation of the Patient Protection and Affordable Care Act.recommended that IRS develop a long-term strategy to improve web We previously services provided to taxpayers that includes studies of leading practices at a strategic level, measurable goals for taxpayer satisfaction, business cases for new online services that describe potential benefits and costs and prioritized projects, and links to investments in security. IRS reported that it is planning to update its long-term web services strategy to include our recommended changes in early 2014. See Appendix III for additional information on website use from 2008 through 2013. IRS received about 2.6 million visits to its TACs, a decline of approximately 5 percent from 2012. Additionally, the number of returns prepared continues to decline--in 2013, IRS prepared nearly 125,000 returns at TACs, about a 16 percent decline from 2012. IRS attributes the decline to its efforts to manage demand, and increased taxpayer awareness of online tools and services. In contrast, the number of returns prepared at the roughly 13,000 volunteer sites increased 5 percent between 2012 and 2013, to nearly 3.3 million in 2013. See Appendix IV for additional information on services and taxpayer use of TACs and volunteer sites since 2010. In 2012, we noted that IRS needs to dramatically revise its strategy for providing telephone and correspondence services and recommended that it define appropriate levels of telephone and correspondence services based on an assessment of demand and resources among other things.IRS neither agreed nor disagreed with our recommendation, saying it already has an objective of providing taxpayers with access to accurate services while managing demand. However, IRS's efforts to date have not reversed the declines in taxpayer service. We noted, and IRS officials acknowledged, that incremental efficiency gains of the type IRS has realized in recent years would not be enough to combat the imbalance between taxpayer demand for services and available resources. We concluded that, with expected levels of resources, reversing the declines in telephone and correspondence services may require IRS to consider difficult tradeoffs such as limiting the types of phone calls that would be answered. Given expected budget levels for the 2014 filing season, IRS has identified six services for elimination or reduction, which officials told us were chosen because taxpayers had other options. IRS officials reported that they have discussed these options within IRS, with external stakeholders, and with Congressional committees that oversee IRS operations. IRS's proposed service eliminations or reductions are: 1. Limiting tax law inquiries to answer only basic tax law questions during the filing season, and reassigning CSRs to work account- related inquiries; 2. Launching the "Get Transcript" tool, which will allow taxpayers to obtain a viewable and printable transcript online on www.irs.gov, and redirecting taxpayers to this and other automated tools for getting a transcript; 3. Redirecting refund-related inquiries to automated services and not answering refund inquiries until 21 days after the tax return has been filed, except for refunds held for potential fraud; 4. Limiting access to the Practitioner Priority Services line to only those practitioners working tax account issues; 5. Limiting live assistance and redirecting requests for domestic Employer Identification Numbers to IRS's online tool; and 6. Eliminating free return preparation at IRS's TAC sites and directing taxpayers to free alternatives including at IRS partner sites staffed by volunteers. The proposed elimination or reductions in services are examples of the difficult choices that we recommended need to be made if more timely access to telephone service and handling of correspondence is going to be achieved from the available IRS resources. While these cuts represent initial steps consistent with our recommendation from last year, they do not fully address it. Furthermore, even with these reductions, officials in IRS's Wage and Investment Division responsible for the filing season told us they are anticipating that the level of telephone service could be 61 percent in 2014. IRS reported that it is working on final approval to implement the service options and bring about a better balance between demand for service and resources. However, the continued deterioration in taxpayer service in 2013, high cost of shifting staff from collections work to the telephones and correspondence, and anticipated level of telephone service for 2014 all highlight the importance of continuing to address the recommendation we made last year based on the need for a dramatic revision in IRS's strategy. The choice may be between providing a broader range of services at a low level of performance or a narrower range of services at a higher level of performance. Until IRS develops a strategy, it risks not communicating expectations about the level of services it can provide based on the resources available. IRS could then use the strategy to facilitate a discussion with Congress and other stakeholders about the appropriate mix of service, level of performance, and resources. Taxpayers can apply for IAs online, by phone, in person, or by completing Depending on and mailing Form 9465, Installment Agreement Request.the type of IA, taxpayers can make their monthly payments via check or money order, direct debit, payroll deduction, online, or credit card. If a taxpayer fails to make monthly payments on time or incurs a new tax liability, the taxpayer is considered to be in default on the IA with a few exceptions. Appendix V shows the process for taxpayers entering into and making payments on IAs. Table 4 shows that, in fiscal year 2012, IRS approved more than 3 million new IAs and collected $9.8 billion. At the end of fiscal year 2012, IAs represented nearly $28 billion in unpaid balances. The difference between the amount of unpaid balance of assessment and amount collected is due to the fact that IAs can be paid off over multiple years. According to IRS officials, the increases in IA inventory since 2009 are due to a variety of factors, such as more taxpayers entering into IAs because of expanded eligibility and payment terms discussed below, and changes in the economy. Table 4 also shows, in fiscal year 2012, taxpayers defaulted on approximately 1.2 million IAs. In 2012, we found that, of those taxpayers that had a balance due at the filing deadline, almost two-thirds eventually paid in full or entered into IAs, and about 18 percent of taxpayers defaulted on IAs in fiscal year 2012. Therefore, we recommended that IRS pilot risk-based approaches for contacting taxpayers who have a balance with the goal of reducing the default rate. IRS agreed with the recommendation, but has not funded the related research project. Until IRS tests and implements more advanced risk-based approaches, it may be challenged to deal with the default problem. In 2012, IRS expanded its Fresh Start Initiative to assist struggling taxpayers in meeting their tax obligations. Specifically, the threshold for requesting a streamlined IA was raised from $25,000 to $50,000 and the maximum term for streamlined IAs was increased from 60 to 72 months for repayment. The expanded eligibility for streamlined IAs in particular allowed more people to qualify for the program and potentially pay taxes owed. Also under Fresh Start, IRS is encouraging taxpayers with IAs to sign up for direct debit agreements which generally have lower default rates. IRS said it is difficult to pinpoint which specific aspects of the Fresh Start initiative are effective. IRS is currently conducting an analysis of the initiative's benefits in terms of collection and default prevention. As of November 2013, that analysis has not been completed. IRS allocated about 1,800 FTEs to the IA program in fiscal year 2012, which is over a 10 percent increase since fiscal year 2009. The level of and growth in this area highlights the importance of testing and implementing risk-based approaches for collecting balances due including through IAs. IRS recently made process improvements to help streamline and standardize its IA program operations. For example, IRS introduced automated tools, known as the Compliance Suite, which provides tax examiners (TEs) with online tools such as helping the TE determine which letter to send to the taxpayer. However, despite these process improvements, we observed some inefficiency. For example, we observed that some TEs had developed their own extensive sets of prewritten, standardized case notes that allowed them to quickly update a taxpayer's account because the Compliance Suite lacked that capability. IA program managers were aware of this practice, said it gives TEs flexibility in writing case notes, but agreed that automated case notes may yield efficiencies. They also noted that the Compliance Suite was only introduced a few months ago, and its full capabilities were being explored. We agree that flexibility is desirable but providing an extensive set of standardized notes in the Compliance Suite would give all TEs the option of using them. This could lower the cost of making account entries. In addition, we found unnecessary redundancy. We observed TEs handwriting case notes on paper copies of IAs and then typing those same notes into IRS's computer systems. IRS managers agreed this practice is redundant, and TEs noted this is the way it has always been done. Such redundant data entry increases the time it takes TEs to handle each IA case. Furthermore, GAO's internal control guidance states that control activities should be regularly evaluated to ensure their appropriateness in intended function. By not developing a more standardized comprehensive set of case notes and not reducing redundant data entry, IRS is missing opportunities to reduce resources devoted to handling IA case files. With 1,800 FTEs devoted to the program, small gains in the efficiency of each TE could add up to substantial savings. Beginning in October, IRS uses prior year tax returns, third-party reports, such as W-2s and Forms 1099, and applications for automatic extensions of time to file to identify taxpayers who appear to have missed the mid- April tax return filing deadline. In June 2013, we found that most information reports are not received by IRS until well after the April tax return filing deadline. IRS does a second match in March of the following year for taxpayers who filed an extension. According to IRS officials, not all potential non- filer cases identified are selected for notification and review; IRS prioritizes cases based on factors such as income, the potential to collect taxes due, and whether the taxpayer is an IRS or other federal employee. After the first match in October, IRS sends notices to non-filers in November and December requesting the return or a justification for not filing. IRS begins to send notices to cases from the second match between March and July. Table 5 shows that, in tax year 2010 (the year for which the most current data are available), IRS identified over 7.4 million potential non-filer cases. Of these, IRS selected more than 3.2 million cases for review and sent notices to those non-filers requesting the return. IRS officials said the percentage of cases selected for review fluctuates based on resources and selection criteria, such as income and potential balance due amounts, which vary from year-to-year. Table 5 also shows in tax year 2008 (the year for which the most complete data are available), IRS received approximately 1.4 million delinquent returns, which is about 39 percent of the non-filers selected for review and notification. IRS officials attribute the relatively low number of returns filed in response to notices to taxpayers that have stopped filing for unknown reasons, those that do not have the resources to pay the potential balance due, and taxpayers who do not file until more extensive collection actions are taken. Securing the delinquent return as soon as possible as part of IRS's notification process is important because taxpayers continue to incur penalties and interest until they file a return and IRS undertakes increasingly expensive enforcement actions against the taxpayer. In addition to taxpayers who do not respond to notices, IRS's existing non-filer strategy notes that IRS also has a significant problem with repeat non-filers. For fiscal year 2012, IRS data shows that 43 percent of closed cases were repeat non-filers that did not file for more than 1 tax year. As of November 2013, IRS is waiting on executive approval for its updated non-filer strategy which it expects to receive by the end of the year and should address how IRS plans to improve non-filer compliance including notice response and repeater rates. IRS is currently analyzing data on the characteristics of non-filers, such as filing status, income, and other key characteristics, and their response rates to the notifications to determine the best approach, and expect this effort to be completed in January 2014. IRS officials also are considering several initiatives for improving the notification process once its updated non-filer strategy is approved. Despite efficiency gains in processing returns, additional website services, and shifting employees from working collections cases to handling telephone calls and correspondence, the gap between taxpayers' demand for service and IRS resources widened. As a result, taxpayer access to IRS's telephone assistors remained at a low level and the percentage of overage correspondence grew. The widening gap highlights the importance of fully implementing our recommendation made last year for a dramatic revision in managing taxpayer service that defines an appropriate level of service and recognizes both the demand for services and resources available. We stressed that this would mean making difficult tradeoffs. Consistent with our recommendation, IRS has proposed eliminating or reducing some services. By eliminating or reducing some services IRS should be able to devote more resources to its continuing services. However, IRS officials told us that the cuts proposed so far may not reverse the decline in telephone and correspondence performance. As a consequence, the cuts may only be a down payment on the difficult choices needed and our recommendation needs to be fully addressed. Fully addressing our recommendation would result in a strategy that could be used to facilitate a discussion with Congress and other stakeholders about the appropriate mix of service, level of performance, and resources. The imbalance between the demand for services and resources also puts a higher priority on scrutinizing existing processes for possible further efficiency gains. We identified opportunities in the processing of installment agreements where the existing process could be further streamlined to reduce resources by standardizing case notes and reducing unnecessarily redundant data entry. We recommend that the Commissioner of Internal Revenue develop a set of standardized account entries and eliminate unnecessary redundancy when entering installment agreement data into accounts. We provided a draft of this report to the Acting Commissioner of Internal Revenue. IRS provided written comments on a draft of the report, which are reprinted in Appendix VI. IRS also suggested technical changes to the report, which we incorporated where appropriate. IRS did not state whether it concurred with the recommendation. However, IRS acknowledged that standardized account entries can sometimes lead to increased efficiencies and lower costs, and taxpayers and IRS can benefit by the elimination of redundancy in its processes. IRS stated that as it continues to evaluate the Compliance Suite to determine its full capabilities, it will (1) explore whether the introduction of standardized account entries into the IA process will yield increased efficiencies and lower costs; and (2) evaluate whether there are unnecessary redundancies in its current processes that can be eliminated without adversely affecting tax administration. GAO believes the recommendation remains valid as discussed in the report. We plan to send copies of this report to the Chairmen and Ranking Members of other Senate and House committees and subcommittees that have appropriation, authorization, and oversight responsibilities for IRS. We will also send copies to the Acting Commissioner of Internal Revenue, the Secretary of the Treasury, the Chairman of the IRS Oversight Board, and the Deputy Director for Management of the Office of Management and Budget. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9110 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in Appendix VII. Of the four types of IAs available to individual taxpayers, the most common type of IA by far is the streamlined. Figure 1 shows that during the 2013 filing season, the Internal Revenue Service (IRS) received most of its calls in the period leading up to and including the April 15th filing deadline, with the heaviest volume of calls in the early to mid-February timeframe. Importantly, the figure below shows that access to live assistance begins to decline sharply in the weeks following the filing deadline. Table 7 shows that in 2013 use of IRS.gov increased by 26 percent compared to 2012. Use of the online tools such as the volunteer site locator, Where's My Refund, electronic personal identification number requests, and interactive tax assistance tools continued to increase in 2013. IRS attributes declines in downloading forms and publications, and generally searching the website, to changes in how IRS tracks website use in these areas. Face-to-face service remains an important component of IRS's efforts to serve taxpayers, particularly those with low incomes or limited proficiency in English. Table 8 shows that, for 2013, the total number of contacts at walk-in sites, Taxpayer Assistance Centers (TAC) staffed by IRS employees, is the lowest level for the 4 year period shown. Further, return preparation has steadily declined since 2010 due to IRS's continuing efforts to reduce expensive return preparation services. Conversely, the total number of returns prepared at sites staffed by volunteers has increased since 2010. In addition to the individual named above, Joanna Stamatiades, Assistant Director; Shilpa Grover; Emily Gruenwald; Lois Hanshaw; LaKeshia Allen Horner; Kirsten Lauber; Natalie Maddox; Karen O'Conor; Anna Maria Ortiz; Kelly Rubin; and John Zombro made key contributions to this report.	The tax filing season is when IRS processes most tax returns and provides services including telephone, correspondence, and website assistance for tens of millions of taxpayers. IRS budgeted more than $2 billion for these activities in 2013. The filing season is also when IRS begins collecting delinquent taxes by, for example, approving installment agreements and checking for non-filers. GAO was asked to review the 2013 tax filing season. This report (1) assesses IRS's performance in processing tax returns and providing services to taxpayers; (2) describes the installment agreement process and assesses its efficiency; and (3) describes the process for detecting and notifying non-filers. To conduct the analyses, GAO obtained and compared IRS data from 2007 through 2013, reviewed pertinent IRS documents, observed IRS operations, and interviewed IRS officials and experts in tax administration, including tax preparation firms. Despite efficiency gains from processing more tax returns electronically, adding website services, and shifting resources from enforcement, the Internal Revenue Service (IRS) was unable to keep up with demand for telephone and correspondence services. Access to IRS's telephone assistors remained at 68 percent from 2012. The percentage of overage paper correspondence (over 45 days old) increased to 47 percent from 40 percent in 2012. In the face of similar trends, last year GAO reported that a dramatic revision in IRS's taxpayer service strategy was needed and recommended IRS take steps to better balance demand for services with available resources. GAO acknowledged this may require IRS to consider difficult tradeoffs, such as limiting some services. In response, IRS has proposed eliminating or reducing some services for 2014 such as answering basic tax law questions only during the filing season. However, IRS officials told GAO the proposed cuts may not be sufficient to stop the deterioration in services. Until IRS develops a strategy, it risks not communicating expectations about the level of services it can provide based on the resources available. IRS could use the strategy to facilitate a discussion with Congress and other stakeholders about the appropriate mix of service, level of performance, and resources. IRS offers options for installment agreements (IAs) to taxpayers who cannot fully pay their taxes when due. Taxpayers can enter into these agreements online, by phone, and by mail. In fiscal year 2012, IRS approved about 3.2 million new agreements and collected almost $10 billion. IRS devotes about 1,800 full-time equivalent staff to the program but it is not as efficient as it could be. GAO found opportunities to standardize account entries and reduce redundancy by eliminating dual entry of the same data on paper forms and into IRS's computers. IRS officials agreed that opportunities did exist to streamline the process. More standardized and less redundant data entry could reduce resource needs. IRS detects non-filers by matching third party information (i.e., Form W-2s) with tax returns. The first match is done in October, well after the mid-April tax filing deadline from the previous year, because of the time it takes to receive the third party information and process it. IRS sends notices to non-filers in November and December. GAO recommends that IRS develop standardized account entries and eliminate unnecessary redundancy in the installment agreement process. IRS did not state whether it concurred with our recommendation. GAO believes the recommendation remains valid as discussed in this report. In addition, GAO continues to believe the prior recommendation that IRS develop a strategy that defines appropriate levels of telephone and correspondence services based on an assessment of demand and resources among other things remains valid and should be addressed.	5,651	748
For fiscal year 2015, VA estimated it received $59.2 billion in appropriations, including collections, to fund health care services for veterans, manage and administer VA's health care system, and operate and maintain the VA health care system's capital infrastructure. VA estimated that in fiscal year 2015 it provided health care services-- including inpatient services, outpatient services, and prescription drugs-- to 6.7 million eligible patients. For calendar year 2015, the Medicare Trustees estimated that CMS paid MA plans about $155 billion to provide coverage for 16.4 million Medicare beneficiaries. Beneficiaries of MA can enroll in one of several different plan types, including health maintenance organizations (HMO), private fee-for-service (PFFS) plans, preferred provider organizations (PPO), and regional PPOs. Medicare pays MA plans a capitated PMPM amount. This amount is based in part on a plan's bid, which is its projection of the revenue it requires to provide a beneficiary with services that are covered under Medicare FFS, and a benchmark, which CMS generally calculates from average per capita Medicare FFS spending in the plan's service area and other factors. If a plan's bid is higher than the benchmark, Medicare pays the plan the amount of the benchmark, and the plan must charge beneficiaries a premium to collect the amount by which the bid exceeds the benchmark. If the plan's bid is lower than the benchmark, Medicare pays the plan the amount of the bid and makes an additional payment to the plan called a rebate. Plans may use this rebate to fund benefits not covered under Medicare FFS. CMS uses risk scores to adjust PMPM payments to MA plans to account for beneficiaries' health status and other factors, a process known as risk adjustment. For beneficiaries enrolled in MA, risk scores are generally determined on the basis of diagnosis codes submitted for each beneficiary, among other factors, and are adjusted annually to account for changes in diagnoses from the previous calendar year. In addition, risk scores for beneficiaries who experience long-term stays of more than 90 days are calculated differently to account for the differences in expected health expenditures. While risk scores are based on diagnoses from the previous year, changes to the risk score to account for long-term hospital stays of more than 90 days are reflected in the calendar year when the stay occurred. The Patient Protection and Affordable Care Act (PPACA) changed how benchmarks are calculated so that they will be more closely aligned with Medicare FFS spending. Specifically, the benchmark changes, which are to be phased in from 2012 through 2017, will result in benchmarks tied to a percentage of per capita Medicare FFS spending in each county. In general, for those counties in the highest Medicare FFS spending quartile, benchmarks will be equal to 95 percent of county per capita Medicare FFS spending, and for those counties in the lowest Medicare FFS spending quartile, benchmarks will be equal to 115 percent of per capita Medicare FFS spending. Prior to 2012, benchmarks in all counties were at least as high as per capita Medicare FFS spending, but were often much higher. For example, while counties generally had benchmarks that were derived from per capita county Medicare FFS spending, the benchmarks were generally increased annually by a minimum update equal to the national growth rate percentage in Medicare FFS spending. In cases where the growth rate used to update the benchmark was greater than the rate at which per capita Medicare FFS spending grew within a county, it would result in a benchmark that was higher than the average per capita county Medicare FFS spending rate. In addition, some urban and rural counties had benchmarks that were "floor" rates, which were set above per capita county Medicare FFS spending rates to encourage insurers to offer plans in the areas. According to a CMS study reported in the 2010 MA Advance Notice, approximately 96 percent of counties had benchmarks that were set based on a minimum update or were floor rates. Especially in counties with a relatively high proportion of veterans, average per capita Medicare FFS spending may be low if many veterans receive health care services from VA instead of Medicare providers. Because benchmarks are calculated based in part on Medicare FFS spending, MA payments may be lower in such counties and may not reflect Medicare's expected cost of caring for nonveterans. CMS is required to estimate, on a per capita basis, the amount of additional Medicare FFS payments that would have been made in a county if Medicare-eligible veterans had not received services from VA. If needed, CMS is also required to make a corresponding MA payment adjustment. To address these requirements, CMS reported the results of its study analyzing the cost impact of removing veterans eligible to receive services from VA on 2009 Medicare FFS county rates in the 2010 MA Advance Notice. CMS reported that, on average, removing veterans from the calculation of counties' per capita Medicare FFS spending rate had minimal impact on per capita spending and that the differences in expenditures between all Medicare beneficiaries and nonveterans were more attributable to normal, random variation than to distinctly different spending for the two populations. Based on CMS's study results, the agency concluded that no adjustment for VA spending on Medicare- covered services was necessary to 2010 through 2016 MA payments. In 2016, CMS updated its 2009 study using more recent data and determined that an adjustment would be necessary for 2017. VA provided about $2.4 billion in Medicare-covered inpatient and outpatient services to the 833,684 MA-enrolled veterans in fiscal year 2010. In total, VA provided approximately 61,000 inpatient services and 8.2 million outpatient services to veterans enrolled in MA plans. During that same time period, CMS paid MA plans $8.3 billion to provide all Medicare-covered services to veterans enrolled in an MA plan. VA's provision of services to MA-enrolled veterans resulted in overall payments to MA plans that were likely lower than they otherwise would have been if veterans had obtained all of their Medicare-covered services through Medicare FFS providers and MA plans. Specifically, because VA provides services to MA-enrolled veterans, the three components that determine payments to MA plans--benchmarks, bids, and risk scores-- are likely lower than they otherwise would be, which results in lower overall payments to MA plans. Benchmarks--Because benchmarks are generally calculated in part from per capita county Medicare FFS spending rates, any VA spending on Medicare-covered services for veterans enrolled in Medicare FFS would be excluded from the benchmark calculation. As a result, the benchmark would be lower and, in turn, payments to MA plans would also be lower. This would be particularly true following the implementation of the PPACA revisions to the benchmark calculation--to be phased in from 2012 through 2017--as the PPACA revisions further strengthened the link between the benchmark and average per capita county Medicare FFS spending rates. Bids--MA payments also may be lower to the extent that MA plans set bids based on historical experience. MA plan bids may reflect the fact that in previous years enrolled veterans received some Medicare- covered services from VA instead of the MA plan. If so, MA plan bids would be lower and, in turn, MA payments would also be lower. Risk scores--VA's provision of Medicare-covered services may result in lower risk scores because, like benchmarks, they are calibrated based on Medicare FFS spending for beneficiaries with specific diagnoses identified by Medicare. As a result, any VA spending on Medicare-covered services for veterans enrolled in Medicare FFS that is related to these diagnoses would be excluded when the model is calibrated. In addition, MA plans would generally not have access to diagnoses made by VA. Therefore, when VA identifies and treats a diagnosis not identified by the veteran's MA plan, it would not be incorporated into the veteran's risk score. Because PMPM payments to MA plans are risk-adjusted, a lower risk score would result in lower payments to MA plans. Although VA spending on Medicare-covered services likely results in lower CMS payments to MA plans, the extent to which these payments reflect the expected utilization of services by the MA population remains uncertain. Specifically, payment amounts may still be too high or could even be too low, depending on the utilization of VA services by veterans enrolled in MA plans and veterans enrolled in Medicare FFS. As noted earlier, both benchmarks and risk scores are generally calibrated based on veterans and nonveterans enrolled in Medicare FFS. However, veterans enrolled in MA plans may differ in the proportion of services they receive from VA compared to veterans enrolled in Medicare FFS, which would affect the appropriateness of payments to MA plans. For example, payments to MA plans may be too high if veterans enrolled in MA receive a greater proportion of their services from VA relative to veterans enrolled in Medicare FFS. Under this scenario, the benchmark would reflect the higher use of Medicare services by Medicare FFS beneficiaries who are receiving fewer of their services from VA than are veterans enrolled in MA. As a result, the benchmark may be too high and, in turn, payments to MA plans may be too high. This effect of a higher benchmark may be at least partially offset by a risk score that is too high. In contrast, payments to MA plans may be too low if veterans enrolled in MA receive a lesser proportion of their services from VA relative to veterans enrolled in Medicare FFS. Under this scenario, the benchmarks may be too low and may result in MA plans being underpaid, although the effect may be partially offset by risk scores that are too low. To assess whether there are service utilization differences between the MA and Medicare FFS veteran populations that result in payments to MA plans that are too high or too low, data on the services veterans receive from Medicare FFS, MA, and VA would be needed. Data on veterans' use of services through Medicare FFS and VA health care are available from CMS and VA, respectively. However, CMS does not currently have validated data that could be used to determine veterans' use of services through MA. CMS began collecting data from MA plans on diagnoses and services provided to beneficiaries starting in January 2012. We reported in July 2014 that CMS had taken some, but not all, appropriate actions to ensure that these data--known as MA encounter data--are complete and accurate. At that time, we recommended that CMS complete all the steps necessary to validate the data, including performing statistical analyses, reviewing medical records, and providing MA organizations with summary reports on CMS's findings. CMS agreed with the recommendation, but as of August 2015, had not completed all steps needed to validate the encounter data. CMS determined that no adjustment to 2010 through 2016 MA payments was needed to account for the provision of Medicare-covered services by VA, but used a methodology that had certain shortcomings that could have affected MA payments. CMS is required to estimate, on a per capita basis, the amount of additional payments that would have been made in a county if Medicare-eligible veterans had not received services from VA and, if needed, to make a corresponding adjustment to MA payments. If CMS determined that an MA payment adjustment was necessary, it would make the adjustment by using a modified version of per capita county Medicare FFS spending rates that are adjusted to account for the effect of VA spending on Medicare-covered services. Per capita county Medicare FFS spending rates serve as the basis of the benchmarks used in determining MA payment rates. To determine whether an adjustment was needed, CMS obtained data from VA showing veterans who are enrolled in VA health care and Medicare FFS (that is, enrollment data). CMS then estimated the effect of VA spending on Medicare FFS spending by calculating average per capita county Medicare FFS spending for nonveterans and comparing it to the average per capita county Medicare FFS spending for all Medicare FFS beneficiaries, after adjusting for beneficiaries' risk. However, CMS's methodology did not account for two factors that could have important effects on the results: (1) services provided by and diagnoses made by VA but not identified by Medicare and (2) changes to the benchmark calculation under PPACA. First, because CMS used only Medicare FFS utilization and diagnosis data in its study, the agency's methodology did not account for services provided by and diagnoses made by VA--which could result in inaccurate estimates of how VA spending on services for Medicare FFS-enrolled veterans affects per capita county Medicare FFS spending. Only VA's utilization and diagnosis data can account for services provided by and diagnoses made by VA. Without this information, CMS's estimate of how VA spending affects per capita county Medicare FFS spending rates may be inaccurate. Specifically, estimates of per capita county Medicare FFS spending for all beneficiaries, including veterans, may be too low because services provided by VA would not be accounted for in Medicare FFS spending. Excluding those services could have the effect of deflating veterans' risk-adjusted Medicare FFS spending and therefore total per capita county Medicare FFS spending. Conversely, estimates of per capita county Medicare FFS spending for all beneficiaries, including veterans, may be too high because excluding diagnoses identified only by VA could result in Medicare risk scores that are too low, which would have the effect of inflating veterans' risk-adjusted Medicare FFS spending and therefore total per capita county Medicare FFS spending. Thus, depending on the number and mix of services provided by and the diagnoses made by VA, risk-adjusted Medicare FFS spending for veterans may either be higher or lower than it would be if CMS accounted for VA-provided services and diagnoses. Second, because CMS's study was done in 2009, it did not account for changes to the benchmark calculation that occurred under PPACA and that are to be phased in from 2012 through 2017. CMS noted in 2009 that only 45 of the 3,127 counties nationwide would have had per capita county Medicare FFS spending rate increases after accounting for VA spending. According to CMS, the number of affected counties was as low as it was in part because many counties had payment rate minimums, which often resulted in benchmarks that were higher than per capita county Medicare FFS spending. However, as noted earlier in this report, PPACA revised the benchmark calculation to more closely align benchmarks with average per capita county Medicare FFS spending rates. As these revised benchmark calculations are implemented, counties will no longer have benchmarks set based on minimum updates or floor rates. Because CMS did not update its 2009 study when determining whether an adjustment was necessary through 2016, the agency lacked accurate information on the number of additional counties in which VA spending on Medicare-covered services would have made a difference in per capita county Medicare FFS spending rates. When CMS updated its 2009 study to determine whether an MA payment adjustment was needed for 2017, it used the same methodology, albeit with more recent data. Doing so allowed CMS to account for the revised benchmark calculations implemented under PPACA. However, CMS cannot address the other limitation we identified without additional data. Specifically, CMS cannot account for services provided by and diagnoses made by VA. Officials said that they did not intend to incorporate VA utilization and diagnoses data into their analysis because they did not currently have such data and that incorporating these data would introduce additional uncertainty into the analysis. For example, CMS officials noted that there would be challenges associated with how much Medicare would have spent if the covered services had been obtained from Medicare providers instead of VA. We agree that CMS would face challenges incorporating VA data into its analysis, but if an adjustment is needed and not made or if the adjustment made is too low, the PMPM payment may be too high for veterans and too low for nonveterans. Depending on the mix of veterans and nonveterans enrolled by individual MA plans, this could result in some plans being paid too much and others too little. Both CMS and VA officials told us that the agencies have a data use agreement in place that allows them to share some data, but this does not include data on services VA provides to Medicare beneficiaries. According to VA, as of December 2015, CMS has not requested its utilization and diagnosis data. Federal standards for internal control call for management to have the operational data it needs to meet agency goals to effectively and efficiently use resources and to help ensure compliance with laws and regulations. In this case, without VA data on diagnoses and utilization, CMS may be increasing the risk that it is not effectively meeting the requirement to adjust payments to MA plans, as appropriate, to account for VA spending on services for Medicare beneficiaries. If CMS revises its study methodology and determines that an adjustment to the benchmark to account for VA spending is needed, it may need to make additional MA payment adjustments to ensure that payments are equitable for individual MA plans. A benchmark adjustment would increase payments for nonveterans and would address the possibility that payments to MA plans with a high proportion of nonveterans would be too low. However, if CMS makes a benchmark adjustment, it would also increase MA payments for veterans. While the resulting higher payment to MA plans for nonveterans may be appropriate, higher payments for veterans may not be because veterans may be receiving some services from VA. In that case, payments to MA plans that enroll veterans would be too high, with the degree of overpayment increasing as the proportion of veterans enrolled by plans increases. To ensure that payments to MA plans are equitable regardless of differences in the demographic characteristics of the plans' enrollees, CMS is authorized to adjust payments to MA plans based on such risk factors that it determines to be appropriate. Therefore, if CMS determines that an adjustment to the benchmark to account for VA spending is needed and the adjustment results in payments to MA plans that are too high for veterans, additional adjustments to payments to MA plans could be necessary. Given that veterans enrolled in an MA plan and the VA health care system can receive Medicare-covered services from either source, it is important to consider how the provision of services by VA affects payments to MA plans. In fiscal year 2010, VA provided $2.4 billion worth of inpatient and outpatient services to MA-enrolled veterans, which likely resulted in lower overall payments to MA plans. However, the appropriateness of these lower payments is uncertain, given potential differences in the proportion of services veterans enrolled in MA plans and Medicare FFS receive from VA. An estimate of the differences between the two populations of veterans would enable CMS to determine if additional actions are needed to improve the accuracy of PMPM payments. To this end, we recommended in July 2014 that CMS should validate the MA encounter data, which would be needed to determine if there are differences in utilization of services between veterans in MA and Medicare FFS. In addition, it is important to ensure that VA spending on Medicare- covered services does not result in inequitable payments to individual MA plans for veterans and nonveterans. While CMS is required to adjust MA payments to account for VA spending on Medicare-covered services, as appropriate, the agency determined that no adjustment to the benchmark, which is based in part on per capita county Medicare FFS spending, was necessary for years 2010 through 2016. CMS updated the study it used to make this determination in 2016 and determined that an adjustment was necessary for 2017. However, both CMS's 2009 study and its 2016 study were limited because the agency did not have VA utilization and diagnoses data. Adjusting the study's methodology to incorporate these data could change the study's findings and result in CMS making a larger adjustment to the benchmark in future years. Such a benchmark adjustment could improve the accuracy of payments for nonveterans. However, a benchmark adjustment could also result in or exacerbate payments to MA plans that are too high for veterans, so additional MA payment adjustments could become necessary. We recommend that the Secretary of Health and Human Services direct the Administrator of CMS to take the following two actions: Assess the feasibility of updating the agency's study on the effect of VA-provided Medicare-covered services on per capita county Medicare FFS spending rates by obtaining VA utilization and diagnosis data for veterans enrolled in Medicare FFS under its existing data use agreement or by other means as necessary. If CMS makes an adjustment to the benchmark to account for VA spending on Medicare-covered services, the agency should assess whether an additional adjustment to MA payments is needed to ensure that payments to MA plans are equitable for veterans and nonveterans. We provided a draft of this product to VA and the Department of Health and Human Services (HHS). HHS provided written comments on the draft, which are reprinted in appendix II. Both VA and HHS provided technical comments, which we incorporated as appropriate. In its comments, HHS concurred with one of our two recommendations. HHS agreed with our recommendation that if CMS makes an adjustment to the benchmark to account for VA spending on Medicare-covered services, it should assess whether an additional adjustment to MA payments is needed to ensure that payments to MA plans are equitable for veterans and nonveterans. HHS acknowledged that CMS is required to estimate, on an annual basis, the amount of additional Medicare FFS payments that would have been made in a county if Medicare-eligible veterans had not received services from VA and, if necessary, to make a corresponding MA payment adjustment. In the 2017 MA Advance Notice, CMS provided the results of its updated analysis, which used the same methodology as its 2010 analysis, but with more recent data. Based on its findings, CMS plans to make an adjustment to 2017 MA payment rates to account for VA spending on Medicare-covered services. In its comments, HHS stated that CMS will assess whether an additional adjustment to MA plan payments is needed to ensure that payments to MA plans are equitable for veterans and nonveterans. We encourage CMS to complete its assessment prior to finalizing its 2017 payments to ensure that payments to MA plans will be equitable when the adjustment to account for VA spending on Medicare-covered services is made. HHS did not concur with our recommendation that CMS should assess the feasibility of updating the agency's study on the effect of VA-provided Medicare-covered services on per capita county Medicare FFS spending rates by obtaining VA utilization and diagnosis data for veterans enrolled in Medicare FFS. HHS stated that CMS uses Medicare FFS spending rates when setting the benchmark, which excludes services provided by VA facilities. In addition, HHS stated that incorporating VA utilization and diagnosis data into CMS's analysis may not materially improve the analysis and the resulting adjustment. HHS indicated that it will continue to review the need for incorporating additional data or for methodology changes in the future. As we note in the report, only VA's utilization and diagnosis data can account for services provided by and diagnoses made by VA. Depending on the number and mix of services provided by and the diagnoses made by VA, risk-adjusted Medicare FFS spending for veterans may either be higher or lower than it would be if CMS accounted for VA-provided services and diagnoses. Therefore, relying exclusively on Medicare FFS spending to estimate the effect of VA spending on Medicare FFS-enrolled veterans could result in an inaccurate estimate of how VA spending on services for Medicare FFS-enrolled veterans affects per capita county Medicare FFS spending. While there may be challenges associated with incorporating VA utilization and diagnosis data into CMS's analysis, we maintain that CMS should work to do so given the implications that not incorporating the data may have on the accuracy of payment to MA plans. We continue to believe that an important first step would be for CMS to assess the feasibility of incorporating VA utilization and diagnosis data in a way that can overcome the challenges identified by CMS and potentially lead to a more accurate adjustment. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, the Administrator of CMS, and other interested parties. In addition, the report will be available at no charge on GAO's website at http://www.gao.gov. If you or your 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 III. This appendix describes the scope and methodology used to (1) estimate the amount that the Department of Veterans Affairs (VA) spends to provide Medicare-covered services to veterans enrolled in Medicare Advantage (MA) plans and how VA spending on these services affects Centers for Medicare & Medicaid Services (CMS) payments to MA plans; and (2) evaluate the extent to which CMS has the data it needs to determine an appropriate adjustment, if any, to MA payments to account for VA's provision of Medicare-covered services to MA-enrolled veterans. To estimate the amount that VA spends to provide Medicare-covered services to veterans enrolled in MA plans, we first identified veterans with at least 1 month of overlapping enrollment in an MA plan and in VA health care in fiscal year 2010. VA provided us with an enrollment file that included veterans enrolled in VA health care for at least 1 month in fiscal year 2010 and whom VA had identified as having at least 1 month of Medicare private plan enrollment. To determine months of MA enrollment in fiscal year 2010, we matched the VA enrollment file to Medicare's calendar year 2009 and 2010 Denominator Files based on whether beneficiaries had the same Social Security number and either the same date of birth, sex, or both. We excluded those beneficiaries who did not have at least 1 month of overlapping MA and VA health care enrollment. In addition, we excluded veterans in the VA enrollment file that did not have a VA enrollment start date, were listed as having died prior to fiscal year 2010, or were not enrolled in one of the four most common MA plan types. After all exclusions, we identified 833,684 veterans with at least 1 month of overlapping enrollment in an MA plan and VA health care in fiscal year 2010. We identified all inpatient and outpatient services provided by VA to those veterans in our population during fiscal year 2010. VA can provide inpatient and outpatient services directly at one of its medical facilities or it can contract for care, known as VA care in the community; we received inpatient and outpatient utilization files for both types of VA-provided care. We excluded prescription drug services from our analysis, as payments to MA plans for coverage of Part D services are determined differently than are payments for other Medicare-covered services. We also excluded services that were received during a month when the veteran was not enrolled in both VA health care and an MA plan. We considered an inpatient stay, which can last multiple days, to be during a month when the veteran was enrolled in both VA health care and an MA plan if 1 or more days of the stay occurred during a month in which the veteran was enrolled in VA health care and an MA plan. In some instances, hospital stays had an admittance date prior to fiscal year 2010 or a discharge date after it, and in those cases, we included only the portion of the stay that occurred during fiscal year 2010. We excluded those inpatient and outpatient services that were provided by VA but were not covered by Medicare. For inpatient services directly provided by VA, we used the category of care assigned to each service by VA to exclude service categories not covered by Medicare, such as intermediate and domiciliary care. In addition, we excluded services provided by VA that went beyond Medicare benefit limits. Because MA plans may have different benefit limits than Medicare fee-for-service (FFS), we analyzed the benefits offered by a sample of 45 MA plans for 2014 for services covered by Medicare FFS that have benefit limits. We identified the most common benefit limits for those services and used those as our benefit limits for VA services. In cases where some or all MA plans had service categories with lifetime reserve days (e.g., inpatient days beyond the 90 days Medicare covers per benefit period, up to an additional 60 days per lifetime), we made the assumption that beneficiaries had 25 percent of their lifetime reserve days remaining. For inpatient services provided through VA care in the community, we excluded hospice services; services with cancelled payments; and services with a classification of dental, contract halfway house, pharmacy, reimbursement, or travel. For outpatient services directly provided by VA, we excluded services that were not included in the Medicare physician fee schedule; ambulance fee schedule; clinical lab fee schedule; durable medical equipment, prosthetics/orthotics, and supplies fee schedule; anesthesiology fee schedule; or ambulatory surgical center fee schedule. We also excluded services that had a Medicare physician fee schedule status code indicating they were a deleted code, a noncovered service, had restricted coverage, or were excluded from the physician fee schedule by regulation. For outpatient services provided through VA care in the community, we made the same exclusions as for outpatient services provided by VA and also excluded hospice care services and services with cancelled payments. We calculated total VA spending and CMS payments to MA plans for beneficiaries for months in which they were enrolled in both VA health care and an MA plan in fiscal year 2010 and evaluated how, if at all, VA spending on these services affects CMS payments to MA plans. To calculate VA's estimated spending, we assigned all Medicare-covered services directly provided by VA a cost, using VA's average cost data; and for services provided through VA care in the community, we used the amount that VA disbursed to the service provider. We calculated total MA spending for veterans enrolled in MA and VA using actual CMS payments to MA plans for our population in fiscal year 2010. To evaluate how VA spending on Medicare-covered services affects CMS payments to MA plans, we reviewed CMS documentation and interviewed CMS officials. To evaluate the extent to which CMS has the data it needs to determine an appropriate adjustment, we reviewed CMS documentation and interviewed CMS officials. As part of this effort, we also evaluated CMS's methodology for a study it used as the basis of its decision to not adjust county per capita Medicare FFS spending rates for VA spending on Medicare-covered services. Our evaluation was based on a review of CMS documentation and an interview with CMS officials. To assess the reliability of the data we used in our analyses, we reviewed related documentation, interviewed knowledgeable officials from CMS and VA, and performed appropriate electronic data checks. This assessment allowed us to determine that the data were reliable for our objectives. We conducted this performance audit from July 2013 to April 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Gregory Giusto, Assistant Director; Christine Brudevold; Christine Davis; Jacquelyn N. Hamilton; Dan Lee; Elizabeth T. Morrison; Christina C. Serna; and Luis Serna made key contributions to this report.	Veterans enrolled in Medicare can also enroll in the VA health care system and may receive Medicare-covered services from either their Medicare source of coverage or VA. Payments to MA plans are based in part on Medicare FFS spending and may be lower than they otherwise would be if veterans enrolled in Medicare FFS receive some of their services from VA. Because this could result in payments that are too low for some MA plans, CMS is required to adjust payments to MA plans to account for VA spending, as appropriate. CMS determined an adjustment was needed for 2017, but not for 2010 through 2016. GAO was asked to examine how VA's provision of Medicare-covered services to Medicare beneficiaries affects payments to MA plans. GAO (1) estimated VA spending on Medicare-covered services and how VA spending affects payments to MA plans and (2) evaluated whether CMS has the data it needs to adjust payments to MA plans, as appropriate. GAO used CMS and VA data to develop an estimate of VA spending on Medicare-covered services. GAO reviewed CMS documentation and interviewed CMS and VA officials. In fiscal year 2010, the Department of Veterans Affairs (VA) health care system provided $2.4 billion in inpatient and outpatient services to the 833,684 veterans enrolled in Medicare Advantage (MA), a private plan alternative to Medicare fee-for-service (FFS). While the Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), generally pays Medicare FFS providers separately for each service provided, MA plans receive a monthly payment from CMS to provide all services covered under Medicare FFS. These monthly payments are based in part on a bidding target, known as a benchmark, and risk scores, which are used to adjust the payment amount to account for beneficiary demographic characteristics and health conditions. Both the benchmark and risk scores are calibrated based on Medicare FFS spending. Therefore, VA's provision of Medicare-covered services to veterans enrolled in Medicare FFS likely resulted in lower Medicare FFS spending and, in turn, lower overall payments to MA plans. However, the extent to which these payments reflect the expected utilization of services by the MA population remains uncertain. Specifically, payment amounts may still be too high or could even be too low, depending on the utilization of VA services by veterans enrolled in MA plans and veterans enrolled in Medicare FFS. If, for example, veterans enrolled in MA receive a greater proportion of their services from VA relative to veterans enrolled in Medicare FFS, then the benchmark may be too high. Conversely, payments may be too low if MA-enrolled veterans tended to receive fewer Medicare-covered services from VA relative to veterans enrolled in Medicare FFS. Assessing these possible differences would require data on the services veterans receive from MA. CMS began collecting these data in 2012 but, as of August 2015, had yet to take all the steps necessary to validate the accuracy of the data, as GAO has previously recommended. CMS also lacks data on VA diagnoses and utilization that may improve its methodology for determining if an adjustment to the benchmark is needed to account for VA's provision of Medicare-covered services to veterans enrolled in Medicare FFS. Federal standards for internal control call for management to have the operational data it needs to meet agency goals to effectively and efficiently use resources and to help ensure compliance with laws and regulations. While CMS determined that no adjustment was necessary for 2010 through 2016 based on a 2009 study it performed, CMS's methodology did not account for services provided by and diagnoses made by VA, which can only be identified using VA's data. CMS officials updated the agency's study in 2016 using the same methodology, but with more recent data. CMS officials told GAO that they did not plan to incorporate VA utilization and diagnoses data into their analysis because (1) they do not currently have such data and (2) incorporating these data would introduce additional uncertainty into the analysis. However, if an adjustment is needed but not made or if an adjustment is too low due to limitations with CMS's methodology, it could result in some plans being paid too much and others too little. If CMS does revise its methodology and determines that an adjustment to the benchmark is necessary, it may need to make additional adjustments to MA plan payments, as discussed in this report. CMS should (1) assess the feasibility of revising its methodology for determining if an adjustment to the benchmark is needed by obtaining diagnoses and utilization data from VA and (2) make any additional adjustments to MA plan payments as appropriate. HHS disagreed with the first recommendation, but agreed with the second. GAO maintains that VA data may improve CMS's analysis.	6,645	981
PPACA includes provisions that are designed to make health insurance more accessible and affordable for millions of Americans. These include provisions for establishing health insurance exchanges in each state, and enhancing processes for the annual review of health insurance premiums. To facilitate these activities, PPACA created new responsibilities for states and the federal government, and provided financial resources to states in the form of federal grant funding. PPACA mandated the establishment of exchanges--new health insurance marketplaces in each state through which qualified individuals and small businesses can compare, select, and purchase standardized health coverage from among participating issuers of health coverage. These exchanges must begin enrolling consumers by October 1, 2013, into coverage that begins January 1, 2014. Core exchange functions include determining eligibility and enrolling individuals, plan management (certifying qualified health plans), consumer assistance and outreach, and developing the necessary information technology (IT) infrastructure to support the exchange. These exchanges may be established and operated by a state itself as a "state-based exchange." Such states must also establish a governing board and standards of conduct. Where a state is unable or unwilling to establish and operate an exchange, PPACA directs HHS to establish an exchange--referred to by HHS as a "federally facilitated exchange." States in which a federally facilitated exchange will operate may also enter into arrangements with HHS to assist it with certain of the exchange's plan management or consumer assistance functions. HHS refers to such exchanges as "partnership exchanges." As of March 2013, HHS indicates that 18 states will establish their own state- based exchanges and 33 will have a federally facilitated exchange, of which 7 states are planning to have a partnership exchange. To assist states in developing exchanges, PPACA authorized HHS to award grants to states for the planning and establishment of insurance exchanges. PPACA did not provide a specific amount of exchange grant funding, but rather, appropriated to HHS, out of any moneys in the Treasury not otherwise appropriated, an amount necessary to make grant awards. In doing so, it directed HHS to determine the total amount of funding that it will make available to each state for each fiscal year. PPACA authorized HHS to award grants to states through December 2014, and, on the basis of this authority, HHS established four separate programs for awarding exchange grants to states: Planning Grants: Provided states with resources to conduct the initial research and planning needed to build an exchange and determine how it will be operated and governed. Once awarded, the grant funds were available for 1 year, and a state could only receive one grant. Early Innovator Grants: Provided funding to a state or group of states that were early leaders in building their exchanges to design and implement the IT infrastructure needed to operate the exchanges. All exchange IT components, including software and data models, developed with these grants could be adopted and modified by other states to fit their specific needs. Once awarded, the grant funds were available for 2 years, and a state or group of states could only receive one grant. Establishment Grants (Level 1): Provide funding to states pursuing any exchange model. Funding is designed to help states undertake additional exchange establishment activities, such as making legislative/regulatory changes, establishing IT systems, and consulting with key stakeholders. Once awarded, the grant funds are available for 1 year, and a state may apply for multiple grants. Establishment Grants (Level 2): Provide funding to states that have legal authority to implement an exchange and are further along in exchange development and pursuing a state-based exchange. Funding is designed to help states develop all exchange activities, including consumer and stakeholder engagement and support, eligibility and enrollment, plan management, and technology. Once awarded, the grant funds are available for up to 3 years, and a state can only receive one grant. Health insurance premium rates are generally established on the basis of actuarial estimates of the cost of providing coverage over a period to enrollees in a private health insurance plan. Insurance issuers generally submit these rates to states as a formula that describes how to calculate a premium for each person or family covered on the basis of factors such as age, gender, and geographic location. Individual states are primarily responsible for ensuring that the rates within their state are reasonable-- that is, adequate, not excessive, reasonable in relation to benefits provided, and not unfairly discriminatory--and they do so by establishing standards and defining state insurance departments' authority to help enforce them. Most states require carriers to submit rate filings to state insurance departments for review prior to implementation of new rates or rate changes, although the authority of the departments to approve or disapprove the filings can vary by state. Some state insurance departments have the authority to approve or disapprove rate filings before they go into effect, while others do not have any authority to approve or disapprove rate filings. Oversight of premium rates charged by insurance issuers historically has been primarily a state responsibility; however, PPACA established a role for HHS by requiring the Secretary of Health and Human Services to work with states to establish a process for the annual review of unreasonable premium increases in the individual and small group insurance markets. HHS has since issued regulations that established a threshold for determining whether rate increases proposed by insurance issuers require review, and requiring insurance issuers to report information to HHS on proposed rate increases. The regulations also establish criteria and a process by which HHS will determine whether a state has an effective rate review program and thus meets HHS's standards for conducting the rate reviews. Under the regulations, an effective rate review program must, among other things, utilize sufficient data and documentation concerning rate increases to conduct an examination of the reasonableness of the proposed increases, and make a determination of the reasonableness of the rate increase under a standard set forth in state statute or regulation. If HHS determines that a state does not have an effective rate review program, then HHS will conduct the rate reviews. As of April 2013, HHS has determined that all but nine states have an effective rate review program for both the individual and small group insurance market. To assist states in reviewing premium rates, PPACA also established a 5-year premium rate review grant program beginning in 2010. PPACA appropriated $250 million for HHS to award grants to states from fiscal years 2010 through 2014. On the basis of this authority, HHS established two separate rate review grant programs: Cycle I: Provided states with assistance to enhance their rate review processes--for example, by ensuring that increases in health insurance premiums and rate filings are thoroughly evaluated and, to the extent permitted by law, approved or disapproved through a comprehensive rate review process. Once awarded, grant funds were available for 1 year, and a state could only receive one grant. Cycle II: Further assists states in improving and enhancing their rate review and reporting processes, and for meeting requirements of an effective rate review program. Once awarded, grant funds are available for up to 3 years depending on the date they are awarded, and a state may be able to receive more than one grant. (See app. I for further details on these grant types as well as the four types of establishment grants.) Federal competitive grants generally follow a life cycle that includes four stages and several activities within each stage, as seen in figure 1. The grant process begins with the preaward stage, when the public is notified of the grant opportunity through a funding announcement, and potential grantees must submit applications for agency review. In the award stage, the agency identifies successful applicants and awards funding. The implementation stage includes grantees drawing down funds, agency monitoring, and grantee reporting, which may include financial and performance information. The closeout stage includes preparation of final reports, financial reconciliation, and any required accounting for property. Audits may occur multiple times during the life cycle of the grant and after closeout. In CCIIO, officials, known as state or project officers, are assigned to specific grants, and are responsible for managing and overseeing the life cycle of grants. This includes reviewing grant applications and evaluating whether the projects funded by the grants are on schedule and meeting goals. For exchange grants, 17 CCIIO employees work as state officers, and for rate review grants, 2 CCIIO employees work as project officers. These state or project officers also work with grants management officials from CMS's Office of Acquisition and Grants Management (OAGM) to oversee the financial and regulatory aspects of the grants. HHS's process to award PPACA exchange and rate review grants to states involves soliciting, screening, and evaluating applications and making official grant awards. The steps include the announcement of grant opportunities; states' preparation and submission of applications; application eligibility determinations; objective reviewers' evaluation of applications; HHS officials' evaluation of applications and corresponding follow-up, or budget negotiations, with states; final grant recommendations to HHS leadership; and final award decisions and issuance of official awards. CCIIO project officers, in collaboration with other HHS officials, review statutory requirements as well as federal regulations to develop an FOA to solicit applications for each exchange and rate review grant type. The FOA contains key items a state needs to review and understand prior to submitting an application. These include the program eligibility criteria, the amount of funding available for award, the types of activities that may be funded under the grants, the instructions for completing applications, and the process and criteria for evaluating applications. Once completed, the FOA is posted on the HHS website and Grants.gov, a website run by the federal government through which states and other entities can find and apply for federal grants. After posting the FOA, CCIIO project officers may conduct a conference call to provide guidance to interested states on items such as the grant review criteria, instructions on preparing project budget proposals, and other application procedures. Information on this call is provided in the FOA, and a transcript and recording of the call may be posted afterward on the HHS website. States must prepare and submit application materials to HHS through Grants.gov, as outlined in the FOA. The application must include the amount of federal grant funding being requested, as well as other materials including various federal forms; letters of support from the governor or other applicable state entities, or both; a project narrative; a work plan that contains milestones and time frames; a proposed budget that provides line-item costs for various categories of activities to be performed using grant funding; and an organizational chart of key state personnel. Upon receiving applications, CCIIO project officers and OAGM officials conduct an initial eligibility check for all grant applications by screening them on the basis of specific eligibility criteria described in the FOA and ensuring that they contain all required documents as described above. The eligibility criteria vary depending on the type of exchange or rate review grant being awarded. Table 1 below outlines the key eligibility criteria for each type of exchange and rate review grant. As the table shows, the eligibility criteria for Level 2 exchange Establishment grants and Cycle II rate review grants require greater commitments from states as compared to the criteria for other grants--for example, to receive Level 2 Establishment grants, states must commit to establishing a state- based exchange and complete specified steps associated with doing so, such as obtaining the necessary legal authority to establish and operate the exchange. To receive Cycle II grants, states must commit to developing effective rate review programs that meet HHS requirements. Once applications are deemed eligible, a panel of independent subject- matter experts meets to discuss the applications' strengths and weaknesses and evaluate whether they meet grant program requirements. These reviewers are recruited by CCIIO project officers, who ensure that the reviewers are unaffiliated with the exchange and rate review programs but have experience in a wide range of relevant fields and together possess the subject-matter expertise needed to review the applications. For example, according to CCIIO officials, panels for exchange grant application cycles always contain reviewers with IT-related expertise, due to the significant role IT plays in exchange establishment. CCIIO project officers assign three reviewers to each application, but the total number of reviewers within a panel depends on the number of submitted applications and may therefore vary between application cycles. Once reviewers are selected, project officers provide them with instructions on the process and guidance on the relevant FOA and statute. In addition, OAGM officials indicated that they advise the reviewers on the proper procedures to follow in conducting their review. To then evaluate applications, the objective reviewers use various methods depending on grant type: For most exchange grants, reviewers rely on a scoring system outlined in the applicable FOA to assess the strengths and weaknesses of various sections of an application. These application sections are attached to specified review criteria and point ranges, with a maximum total score of 100 points. For example, the project narrative portion of a state's Establishment grant application can be awarded up to 55 points, depending on factors such as the extent to which the state clearly describes how its progress toward exchange establishment to date has informed its current grant proposal (see table 2 below). The reviewers document their proposed total score for each assigned application as well as their assessments of the applications' strengths and weaknesses. For rate review grants, reviewers do not utilize a scoring system. Rather, to assess the strengths and weaknesses of applications and determine whether they meet requirements, objective reviewers use a CCIIO-provided checklist that lists the requirements of the grant program. The reviewers discuss the applications and make recommendations as to whether the applications are strong enough to be funded or contain weaknesses that must be addressed prior to awarding the grant. CCIIO project officers and OAGM officials sit on the panel meetings but do not participate; rather, their role is to document decisions made during the meetings. For example, where applicable, the officials prepare a rank-order list, or a list of applicants ranked by objective review score. The officials also prepare summaries of each application's strengths and weaknesses as discussed during the review panel (including objective review scores, where applicable), as well as summaries of recommendations stemming from the reviewers' analysis of rate review grant applications. These summaries serve as official documentation of the objective review process. Questions or concerns flagged during this review, as well as those identified during the objective review, can also help inform HHS officials' future oversight of states' use of grant funds. increase of about $9.7 million. Budget negotiations on rate review grant applications submitted by August 2012 have resulted in a net increase of about $8.8 million, with changes ranging from an increase of about $3,000 to an increase of about $2.5 million. After budget review and negotiations for exchange and rate review grant applications have concluded, project officers conduct a final analysis of the results of previous reviews and prepare funding recommendation memos for HHS leadership. These memos contain summaries of the awarding process thus far, including the number of submitted applications as well as the original budget request, revised budget request (where applicable), and the final recommended award amount for each applicant. For example, the August 2011 funding memo describing decisions on exchange Establishment grant applications due in June 2011 indicated that 14 states applied for Level 1 grants. All applications were deemed eligible and thus were recommended to receive awards, with recommended funding amounts ranging from about $4.2 million to about $39.4 million (due to differences in the states' proposed activities and budgets). The funding memos may also include scores from the objective review, where applicable, as well as high-level results from any budget negotiations conducted with states. In addition, according to HHS officials, before final awards are issued, CCIIO project officers typically recommend special terms and conditions that grantees must meet prior to receiving their full funding amount.These recommended terms and conditions are also included in the funding memo. For example, funding for contractors performing IT-related activities is initially restricted from all exchange Establishment grants until certain conditions, such as providing an itemized budget and justification for each contract, are met and sufficiently documented. In addition, Establishment grant applicants submitting applications that receive scores less than 70 during the objective review may have their entire funding amount restricted until the applicants meet certain requirements as specified by HHS, such as providing an updated work plan or budget proposal that more sufficiently meets requirements outlined in the FOA. For instance, the August 2011 Establishment grant funding memo indicated that 3 out of the 14 states' applications received scores of less than 70, and that 2 of these states were able to address most of their application weaknesses during budget negotiations. The remaining state was recommended to have its entire funding amount restricted pending submission of updated application materials within 60 days of receiving the award notice. HHS leadership reviews the funding memo and provides the final sign-off on decisions regarding exchange and rate review grant applications, but according to CCIIO officials generally does not deviate from recommendations in the memo. The agency issues an official notice of grant award to each applicant, outlining the funding amount, project period, budget period, applicable terms and conditions, and administrative requirements such as financial and progress reports that grantees must submit on a regular basis throughout the course of their grant. As of March 27, 2013, HHS had awarded nearly $3.7 billion in exchange grants to states, much of which will be used to fund activities related to developing IT systems for states' exchanges. HHS also awarded about $159 million in rate review grants to states, which to date has been used for five key activities related to enhancing states' rate review processes, including enhancing the transparency of issuers' rate review filings. Between September 2010, when exchange grants were first awarded, and March 27, 2013, HHS awarded 132 exchange grants totaling nearly These awards included Exchange Planning, $3.7 billion to 50 states.Early Innovator, and Level 1 and 2 Establishment grants. To date, the majority of funding (about $3.4 billion, or 92 percent) has been awarded in the form of Level 1 and Level 2 Establishment grants, while Exchange Planning grants make up approximately 1 percent of total exchange grant funding (see table 3). HHS oversees states' use of grant funds by reviewing and analyzing state-reported information and conducting some limited verification of state data. HHS has several mechanisms to address identified concerns or noncompliance identified through routine monitoring and to respond to requests to amend grants' terms. CCIIO's regular oversight process for exchange and rate review grants consists of a variety of mechanisms through which project officers regularly review information reported by grantees as well as communicate with grantees. Additionally, this oversight is supplemented by independent verification through internal analysis and periodic reviews. CCIIO's regular oversight mechanisms are listed below in table 5. As a condition of receiving an exchange or rate review grant, CCIIO requires grantees to prepare and submit regular progress reports covering programmatic activities, progress in meeting program goals, and details about expenditures. CCIIO requires exchange program grantees to provide progress reports describing the current status of their activities in areas such as making legislative/regulatory changes, establishing IT systems, building organizational infrastructure and staffing resources, establishing an operational budget and management plan, and consulting with key stakeholders. Originally, states were required to submit these reports quarterly, but officials indicated that they changed the reporting to semiannually to reduce the burden on states, since states were providing information and communicating with project officers frequently. As part of this progress report, CCIIO requires exchange program grantees to provide information on the amount of grant funds spent over the life of the grant across key budget categories. These categories include state personnel, travel, contractors and consultants. CCIIO also requires grantees to identify the individual contracts they have awarded with grant funds. As with exchange grants, CCIIO requires rate review grantees to provide quarterly progress reports, which include data on their rate review activities, the grantees' original goals, deviations or changes to original goals, accomplishments to date, significant activities undertaken and planned, and any relevant issues or setbacks that occurred over the prior 12 months. These reports also include expenditure information similar to that reported by exchange grantees. Further, CCIIO requires that, each quarter, both exchange and rate review grantees provide financial reports that detail financial activities, including the amount of cash transactions grantees made with grant funds during the quarter. In addition to requiring regular reports, CCIIO project officers have regular phone communication with grantees to discuss grantee reports and activities, clarify guidance, and provide technical assistance to grantees with challenges they encounter, and, according to officials, thereby maintain an awareness of grantees' ongoing activities. According to the standard operating procedures for both programs, project officers call each grantee at least quarterly. According to CCIIO officials, these contacts are in practice much more frequent than the minimum for many grantees under both programs. For example, according to CCIIO officials, project officers generally communicate at least twice per week with exchange grant recipients. As part of their ongoing monitoring, CCIIO officials regularly review and summarize the programmatic and financial information obtained from grantees' progress reports and monitoring calls. For exchange grants, CCIIO officials indicated that each week, project officers submit internal project office summaries about the status of the states' exchange implementation efforts. Additionally, each month, project officers also develop detailed narratives for exchange grants, which include information on how much grant funding the state has spent, the states' progress, barriers they may face, and any action items to be taken over the next 30 days. For rate review grants, project officers also prepare weekly summaries of grantee activities, and quarterly they summarize each state's progress in an Excel tracking sheet. This analysis includes information on how much the grantee has spent, grantee accomplishments, and issues requiring follow-up. Finally, on a quarterly basis program staff provide briefings to CCIIO leadership, and issues regarding grantees' progress are discussed. According to CCIIO officials, project officers routinely oversee and assess exchange and rate review grantees' financial activities by monitoring the amount and pace of the states' drawdown of grants. Each week, OAGM staff provides project officers with reports from OAGM's financial system on the amount of funding each grantee has withdrawn from the grant account, according to officials. Project officers use the reports to look for unusual events such as large drawdowns or no drawdowns. Withdrawals are reported at the overall grant level, not by specific expenditures or general categories of expenditures. According to CCIIO officials, if review of these reports highlights potential issues, they will follow up with grantees and determine whether further action is warranted. In addition to analysis of grantee drawdowns, CCIIO has other mechanisms that can provide independent assessments of grantees' use of funds. CCIIO officials also indicated that they conduct site visits--on- site assessments of exchange and rate review grantees' activities--and that this provides a measure of independent verification of grantee activities. CCIIO officials indicated that exchange grant site visits are in their early stages and have been utilized to provide technical assistance to help grantees establish their exchanges. For example, CCIIO officials indicated that as of April 11, 2013, they have conducted 26 technical assistance site visits at exchange grantees. CCIIO's draft procedures for conducting site visits indicate that they will ultimately conduct a site visit to each state at least once prior to certification of a state's exchange. The procedures indicate that the visit should be conducted by a team consisting of a project officer and key CCIIO and CMS staff, and the site visit team will review operational aspects of the proposed exchange including its enrollment process and financial management. Within 4 weeks of completing the site visit, the project officer should prepare a written report that will include a summary of the site visit, and recommendations to the state, if applicable. For rate review grantees, CCIIO's procedures do not address the frequency of site visits, but indicate site visits are used to further engage grantees, monitor programmatic progress toward established milestones, track fiscal performance, ensure compliance with programmatic and statutory requirements, and mitigate programmatic risks. The procedures indicate that selecting grantees for site visits will be determined by a number of factors including the stage of programmatic implementation and complexity of the grantee's rate review proposal, and the need for more hands-on auditing or budget review, or both. CCIIO officials indicated that as of April 11, 2013, CCIIO has conducted two site visits to rate review grantees. CCIIO requires each state receiving exchange grants to undergo three Establishment Reviews over the course of its grant period. CCIIO uses these reviews to assess states' activities and provide systematic feedback on their progress towards development of an exchange. The reviews are conducted at certain readiness benchmarks, rather than specific times. Planning. The first review is the planning review generally in the first quarter after the grant is awarded. The state must demonstrate preliminary progress towards establishing an exchange, and receives feedback. The review results in a list of tasks for the state to complete before the design review. Design. The second review is the design review, which occurs after states have selected their key contractors for exchange establishment, typically about 6 to 9 months after the planning review. States are expected to have established business requirements and developed detailed plans and procedures for key activities for their exchange. Operational. The final operational review occurs after exchange development and implementation is complete, to test the exchange and demonstrate that it is ready to begin operation. After each of these reviews, CCIIO's procedures require project officers to prepare a postestablishment report describing deliverables by both CCIIO and the grantee. These reports are designed to provide a summary of the progress the state has made in meeting the necessary requirements related to establishing an exchange. The report also serves as a guide in identifying action items and next steps to ensure adherence to mandatory timelines. According to CCIIO officials, in calendar year 2012 they completed planning reviews for 24 grantees and design reviews for 28 grantees, covering 31 of the 38 states with Level 1 Exchange Establishment grants. As of March 2013, they had not completed any operational reviews, but planned to complete them between August and September 2013. Finally, all recipients of these grants are required to obtain an A-133 Audit. According to CCIIO guidance, CCIIO reviews the audit for each grantee. According to CCIIO officials, they plan to use the A-133 Audit results as part of their Operational Establishment Reviews for exchange grants and as part of future Annual reviews for rate review grants. The guidance also calls for grantees to address any significant findings from the audit and to develop plans for mitigating future problems. CCIIO officials indicated that if CCIIO's regular oversight process identifies instances when a grantee may not be complying with requirements of the grant, CCIIO uses a five-tier response to address them, in which CCIIO advances its response to the next tier if its earlier responses did not address the issue (see fig. 5). In the first tier, CCIIO officials indicated they discuss compliance issues with the exchange or rate review grantee and request a mitigation strategy, which CCIIO documents in the project records. The second tier calls for production of management assessment items by the state, such as a documented business plan to address the compliance issue in a specific time frame. In the third tier, CCIIO imposes conditions on the grant award, which identifies the reason for the condition and limits the grantee's access to funds, until the grantee provides requested documentation. In the fourth tier, CCIIO restricts the grantee's access to funds until it reviews and approves the grantee's corrective action. CCIIO's final action in the fifth tier is to terminate the grant. According to OAGM officials, to date they have not had to impose conditions or restrictions on grants based on their regular oversight. Further, OAGM officials said that so far they had not identified any misuse of grant funds on the basis of established program criteria. If a state seeks to make certain changes to the terms of its exchange or rate review grant, CCIIO requires that the state obtain prior approval, and has established procedures to review the appropriateness of any such requests. CCIIO refers to these as postaward actions, and they include instances such as when a state wants to alter substantially the allocation of funds between major activities funded by a grant (called a budget revision), or extend the time frames for performing grant activities without changing the award amount (called a no-cost extension). Eight types of routine, grantee-initiated postaward actions are described in table 6 below. For example, if a state wants to reallocate more than 25 percent of an exchange grant among budget categories, CCIIO requires the state to work with the appropriate project officer to obtain approval by OAGM. Under its procedures, CCIIO requires the state to provide supporting documentation to justify the proposed rebudgeting. The project officer will review the request and make a recommendation to the OAGM. If approved, OAGM will amend the grant agreement to reflect the revised budget. Officials indicated that the same general procedures apply to other types of postaward actions. Officials indicated that CCIIO also requires states in which the anticipated exchange type changes (e.g., from a state-based exchange to a federally facilitated exchange) to obtain approval for a change in the scope of services permitted under the state's original grant or to terminate the grant. As of April 11, 2013, CCIIO officials indicated they are working with 11 states to determine the appropriate adjustments for their grants to reflect changes in the scope of services they will provide. For example, CCIIO officials indicated that Arizona was originally awarded funding to establish a state-based exchange, but the state subsequently decided to default to a federally facilitated exchange. CCIIO and the state are currently determining the extent to which the state will continue to participate in the grant program. We provided a draft of this report to HHS for its review and comment. HHS provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Health and Human Services. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Purpose Provided states with 1 year of funding to assist with background research and initial planning activities related to the potential implementation of a state-based exchange, including plans for stakeholder involvement, governance structure, technical infrastructure, and necessary policy actions related to the exchange. States could only receive one grant. Award amount $0-1 million; depends on states' proposed activities and budget (along with the Department of Health and Human Services' assessment of the proposal). Early Innovator Provided 2 years of funding to a select number of states or groups of states that demonstrated leadership in establishing state-based exchanges, in particular by beginning development of cutting-edge, cost-effective, consumer-friendly IT for their exchanges. Awards were intended to allow the states to develop rigorous IT models and best practices that could be adopted and tailored by other states. States could only receive one grant. Variable; depends on states' proposed activities and budget (along with HHS's assessment of the proposal). Provides up to 1 year of funding to support states' continued progress in carrying out activities in connection with a state-based or federally facilitated exchange, including a partnership exchange. Funding is awarded to help states undertake specific establishment activities relevant to a state's chosen exchange model. For example, states pursing state- based exchanges may receive funding for activities within 12 categories, including legal authority and governance, consumer and stakeholder engagement and support, and plan management. States preparing to support federally facilitated exchanges are eligible to use grant funding for a subset of these activities, as outlined in the funding opportunity announcement. States may receive multiple grants. Variable; depends on states' proposed activities and budget (along with HHS's assessment of the proposal). Provides up to 3 years of funding to states that are further in their exchange establishment process and are specifically establishing state-based exchanges. Funding is awarded to help states undertake all exchange activities. To be eligible, states must have met certain milestones, including (1) obtaining the necessary legal authority to establish and operate the exchange; (2) establishing a governance structure for the exchange; and (3) submitting (to HHS) an initial plan for funding the long-term operational costs of the exchange. States may only receive one grant. Variable; depends on states' proposed activities and budget (along with HHS's assessment of the proposal). Purpose Provided 1 year of funding to states or U.S. territories to help develop or enhance their rate review processes as well as their processes for reporting their rate increase patterns to HHS. States/territories could only receive one grant. Provides up to 3 years of funding (depending on the date of award) to further assist states or U.S. territories with developing or enhancing their rate review and reporting processes, with the specific purpose of helping states meet HHS's criteria for effective rate review programs. To be eligible, states that at the time of application do not have effective rate review programs in their individual or small group health insurance markets, or both, must commit to using grant funds to develop effective programs within 12 months of receiving the grant. States that at the time of application meet the effective rate review requirements must commit to using grant funds to further enhance their rate review programs. States are eligible for a second Cycle II grant if they have drawn down at least 60 percent of their previous Cycle II grant by August 1, 2013, and if HHS determines that sufficient funding is available after all eligible applications are considered for an initial Cycle II award. Additionally, California is eligible for two Cycle II grants because it has two regulatory agencies that are each primarily responsible for regulating a portion of the state's private health insurance market. Total award amounts are made up of the following subawards: Baseline award: $3 million (for grants awarded in 2011) or $2 million (for grants awarded after 2011). Workload award: variable; depends on states' population and the number of health insurance issuers with 5 percent or more market share in the state. Performance award: approximately $600,000 (for grants awarded in 2011) or $400,000 (for grants awarded after 2011); given to states that have the legal authority to disapprove unreasonable rate increases in their individual or small group markets. Amount of award returned to HHS as of March 27, 2013 (dollars) In addition to the contact named above, Randy DiRosa, Assistant Director; Priyanka Sethi Bansal; David Lichtenfeld; Laurie Pachter; and Stephen Ulrich made key contributions to this report.	PPACA required the establishment of health insurance exchanges and a process for the annual review of unreasonable increases in insurance premiums charged by issuers of health coverage in each state. To assist states in establishing exchanges and in enhancing their ability to review issuers' premium rate increases, the law established new grant programs under which HHS is authorized to award grants to states through 2014. The law appropriated an unspecified amount of funds for exchange grants, and appropriated $250 million to HHS for rate review grants. GAO was asked to provide information on HHS's processes to award and oversee these grants. In this report, GAO describes (1) the process HHS uses to award exchange and rate review grants to states; (2) the amounts of grants and key activities states funded through the grants; and (3) HHS's process for overseeing states' use of the grants. GAO reviewed laws, regulations, and HHS's procedures that established the processes for awarding the grants. GAO obtained and analyzed data on all exchange and rate review grants awarded from August 2010 through March 2013. GAO also reviewed HHS's procedures for overseeing the grants, and interviewed officials responsible for grants oversight. HHS provided technical comments on a draft of this report, which GAO incorporated as appropriate. The Department of Health and Human Services (HHS) has a structured process for awarding Patient Protection and Affordable Care Act (PPACA) exchange and rate review grants to states. These grants are designed to help states establish exchanges--new health insurance marketplaces through which individuals and small businesses can obtain insurance--and review issuers' proposed rate increases. The grant award process consists of a series of steps during which the agency solicits, screens, and evaluates grant applications, and then makes funding awards. Once HHS deems that applications meet program eligibility criteria, applications go through various reviews, including a review by independent experts and HHS officials. On the basis of these reviews, HHS determines whether states' proposed activities are allowable, and if so, whether the associated requests for grant funding are reasonable. Based on recommendations from the reviews, HHS determines whether to award grants to states, and if so, the amounts of any grants to be awarded. As of March 27, 2013, HHS had awarded about $3.8 billion in PPACA exchange and rate review grants that states have used or plan to use to develop exchanges and enhance rate review capabilities. This includes nearly $3.7 billion in exchange grants awarded to 49 states and the District of Columbia. Among states that have received exchange grants, the amount of funding provided to states ranges from $0.8 million (Wyoming) to about $911 million (California). Approximately half the states were awarded under $30 million in exchange grant funding, while 10 states were awarded over $100 million. As of February 2013, states had drawn down approximately $380 million of their exchange grant funds. GAO's review of a subset of exchange grantee financial reports indicated that nearly 80 percent of expenditures have been for contracts and consulting services, much of which states spent on key activities for developing exchange information technology systems. HHS also awarded about $159 million in rate review grants to 46 states and the District of Columbia, much of which has funded five key activities, including expanding the scope of rate review programs and enhancing the transparency of the rate review process. HHS's process for overseeing states' use of PPACA grant funds consists of several mechanisms. The agency regularly monitors states' grant activities though its review of program and financial information reported by states, as well as ongoing communication with grantees. HHS's process also includes mechanisms to periodically verify state-reported information, including its analysis of states' withdrawal of grant funds and site visits. To date, however, use of site visits has been limited. HHS has a number of mechanisms it can utilize, such as restricting a grantee's access to funds, if its monitoring identifies concerns or compliance issues, but agency officials indicated they have not identified any misuse of grant funds or compliance issues to date.	7,655	875
Within VA Central Office, VHA's Primary Care Services Office develops policies related to the management of primary care--including the recording and reporting of primary care panel size data--and VHA's Primary Care Operations Office is responsible for executing policies related to primary care delivery and monitoring primary care. VHA's Office of Finance develops policies related to the recording and reporting of primary care encounter and expenditure data. Each of VA's 21 networks is responsible for overseeing the facilities within their network, and this responsibility includes overseeing facilities' management of primary care. (See fig. 1.) Based on a review of studies, VA established a baseline panel size of 1,200 patients at any given time for a full-time primary care physician provider. The Primary Care Services Office adjusts the baseline panel size for each facility based on a model VA officials said they developed in 2003 that uses data reported by facilities--including data on the number of FTE providers, support staff, and exam rooms--and projections on the average number of primary care visits. These projections are based on patient characteristics, such as the proportion of patients with chronic conditions. VA refers to the adjusted baseline for each facility as the "modeled panel size," which in fiscal year 2014 ranged from 1,140 to 1,338 across VA's facilities. VA generally updates the modeled panel size annually for each facility. VA's handbook on primary care management requires that facilities record and report primary care data using the Primary Care Management Module (PCMM) software. These data include the number of patients, FTE providers, support staff, and exam rooms, and the reported and modeled panel size. Each facility maintains its own PCMM software and is required to update its panel size data on an ongoing basis in PCMM, which electronically reports facilities' data to a separate national database maintained by the Veterans Support Service Center. This national database allows the Primary Care Operations Office and VA's networks to review the data. An encounter is a professional contact between a patient and a provider who has the primary responsibility for diagnosing, evaluating, and treating the patient's condition. In addition to individual office visits, there are other types of encounters, such as telephone visits and group visits. Each facility identifies and tracks all of its expenditures associated with primary care encounters. Facilities transmit their encounter and expenditure data using the Decision Support System, which is maintained by the Office of Finance. This office is responsible for collecting and maintaining financial information for VA's cost accounting--which identifies and assesses the costs of programs at the national, network, and facility levels--and for budgetary purposes. We found that VA lacks reliable data on primary care panel sizes across its facilities because the data that facilities record and report to VA Central Office and networks are sometimes inaccurate. Because reliable reported panel sizes were not available for all facilities, we calculated actual panel sizes at six of seven selected facilities and compared them to each facility's modeled panel size for fiscal year 2014. We found that actual panel sizes across the six facilities varied from 23 percent below to 11 percent above their respective modeled panel size. Moreover, we found that VA Central Office and networks do not have effective oversight processes for verifying and using facilities' panel size data to monitor facilities' management of primary care. We found that VA lacks reliable data on primary care panel sizes across its 150 facilities because the data that facilities record in the PCMM software and report to the Primary Care Operations Office and to networks are sometimes inaccurate. Federal internal control standards state that reliable information is needed to determine whether an agency is meeting its goals for accountability for effective and efficient use of resources. However, our review of the reported panel size data for all of VA's facilities for fiscal year 2014 revealed missing values as well as values that appeared to be unreasonably high or low, which raised concerns about these data. Officials from the Primary Care Operations Office, whom we interviewed about the reliability of these data, agreed that inaccuracies exist in the way facilities report data elements in PCMM, such as the number of patients assigned to primary care panels and the number of FTE providers, support staff, and exam rooms. Primary Care Operations Office officials pointed out that because the data are self- reported, facilities can and sometimes do record the data inaccurately or in a manner that does not follow VA's policy on panel management. For example, the officials stated that some facilities may not count support staff and exam rooms as outlined in VA's policy. These officials also stated that PCMM has limitations that may affect the reliability of facilities' reported panel size data. For example, officials explained that the software makes it difficult for facilities to ensure that inactive patients (i.e., those who have not seen their primary care provider within the preceding two years or have died) are removed from providers' panels. We identified similar inaccuracies in our more in depth review of panel size data reported by the seven selected facilities. Specifically, at three facilities we found inaccuracies in the reported number of FTE primary care providers and the reported number of patients, which impacted the facilities' reported or modeled panel sizes. For example, the number of FTE primary care providers reported by one of these facilities was too low because the facility incorrectly recorded each FTE provider as only 90 percent of a FTE. We did not identify inaccuracies in the data reported by the remaining four facilities. (See table 1.) Because some medical facilities' reported panel size data are unreliable, VA Central Office and network officials cannot readily determine each facility's average primary care panel size nor compare these panel sizes to each facility's modeled panel size to help ensure that care is being delivered in a timely manner to a reasonable number of patients. Moreover, having unreliable data can misinform VA in other aspects as well. For example, because VA's model is based on historical data reported by facilities, unreliable data may result in VA's modeled panel size being too high or too low for certain facilities. Also, if facilities are using unreliable data to manage their primary care panels--for example, using the data to assign patients to primary care providers--the facilities may be misinformed about the available capacity on primary care providers' panels--information that is key to determining facilities' staffing and other resource needs. Primary Care Operations Office officials told us that they intend to address data reliability issues over time. Specifically, the Primary Care Operations Office is in the process of implementing new software, called web-PCMM, which officials believe will address some concerns about the reliability of the data because the software features controls to help ensure that facilities record and report the data accurately and consistently. For example, web-PCMM will automatically remove inactive patients from providers' panels. In preparation for the implementation of web-PCMM, Primary Care Operations Office officials said they have been training network and facility staff on the features and capabilities of the new software and instructing facility staff to review and correct their panel size data to help improve data accuracy. It is not yet known the extent to which the new software will actually address the data reliability issues because facilities will continue to self-report data. The Primary Care Operations Office started piloting the new software at selected facilities in 2014 and had planned to implement it agency-wide after resolving software interoperability issues identified during the pilot. However, officials said that implementation is currently on hold because of a lack of funding, and the officials could not provide an updated timeframe for its system-wide implementation. According to these officials, VA has spent about $8.8 million through July 2015 on the development and implementation of web-PCMM and requires an additional $1.5 million to implement it agency-wide. Because reliable data on reported panel sizes were not available for all of VA's facilities at the time of our review, we calculated actual panel sizes at six of the seven selected facilities using updated data from these facilities and correcting for the inaccuracies we found at two facilities. We compared the actual panel size to each facility's modeled panel size for fiscal year 2014. Although Primary Care Operations Office officials recommend that facilities keep panel sizes 10 to 15 percent below modeled panel sizes to accommodate growth and provider attrition, we found that actual panel sizes ranged from 23 percent below to 11 percent above their respective modeled panel size. This wide variation may indicate that actual panel sizes at some facilities are too low--potentially leading to inefficiency and wasted resources--or too high--potentially leading to veterans experiencing delays in obtaining care, among other negative effects. It may also indicate that VA's modeled panel sizes are determined incorrectly based on unreliable facility data or do not sufficiently account for patient acuity levels and demand for primary care services. Actual average panel sizes across the six facilities ranged from a low of 1,000 patients per provider to a high of 1,338 patients per provider. (See fig. 2.) At the three facilities where actual panel sizes were the highest of the six for which we calculated the actual panel sizes, officials cited three key factors that contributed to the higher panel sizes. Growing patient demand: Officials at all three facilities stated that the growing number of patients seeking primary care services at their facilities has required them to assign a larger number of patients to each provider. Officials at one of these facilities stated that not assigning new patients to a panel would result in a greater number of walk-in patients seeking emergency care and a loss of continuity of care. Staffing shortages: Officials at all three facilities described difficulty recruiting primary care providers, which resulted in a shortage of providers. At one of these facilities, about 40 percent of primary care provider positions were vacant at the time of our review. Officials at all three facilities attributed recruiting difficulties to the rural location of these facilities, lack of academic affiliation of the facilities, and the lower pay that VA offers primary care providers compared to nearby private sector medical facilities. In addition, at one of these facilities, officials stated that non-compete clauses limited the facility's ability to hire providers currently working in the private sector who might otherwise seek employment with VA. Exam room shortages: Officials at two of the three facilities stated that a lack of available exam room space has limited their ability to hire additional primary care providers--and thereby reduce panel sizes. They stated that the process for acquiring additional space--whether through building additional space or leasing it--is cumbersome and requires extensive preplanning. For example, at one of these facilities, officials stated that expanding the facility's existing exam room space or opening another CBOC to accommodate growing demand for primary care typically takes 5 to 6 years. The officials told us that while the Veterans Access, Choice, and Accountability Act of 2014 provided facilities with funds to acquire additional space, it did not simplify the process for acquiring space. Officials at two of the three facilities stated that the higher actual panel sizes have contributed to provider burnout and attrition. At one facility-- where actual panel sizes were 11 percent above the modeled panel size--officials stated that the facility has been unable to hire enough providers to make up for attrition. The officials added that providers have expressed concerns to facility leadership that high panel sizes were impeding their ability to provide safe and effective patient care. All three facilities have taken measures to address higher actual panel sizes. For example, in order to ease staffing shortages the facilities have contracted with non-VA providers to provide care at VA facilities and have offered evening and weekend clinic hours to fully utilize available exam room space. However, while these measures have helped address capacity shortages at these facilities, they do not fully address the longstanding concerns resulting from higher panel sizes. In contrast, at the facility where actual panel size was the lowest of the six we reviewed--23 percent below its modeled panel size--officials said they have made a concerted effort to establish lower panel sizes while increasing the number of primary care providers. Officials stated that they had recently lowered providers' panel sizes because they believed that the modeled panel size did not sufficiently account for factors affecting patients' demand for primary care services, such as high acuity levels. These officials noted that they previously followed the modeled panel size but found that it was too high and resulted in primary care provider burnout and poor patient access to primary care providers. Since VA Central Office and network staff generally do not examine differences across medical facilities VA-wide, it is unclear whether the facility with lower panel sizes for providers was providing primary care services in an inefficient manner or whether VA's modeled panel size for this facility was too high. VA Central Office and networks do not have effective oversight processes for verifying and using facilities' panel size data to monitor facilities' management of primary care. VA's panel management policy requires facilities to ensure the reliability of their reported panel size data, but the policy does not assign oversight responsibility to VA Central Office or the networks for verifying the reliability of these data or for using the data for monitoring purposes. Federal internal control standards state that agencies should clearly define key areas of authority and responsibility, ensure that reliable information is available, and assess the quality of performance over time. However, officials from the Primary Care Operations Office told us that-- except for a few isolated situations--they do not verify the panel size data recorded in PCMM to systematically identify unreliable data or to monitor panel sizes across all VA medical facilities. For example, these officials told us that in 2014, they conducted reviews of three facilities that were struggling with recording and reporting reliable data in PCMM to identify ways to improve the reliability of the facilities reported data. The officials said they have not validated facilities' reported panel size data or used the data to monitor primary care because the office has a limited number of staff and mainly relies on the networks and facilities to ensure that the data are recorded and reported correctly and that monitoring is conducted. Across the seven networks that oversee the seven selected facilities for which we conducted a more in-depth analysis, we also identified variations in the extent to which the networks verified facilities' panel size data and used the data to monitor and address panel sizes that were too high or too low. Specifically, Data verification: Officials from four of the seven networks told us that they took some steps to verify that facilities' panel size data were reliable, such as reviewing the data for errors and large variations. For example, officials from one of these networks stated that if they identified large variability in the number of exam rooms--a relatively stable data element over time--it could indicate problems with data reliability, which the network officials would discuss with officials from the facility reporting the data. Officials from another network stated that they compared data reported by facilities to data previously reported by the facilities to identify large variations. Officials from the remaining three networks told us that they did not any take steps to verify that facilities' reported panel size data were reliable. According to Primary Care Operations Office officials, VA networks can request access to facilities' PCMM software, which would enable them to verify the data; however, the officials acknowledged that many of VA's 21 networks are unaware of this capability. Use of data for monitoring primary care: Officials from six of the seven networks said they discussed reported panel size data during monthly calls with facility officials, at primary care committee meetings, or during facility site visits. However, officials from only four of these six networks stated that they took steps to address panel sizes that are too high or too low compared to a facility's respective modeled panel size. For example, officials at one network told us that they helped a facility recruit additional primary care providers to address high panel sizes. In another network, officials said that they were helping a facility secure additional exam room space to address high panel sizes. Officials at a third network told us that they recently had to curtail monitoring activities to address facilities' panel sizes due to staffing shortages. In contrast, officials from the one network that does not use panel size data to monitor facilities' management of primary care told us that they rely on the facilities to manage their own primary care panels and do not believe that the network should take an active role in this process. As a result, officials from this network were unaware that a facility within their network had made a concerted effort to establish panel sizes that were well below its modeled panel size. Absent a robust oversight process that assigns responsibility, as appropriate, to VA Central Office and networks for verifying facilities' panel size data and using the data to monitor facilities' management of primary care--such as, examining wide variations from modeled panel sizes--VA lacks assurance that facilities' data are reliable and that they are managing primary care panels in a manner that meets VA's goals of providing efficient, timely, and quality care to veterans. Primary Care Operations Office officials stated that VA Central Office is in the process of revising its policy on primary care panel management and is developing additional guidance to require VA Central Office and VA networks to verify reported panel size data in addition to other monitoring responsibilities. However, as the revised policy and guidance are still under development, it is unknown when they will be implemented and whether they will fully address the issues we identified. Based on our review of fiscal year 2014 VA-wide primary care expenditure and encounter data, we found that expenditures per primary care encounter varied widely across VA facilities, from a low of $150 to a high of $396, after adjusting to account for geographic differences in labor costs. Expenditures per encounter at 97 of the 140 facilities we reviewed were within $51 or one standard deviation--a statistical measure of variance--of VA's overall average of $242. According to officials from VHA's Office of Finance, one standard deviation is typically used to identify potential outliers when examining encounter and expenditure data. For the remaining 43 facilities, our analysis found that expenditures per encounter at 20 facilities were at least one standard deviation above the average and at 23 facilities were at least one standard deviation below, which may indicate potential outliers that VA Central Office and the networks may need to examine further. (See fig. 3.) Among other things, this variation may indicate that primary care is being delivered efficiently at facilities with relatively low expenditures per encounter or inefficiently at facilities with relatively high expenditures per encounter. We also analyzed expenditures per unique primary care patient--that is, a patient with at least one primary care encounter in fiscal year 2014-- and found similar variation across VA's facilities. (See app. I.) We found that this variation remained when examining expenditures by encounter and per unique patient for facilities within the same complexity group. Of the seven selected facilities, one was among the least expensive facilities across all VA facilities and another was among the most expensive, in terms of expenditures per primary care encounter. An official from the facility that was among the least expensive of the seven we reviewed, with expenditures per encounter of $158, identified an increased use of secure messaging and telephone primary care as primary factors that contributed to a lower expenditure per encounter. Officials from the network that oversees the facility that was among the most expensive of the seven we reviewed, with expenditures per encounter of $330, identified the high cost of living in the area--which resulted in higher leasing and labor costs--as the primary factor that contributed to a higher than average cost per encounter. However, our analysis largely accounted for the higher cost of living in that expenditure data provided by VA were adjusted to account for geographic differences in labor costs, which made up 71 percent of this facility's costs in fiscal year 2014. The officials also explained that part of the reason for the high expenditures per encounter was that the facility was not appropriately accounting for telephone-based primary care services it provided for the entire network. As a result, primary care encounters and expenditures for the selected facility included encounters and expenditures for telephone primary care services for other facilities within the network. According to network officials, steps are being taken to ensure that the facility is allocating these expenditures appropriately going forward. While VA Central Office and networks verify and use facilities' encounter and expenditure data for financial purposes, VA's policies governing primary care do not require VA Central Office and networks to use these data to monitor facilities' management of primary care. Federal internal control standards state that agencies need both operational and financial data to determine whether they are meeting strategic goals and should use such data to assess the quality of performance over time. We found that the Office of Finance in VA Central Office independently verifies facilities' encounter and expenditure data to help ensure their reliability and uses the data for cost accounting and budgetary purposes. Similarly, chief financial officers or their designees at six of the seven networks that oversee the facilities we reviewed routinely examine encounter and expenditure data to identify outliers for the purposes of ensuring data reliability and for cost accounting. However, the Primary Care Operations Office in VA Central Office does not use encounter and expenditure data, even though officials stated that examining such data would likely help them monitor facilities' management of primary care. Furthermore, primary care officials at the seven networks we examined generally do not use these data to monitor facilities' management of primary care. Some officials told us that they do not use encounter and expenditure data for monitoring primary care delivery because panel sizes are the most effective means of measuring efficiency within primary care. By not using encounter and expenditure data to monitor facilities' management of primary care, VA may be missing opportunities to identify facilities--such as those that experience higher than average expenditures per encounter or significant changes in expenditures over time--that may warrant further examination and to strengthen the efficiency and effectiveness of the primary care program. Using panel size data in conjunction with encounter and expenditure data, would allow VA Central Office and networks to assess facilities' capacity to provide primary care services and the efficiency of care delivery. The absence of reliable panel size data and oversight processes could significantly inhibit VA's ability to ensure that facilities are providing veterans with timely, quality care and delivering that care efficiently. While VA planned to address some of the data reliability issues through new software to help VA facilities record data more accurately, development of this software is currently on hold, and VA could not provide any estimates of when the software would be implemented at its facilities. Even if this software is implemented, VA Central Office and networks will still be relying on self-reported data on primary care panel sizes from its facilities. By not having in place a process to verify the reliability of facilities' panel size data or to monitor wide variations between facilities' reported and modeled panel sizes, VA will likely continue to receive unreliable data and miss opportunities to assess the impact of panel sizes on veterans' access to care. VA Central Office and the networks are also missing opportunities to use readily available encounter and expenditure data to potentially improve the efficiency of primary care service delivery. Consistent with federal internal control standards, using such data in conjunction with reliable panel size data could be a potent tool in "right- sizing" panel sizes to best serve veterans' needs and deliver primary care efficiently. We recommend that the Secretary of the Department of Veterans Affairs, direct the Undersecretary for Health to take the following two actions to improve the reliability of VA's primary care panel size data and improve VA Central Office and the networks' oversight of facilities' management of primary care: Incorporate in policy an oversight process for primary care panel management that assigns responsibility, as appropriate, to VA Central Office and networks for (1) verifying each facility's reported panel size data currently in PCMM and in web-PCMM, if the software is rolled- out nationally, including such data as the number of primary care patients, providers, support staff, and exam rooms; and (2) monitoring facilities' reported panel sizes in relation to the modeled panel size and assisting facilities in taking steps to address situations where reported panel sizes vary widely from modeled panel sizes. Review and document how to use encounter and expenditure data in conjunction with panel size data to strengthen monitoring of facilities' management of primary care. VA provided written comments on a draft of this report, which we have reprinted in appendix II. In its comments, VA agreed with our conclusions, concurred with our two recommendations, and described the agency's plans to implement our recommendations. VA also provided technical clarifications and comments on the draft report, including the recommendations contained in the draft report. We incorporated these comments, as appropriate. In particular, we modified our first recommendation in the draft report and now recommend that VA verify each facility's panel size data in PCMM and, if the latter is available, in web-PCMM. We made this change to reflect the continued uncertainty over the implementation of the web-PCMM software. In addition, we modified our second recommendation in the draft report and no longer recommend VA incorporate into existing VA policy a requirement that the agency and its networks use encounter and expenditure data to strengthen the monitoring of facilities' management of primary care. We made this change to reflect that VA officials were not prepared to incorporate such a requirement without first examining how to use these data for monitoring purposes. To address our first recommendation, VA stated that it plans to issue guidance by September 2016 clarifying VA Central Office's and the networks' oversight responsibilities with regard to primary care panel size data. This guidance will include a process--developed by the Offices of Primary Care Services and Primary Care Operations--for addressing medical facilities whose panel sizes differ significantly from similar facilities' panels. In its response, however, VA did not provide information on how it plans to address unreliable panel size data facilities record and report in PCMM. We would encourage VA, in the guidance it plans to issue in 2016, to assign responsibility for verifying each facility's reported panel size data as we recommended. To address our second recommendation, VA stated that it will take steps to understand encounter and expenditure data and determine how best to utilize these data to improve patient care with a target completion date for presenting its findings and decisions by September 2018. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 14 days from the report date. At that time, we will send copies to the appropriate congressional committees and the Secretary of Veterans Affairs. In addition, the report will be available at no charge on the GAO website 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 are on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. We analyzed Department of Veterans Affairs (VA) fiscal year 2014 data on primary care expenditures and calculated expenditures per unique primary care patient. We found that expenditures per unique primary care patient varied widely across facilities in fiscal year 2014, ranging from $558 to $1,544 after adjusting to account for geographic differences in labor costs across facilities. We found that the expenditures per unique patient at 102 of the 140 facilities we reviewed were within $167 or one standard deviation--a statistical measure of variance--of VA's overall average of $871. For the remaining facilities, expenditures per unique patient were at least one standard deviation above the average (19 facilities) or were at least one standard deviation below the average (19 facilities), which may indicate potential outliers that VA Central Office and the networks may need to examine further. (See fig. 4.) In addition to the contact named above, Rashmi Agarwal, Assistant Director; James Musselwhite, Assistant Director; Kathryn Black; Krister Friday; Cathleen Hamann; Aaron Holling; Emily Wilson; and Michael Zose made key contributions to this report. Department of Veterans Affairs: Expanded Access to Non-VA Care Through the Veterans Choice Program. GAO-15-229R. Washington, D.C.: Nov 19, 2014. VA Health Care: Actions Needed to Ensure Adequate and Qualified Nurse Staffing. GAO-15-61. Washington, D.C.: Oct 16, 2014. VA Health Care: Ongoing and Past Work Identified Access, Oversight, and Data Problems That Hinder Veterans' Ability to Obtain Timely Outpatient Medical Care. GAO-14-679T. Washington, DC: Jun 9, 2014. VA Health Care: VA Lacks Accurate Information about Outpatient Medical Appointment Wait Times, Including Specialty Care Consults. GAO-14-620T. Washington, D.C.: May 15, 2014. VA Health Care: Ongoing and Past Work Identified Access Problems That May Delay Needed Medical Care for Veterans. GAO-14-509T. Washington, D.C.: Apr 9, 2014.	VA's 150 medical facilities manage primary care services provided to veterans. VA requires facilities to record and report data on primary care panel sizes to help facilities manage their workload and ensure that veterans receive timely and efficient care. VA also requires facilities to record and report data on primary care encounters and expenditures. GAO was asked to examine these data and VA's oversight of primary care. This report examines (1) VA's panel size data across facilities and how VA uses these data to oversee primary care, and (2) VA's encounter and expenditure data across facilities and how VA uses these data to oversee primary care. GAO analyzed fiscal year 2014 data on primary care panel size, encounters, and expenditures for all VA facilities. GAO also conducted a more in-depth, nongeneralizable analysis of data and interviewed officials from seven facilities, selected based on geographic diversity and differences in facility complexity. GAO also interviewed VA Central Office and network officials to examine their oversight of primary care, including the extent to which they verify the data and use it to monitor the management of primary care. GAO found that the Department of Veterans Affairs' (VA) data on primary care panel sizes--that is, the number of patients VA providers and support staff are assigned as part of their patient portfolio--are unreliable across VA's 150 medical facilities and cannot be used to monitor facilities' management of primary care. Specifically, as part of its review, GAO found missing values and other inaccuracies in VA's data. Officials from VA's Primary Care Operations Office confirmed that facilities sometimes record and self-report these data inaccurately or in a manner that does not follow VA's policy and noted that this could result in the data reliability concerns GAO identified. GAO obtained updated data from six of seven selected facilities, corrected these data for inaccuracies, and then calculated the actual panel sizes for the six facilities. GAO found that for these six facilities the actual panel size varied from 23 percent below to 11 percent above the modeled panel size, which is the number of patients for whom a provider and support staff can reasonably deliver primary care as projected by VA. Such wide variation raises questions about whether veterans are receiving access to timely care and the appropriateness of the size of provider workload at these facilities. Moreover, GAO found that while VA's primary care panel management policy requires facilities to ensure the reliability of their panel size data, it does not assign responsibility to VA Central Office or networks for verifying the reliability of facilities' data or require them to use the data for monitoring purposes. Federal internal control standards call for agencies to clearly define key areas of authority and responsibility, ensure that reliable information is available, and use this information to assess the quality of performance over time. Because VA's panel management policy is inconsistent with federal internal control standards, VA lacks assurance that its facilities' data are reliable and that the facilities are managing primary care panels in a manner that meets VA's goals of providing efficient, timely, and quality care to veterans. In contrast to VA's panel data, GAO found that primary care encounter and expenditure data reported by all VA medical facilities are reliable, although the data show wide variations across facilities. For example, in fiscal year 2014, expenditures per primary care encounter--that is, a professional contact between a patient and a primary care provider--ranged from a low of $150 to a high of $396 after adjusting to account for geographic differences in labor costs across facilities. Such wide variations may indicate that services are being delivered inefficiently at some facilities with relatively higher per encounter costs compared to other facilities. However, while VA verifies and uses these data for financial purposes, VA's policies governing primary care do not require the use of the data to monitor facilities' management of primary care. Federal internal control standards state that agencies need both operational and financial data to determine whether they are meeting strategic goals and should use such data to assess the quality of performance over time. Using panel size data in conjunction with encounter and expenditure data would allow VA to assess facilities' capacity to provide primary care services and the efficiency of their care delivery. By not using available encounter and expenditure data in this manner, VA is missing an opportunity to potentially improve the efficiency of primary care service delivery. GAO recommends that VA verify facilities' panel size data, monitor and address panel sizes that are too high or too low, and review and document how to use encounter and expenditure data to help monitor facilities' management of primary care. VA agreed with GAO's recommendations and described its plans to implement them.	6,138	966
In 1989, the Army recognized that it needed to replace some of its aging air defense systems, including the Homing All-the-Way to Kill (HAWK) missile. The Army wanted the HAWK's replacement to be rapidly deployable, capable against weapons of mass destruction, and able to defeat a wide range of targets. The Under Secretary of Defense for Acquisition and Technology approved concept exploration for a new surface-to-air missile but stated that the Army needed a draft agreement for allied participation before system development would be approved. The Army was successful in finding U.S. allies that were interested in jointly acquiring a new air and missile defense system. In February 1994, the United States officially invited Germany to participate in the system's development and production. Because of Germany's desire to make the program a U.S.-European cooperative initiative, the program was subsequently expanded to include France and then Italy. Representatives of the four countries signed a multilateral statement of intent in February 1995 to collaborate in the development of a system capable of meeting the requirements of all four countries. The effort became known as the MEADS program. Before DOD allows a military service to negotiate for the acquisition of a weapon system in cooperation with another country, DOD generally requires the program's sponsor to assess the likely impact of the proposed program by developing a summary statement of intent. The statement should include information on the benefits of an international program to the United States, potential industrial base impacts, funding availability and requirements, information security issues, and the technologies that will likely be involved in the program. Various officials within the Office of the Secretary of Defense are responsible for reviewing the statement of intent and recommending whether an international agreement should be negotiated. Because of budget problems, France dropped out of the MEADS program before the memorandum of understanding was signed in May 1996. The other nations proceeded with the project definition and validation phase. The countries agreed that, during this phase, the U.S. cost share would be 60 percent; Germany, 25 percent; and Italy, 15 percent. According to the memorandum of understanding, new agreements would be negotiated before initiating other phases of the program, cost share percentages could change, and any of the countries could drop out of the program at the start of any new program phase. MEADS, as envisioned by the Army, is part of the lower tier of a two-tier umbrella of air and missile defense. The Theater High Altitude Area Defense (THAAD) and Navy Theater Wide systems are upper tier systems that provide protection primarily against theater ballistic missiles. Existing and planned lower tier systems, such as the Patriot Advanced Capability 3 (PAC-3) and Navy Area systems, will engage shorter range theater ballistic missiles, fixed- and rotary wing aircraft, unmanned aerial vehicles, and cruise missiles. The Ballistic Missile Defense Organization (BMDO) has responsibility for the MEADS program. DOD believes the MEADS program represents a new and innovative approach to the acquisition process. If the program is successful, DOD expects that MEADS will be a model for future collaborative efforts because it addresses problem areas associated with past transatlantic cooperative endeavors. The program reflects the mission needs of all countries, involves technologies from all participants, and requires competition between two transatlantic contractor teams. MEADS is being designed to add capabilities to the battlefield that currently fielded and planned air and missile defense systems do not provide. It will be more mobile than current systems, counter a wider range of targets, and intercept incoming missiles from any direction. Because of its unique capabilities, warfighting commands with theater ballistic missile defense missions support MEADS. The Army plans to use MEADS to protect important access points on the battlefield, troop forward area assembly points, and maneuver force assets (such as refueling points and stores of ammunition) that must travel with troops as they move toward the enemy. To move with the maneuver force, MEADS must transition from defensive operations to a traveling configuration and return to defensive operations quickly. Similar to the maneuver force, MEADS must also be able to travel over unimproved roads and cross country. In addition, the Army wants to be able to move MEADS within theater aboard small transport aircraft, such as the C-130. Combatant commanders control the use of C-130s and can use them to move MEADS as necessary. MEADS must be able to defend against a wide range of targets. It must counter short-range, high-velocity theater ballistic missiles carrying conventional explosives or weapons of mass destruction. The system is also required to detect and destroy low- and high-altitude cruise missiles launched from land, sea, or air platforms and carrying various types of offensive weapons. MEADS is required to counter remotely piloted vehicles and unmanned aerial vehicles carrying observation equipment or weapons and defend against slow, low-flying rotary wing aircraft and maneuvering fixed-wing aircraft employed in a variety of missions. MEADS is expected to be the only land-based theater missile defense system designed to defend against targets approaching from any direction. The system will counter slow and low-flying cruise missiles that take advantage of terrain features to mask their approach and attack from virtually any direction. No other existing or planned air and missile defense system meets all of the MEADS requirements. The Patriot system cannot keep pace with the maneuver force because it takes too long to assemble and disassemble for movement, and it cannot travel cross country. Also, Patriot was not designed to provide protection from all directions, and will require more aircraft to reach a theater of operation because of the system's size. Even though the Army plans to use large transport aircraft, such as the C-141, C-17, or C-5, to transport both Patriot and MEADS to a conflict, MEADS requires fewer aircraft. For example, the Army will need 77 C-5 aircraft sorties to transport 1 Patriot battalion but only 36 sorties to transport 1 MEADS battalion. In addition, Patriot can only be transported within theaters of operation aboard the larger transport aircraft. The ability of other systems to meet MEADS requirements is also limited. The Navy Area system may not be capable of protecting the maneuver force because its defended area will be limited by the distance from which it must stand off shore and the range of its interceptor. The THAAD and Navy Theater Wide systems are being designed to engage primarily medium-range ballistic missiles but cannot defend against theater ballistic missiles launched from very short ranges, aircraft, or low-altitude cruise missiles. Table 1 shows the capabilities of existing and planned air and missile defense systems in meeting MEADS requirements. Combatant commanders whose forces are most vulnerable to theater ballistic missile attacks identify MEADS as a priority system. Each year the Commander in Chief of each unified combatant command lists, in order of importance, key program shortfalls that adversely affect the capability of their forces to accomplish assigned duties. All commanders with a theater missile defense mission--the U.S. Central, European, and Pacific Command--believe that a shortfall exists in their ability to perform this mission. Each of these commanders either lists MEADS as a system needed to correct the shortfall or, according to command officials, considers MEADS a high priority. A U.S. Central Command official said that, although the Commander in Chief considers MEADS a high priority, he does not want to acquire that system at the expense of other theater missile systems. The official said that PAC-3, THAAD, and Navy Area systems are expected to be fielded sooner than MEADS and that the Commander does not want those systems delayed. BMDO will be unable to acquire MEADS without impacting higher priority missile defense programs unless DOD or the Army provide additional funds. BMDO's budget plan does not include funding for MEADS after fiscal year 1999 because the organization's budget is dedicated to missile systems that will be available sooner. Over the next 6 years, for which BMDO is currently budgeting, the organization needs $1.4 billion to execute the planned MEADS program. Because it has had difficulty funding MEADS, BMDO is considering various program options to find a less costly acquisition program. In March 1998, BMDO developed, in cooperation with the Army, a cost estimate for a MEADS system that would meet Army requirements. According to this estimate, the United States expects MEADS total design and development cost to be about $3.6 billion. The United States expects to pay about one-half of this amount, or $1.8 billion. In addition, BMDO estimates that the United States needs approximately $10.1 billion more to procure eight battalions of system hardware. BMDO is interested in the MEADS' design and development cost because it is developing budget plans for the years when many related activities are scheduled. During design and development, engineers will work out the details of MEADS' design, perform engineering tasks that are necessary to ensure the producibility of the developmental system components, fabricate prototype equipment and software, and test and evaluate the system and the principal items necessary for its support. In addition, the contractor will fabricate and install equipment needed to produce hardware prototypes and develop training services and equipment. BMDO expects the system radars to be the most costly system components to design and develop. Army engineers said that they believe two separate radars--a surveillance and fire control radar--will be required and that three prototypes of each radar are needed for adequate test and evaluation. The fire control radar will be expensive because it contains thousands of transmit and receive modules that send and receive messages with the missile and simultaneously determine the target's location. Engineers believe the efficiency of existing transmit and receive modules must be improved to meet the MEADS hit-to-kill requirement. The surveillance radar is expensive because, to fulfil MEADS' mission requirements, it must accurately detect targets at long ranges. Figure 1 shows the percentage of design and development cost attributable to each of the system's components. A BMDO official said that the March 1998 cost estimate was reduced more than $400 million because Army engineers believed that MEADS could benefit from some technology developed and paid for by other missile programs. In a March 1997 cost estimate, BMDO recognized that existing technology could benefit MEADS and this reduced MEADS cost by about $200 million. However, contractor personnel believe that actual program savings from technology leveraging could be more than $400 million. The MEADS program would realize the largest cost reductions if existing radars or missiles could meet MEADS requirements. The use of existing components would eliminate design, prototype manufacturing, and producibility engineering costs. Army engineers said that existing missiles, such as PAC-3, might be capable against the theater ballistic missile threat that MEADS is expected to counter. However, the Patriot Project Office has not simulated PAC-3's performance against MEADS entire ballistic missile threat and cannot do so without additional funds. In addition, the Army stated that PAC-3 may have limitations against the long-term cruise missile threat. Current existing radars do not meet MEADS requirements. For example, Army engineers said that the THAAD system ground-based radar cannot provide protection from all directions and is much too large and heavy for a mobile system. The engineers also said that the Marine Corps TSP 59 radar, being used with the Marine Corps HAWK, takes too long to move and is much too heavy to be mobile. BMDO's cost estimate shows that, to acquire and field MEADS as planned, it needs approximately $11.9 billion over the next 18 years. The funds are expected to pay for the U.S. share of MEADS estimated research and development cost and the procurement of eight battalions of equipment. BMDO needs about $1.4 billion between fiscal years 2000 and 2005 to develop a system that meets all of the Army's requirements. BMDO has spent the last year reviewing program options that could reduce MEADS cost. However, as of April 1998, the agency had not changed its acquisition strategy. BMDO considered reducing MEADS requirements so that an existing missile could be used in the system. In addition, BMDO considered extending MEADS development schedule, delaying initial fielding of hardware, or relying on other radars to detect targets for MEADS. The organization also considered developing and fielding the system in two stages or designing a system that relies on a currently undeveloped tracking network to detect and engage targets. Finally, BMDO considered tasking contractors to develop a system that meets critical requirements for a limited amount of funds. The Army's Deputy Program Executive Officer for Air and Missile Defense said that, if contractor funds are limited, some MEADS requirements might be eliminated to decrease the cost of the new system. However, the official did not know which requirements might be eligible for elimination. The official also said that, if BMDO cannot fund the program as it is currently planned, the Army favors either fielding MEADS in two stages or limiting development funds. MEADS partners are aware that the United States is considering other options. According to German and Italian government officials, they are willing to discuss program changes. However, until the Army and BMDO agree on a specific option, DOD cannot be sure its partners will find that option acceptable. BMDO cannot provide the $1.4 billion needed for fiscal years 2000 through 2005 unless DOD (1) increases BMDO's total obligational authority; (2) stretches out development and production of programs, such as PAC-3, THAAD, and Navy Area systems; or (3) drastically reduces BMDO funding earmarked for targets, systems integration and test, and management. BMDO's Deputy for Program Operations said that these program changes are undesirable because they increase program cost and delay fielding of important assets. Figure 2 shows that, if BMDO included MEADS research and development funding in its planned budget for fiscal years 1999 to 2003, the agency would exceed its budget authority. The United States, Germany, and Italy are collaborating in the development and production of MEADS because each needs an improved air and missile defense system but cannot afford to acquire a system by itself. DOD also believes that international cooperation in weapon systems acquisition can strengthen political ties, create a more effective coalition force, and increase the self-sufficiency of allied nations. However, BMDO did not fully address funding or technology transfer issues before initiating the international program and may not be able to achieve these benefits. In addition, security problems that might have been avoided if security specialists had been involved in negotiation of the international agreement continue to hinder the program's execution. Officials in all three countries said that, given their current and expected defense budgets, MEADS is affordable only if it is acquired jointly. Total design and development and production cost reductions will depend on the acquisition strategy that BMDO and its partners choose. In addition to reducing the U.S.' cost to develop MEADS, combining the production quantities of the three countries will lower unit production costs and reduce the total U.S. cost, according to BMDO documents. DOD generally requires the approval of a summary statement of intent before the negotiations to acquire a weapon system in cooperation with another country. The DOD directive that established BMDO, however, gives the organization the authority to negotiate agreements with foreign governments and then obtain approval of those agreements. In implementing this authority, BMDO did not finalize its summary statement of intent until after negotiations to establish the international program had begun. In addition, the assessment was not sent to reviewers at the Office of the Secretary of Defense until all negotiations were complete and agreement had been reached on the $108 million, 27-month project definition and validation phase of the MEADS program. The summary statement of intent that BMDO eventually prepared did not fully address important issues that continue to plague the MEADS program. For example, although the multilateral statement of intent shows that the partners intended to develop and produce MEADS together, little attention was given to MEADS funding needs subsequent to project definition and design. The summary statement of intent did not address long-term funding needs by fiscal year, instead, it indicated that funding beyond fiscal year 1999 would be derived from funds budgeted to develop an advanced theater missile defense capability. However, in February 1996--about the same time that BMDO completed international agreement negotiations--a DOD review of BMDO's mission reduced the organization's budget and resulted in the deletion of advanced capability funds earmarked for MEADS. Because BMDO did not fully assess the availability of funding for MEADS future program phases, the U.S. political ties with Germany and Italy could be affected. Some U.S. and European officials suggest that the United States may be viewed as an unreliable partner if it is unable to fund MEADS. The officials said that U.S. withdrawal from the development effort could affect its ability to participate in future international programs. BMDO's summary statement of intent did not address technology transfer issues that continue to trouble the MEADS program. Although the statement recognized that classified information developed for other missile programs would be transferred to the MEADS program, it did not address whether the programs that owned that information had concerns about its release. Also BMDO did not address the impact that a decision to withhold critical information could have on the execution of the program. The United States has established procedures for releasing sensitive national security-related information to foreign governments and companies. These policies aim to preserve U.S. military technological advantages. Control policies limit the transfer of advanced design and manufacturing knowledge and information on system characteristics that could contribute to the development of countermeasures. Technology release policies present special challenges for the MEADS program because it involves several sensitive technologies critical to preserving the U.S. military advantage. For example, MEADS could employ electronic counter countermeasures that offset jamming and intentional interference, signal processing techniques to enhance accuracy, and advanced surveillance techniques. The United States has been reluctant to release information about these critical technologies into the program and slow in responding to many release requests. For example, release approvals have taken as long as 259 days. Some requests made at the start of the program are still awaiting a decision because program offices have been reluctant to release the information. This reluctance, as well as the approval time, reflect the rigorous release-consideration process. Program offices in each of the services that own particular technologies perform a page-by-page review of the requested data to identify releasable and nonreleasable data. In some cases, the program controlling the data will not directly benefit from its release and will risk giving up data that could expose system vulnerabilities. These policies may limit the ability of contractors to leverage the use of existing missile system technology and pursue the cheapest technical solution. MEADS contractors said that, when data is not released on a timely basis, they are forced to explore alternative technical approaches or propose development of a component or subcomponent that may duplicate existing systems. In some cases, the United States has approved release of technology into the program but restricted the information to U.S. access only. This restriction has undermined the functioning of integrated teams and efforts to strengthen ties among the participating countries. German and Italian defense officials and the European contractors involved in the MEADS program said that, unless they can assess the U.S. technology that U.S. contractors are using, they cannot be sure that the technology is the best or the cheapest available. The European contractors also said that, if this technology must be improved or adapted for MEADS use, they are asked to accept the U.S. estimate of the cost to perform these tasks. The reluctance to share technology may also make it difficult to design and build a MEADS system that can exchange engagement data with other battlefield systems. For the international system to be truly interoperable, DOD may have to provide information that it has been reluctant to share. If DOD officials decide that this information is too sensitive to share with MEADS partners, the United States may have to drop out of the program and develop MEADS alone or modify its capability. The international MEADS program has been plagued by two issues that Army security officials believe could have been avoided if security specialists had been involved in negotiation of the international agreement. First, the program does not have a secure communications system. The absence of secure telephone and facsimile lines has hindered the program's execution. Army and contractor officials said that it takes up to 6 weeks to get classified information to MEADS contractors in Europe. Also, unsecured lines increase the possibility that unauthorized parties can access classified information. Second, the failure of the participants to agree to MEADS-specific security instructions also increases the potential for unauthorized use of MEADS data. Pursuant to 22 U.S.C. 2753(a), no defense article or service may be sold or leased to another country unless the recipient agrees not to transfer title to, or possession of, the goods or services to a third party. However, Germany and the United States disagree on the definition of a third party. One of the German contractors participating in the MEADS program employs a British citizen and Germany wishes to give access to MEADS classified data to this employee. DOD security officials told us that they do not believe that the German government could penalize the British employee if MEADS data was not safeguarded. German and Italian contractor officials said that, with the formation of the European Union, European citizens cross country boundaries just as U.S. citizens cross state borders. The officials said that if a contractor's ability to hire personnel is limited by the U.S. interpretation of a third party, the MEADS program may lose valuable expertise. If MEADS is designed to meet established requirements, it will give warfighters capabilities that are not present in any existing or planned air and missile defense systems. MEADS should be able to engage a wide range of targets, be easily transported by small transport aircraft, be capable of moving cross country and over unimproved roads, and be sufficiently lethal to destroy both conventional warheads and weapons of mass destruction. Because of these unique capabilities, war-fighting commands place a high priority on the acquisition of MEADS. DOD believes that jointly developing and producing MEADS with U.S. allies will reduce the U.S. investment in the weapon system and strengthen political ties, creating a more effective coalition force and increasing the allies' ability to defend themselves. However, DOD does not know whether it is willing to share information to create a truly interoperable system, whether an international program can utilize existing U.S. missile system technology to its maximum advantage, how it will fund the U.S. share of the international program, or how it can alter the MEADS system or acquisition strategy to make the program affordable and acceptable to its partners. In addition, potential security risks exist because security specialists were not involved in negotiating the international agreement. An international program impacts the political ties between the United States and its allies, and its outcome impacts DOD's ability to negotiate future collaborative efforts. Because DOD is considering other cooperative programs, the MEADS experience could provide valuable lessons. These lessons include careful consideration of all available program information before entering into an agreement to jointly develop a weapon system and assurance that funds will be available for program execution. In addition, areas that warrant attention include the (1) technology that is likely to be released into the program, (2) effect that the technology's release could have on U.S. national security, and (3) impact of a determination to withhold information on both the execution of the program and U.S. allies. We recommend that the Secretary of Defense take steps to ensure that, for future international programs, the approval process includes careful consideration of the availability of long-term program funding and an in-depth assessment of technology transfer issues. In addition, we recommend that the Secretary of Defense include security experts in all phases of the negotiations of international programs. In commenting on a draft of this report, DOD generally concurred with our recommendations (see app I). DOD said that it would take steps to ensure that (1) the approval process for future international programs includes a careful assessment of long-term funding needs and technology transfer issues and that (2) security personnel are included in negotiations of international agreements. Regarding the MEADS program, DOD stated that all parties to the memorandum of understanding understood that long-term funding would be subject to later determination and availability and that technology transfer issues were considered to the extent possible prior to entering into the agreement. In addition, DOD said that Army security personnel have been included in all MEADS negotiations. We agree that the memorandum of understanding limits the U.S. commitment for the MEADS program to funding the project definition and validation phase of system development. However, the memorandum of intent signed by the three countries clearly stated that the United States, Germany, and Italy intended to continue the program through production. DOD regulation 5000.1, dated March 1996, states that, once a military component initiates an acquisition program, that component should make the program's stability a top priority. The regulation further states that to maximize stability, the component should develop realistic long-range investment plans and affordability assessments. However, DOD approved the MEADS program without a full assessment of BMDO's ability to fund the system's development beyond project definition and validation. With future funding in doubt, BMDO has spent the last year reviewing program options that could reduce MEADS cost and enhance the organization's ability to finance further development efforts. In a stable program, this time could have been used to further the program's primary mission of developing an effective weapon system. DOD further commented that technology transfer issues could not be resolved because of the lack of detailed information on the transfers that would be requested. We believe a more detailed assessment, one that involved key program offices that would be asked to approve the release of information to the MEADS program, was feasible. In March 1995, the Army developed a strawman concept of MEADS' predecessor, the Corps Surface-to-Air Missile (SAM) system. On the basis of this concept, the Army said it could reduce Corps SAM's cost by utilizing technology from existing missile programs, such as PAC-3 and THAAD. The Army's belief that Corps SAM/MEADS would make extensive use of other systems' technology indicates that it could reasonably be expected to require information about those systems. At the very least, project offices that were expected to provide technology to the MEADS program should have been consulted to determine what type of information the offices would be willing to release to foreign governments. This knowledge would have allowed the United States, during negotiations with its potential partners, to communicate the type of information that could be transferred. On the basis of the memorandum of understanding, which states that successful cooperation depends on full and prompt exchange of information necessary for carrying out the project, European officials said that they believed the United States would freely share relevant technology. DOD stated that security experts should support all phases of the negotiation process, although they may not be able to participate in the formal negotiations. In addition, DOD said that Army security personnel were involved in the creation of the MEADS delegation of disclosure letter and program security instruction. We agree that it may not be possible to include security personnel in the primary negotiations and recognize that the MEADS participants have established a tri-national security working group to address specific security issues. However, Army security personnel said the tri-national group's primary function, thus far, has been to resolve issues that prevent Germany from signing the MEADS program security instruction. Army, DOD, and BMDO security specialists said that, so far, they have not been asked to support the negotiations for the next phase of MEADS development. In addition, Army security personnel said that they were not involved in the creation of MEADS security documents, such as the program security instruction and the delegation of disclosure letter, until after the memorandum of agreement that initially established the MEADS program was signed. To assess MEADS contribution to the battlefield and warfighter support for the system, we compared MEADS requirements with those of other systems designed to counter theater ballistic and cruise missile threats. We also reviewed the integrated priorities lists of U.S. Central Command, MacDill Air Force Base, Florida; U.S. European Command, Stuttgart, Germany; and U.S. Forces Korea, Seoul, South Korea. When possible, we obtained the Commander in Chief's written position on theater missile defense in general and MEADS specifically. We discussed MEADS required capabilities with officials at the U.S. Army Air Defense Artillery School, Fort Bliss, Texas; Patriot Project Office, Huntsville, Alabama; and Program Executive Office for Air and Missile Defense, Huntsville, Alabama. In addition, we discussed warfighter support for the acquisition of MEADS with officials of the U.S. Central Command; U.S. European Command; U.S. Forces Korea; and U.S. Pacific Command, Camp H.M. Smith, Hawaii. We reviewed BMDO's fiscal years 1999-2003 budget plan and other budget documents to determine if the organization had identified funding for MEADS. We also examined BMDO's acquisition cost estimate to determine the system's cost, the effect on cost of using existing technology, and the cost of design and development tasks. In addition, we discussed the budget estimate and BMDO's ability to fund another major acquisition program with officials in BMDO and the Office of the Under Secretary of Defense for Acquisition and Technology, Washington, D.C., and the U.S. MEADS National Product Office, Huntsville, Alabama. To determine the impact of an international program on MEADS development, we examined work-sharing, cost-sharing, system requirements, and technology transfer documents and held discussions with Ministry of Defense officials in Rome, Italy, and Bonn, Germany; Army officials in the U.S. MEADS National Product Office; and officials in the State Department and various DOD offices, Washington, D.C. We also examined documents and met with contractor officials in Bedford, Massachusetts; Orlando, Florida; Rome; and Bonn. In addition, we examined security documents and held discussions with officials of the Office of the Under Secretary of Defense for Policy, Washington, D.C.; Intelligence Office of the Assistant Chief of Staff of the Army, Washington, D.C.; and the Army Aviation and Missile Command Intelligence and Security Directorate, Redstone Arsenal, Alabama. We performed our review between April 1997 and April 1998 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Chairmen and Ranking Minority Members of the Senate Committee on Armed Services, the Senate Committee on Appropriations, Subcommittee on Defense, the House Committee on National Security, and the House Committee on Appropriations, Subcommittee on National Security; the Secretaries of Defense and the Army; and the Director of the Ballistic Missile Defense Organization. Copies will also be made available to others on request. Please contact me at (202) 512-4841 if you or your staff have any questions concerning this report. Major contributors to this report are Karen Zuckerstein, Barbara Haynes, and Dayna Foster. 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.	Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) Medium Extended Air Defense System (MEADS) program, focusing on the: (1) unique capabilities that MEADS will add to U.S. air and missile defense; (2) development cost of MEADS and its affordability within the expected ballistic missile defense budget; and (3) impact that international development will have on MEADS cost and capability. GAO noted that: (1) if the Army is successful in meeting established requirements, MEADS will have capabilities that no other planned theater missile defense system will possess; (2) the system should defeat a wide range of threats arriving from any direction, be transportable within theater by small transport aircraft, be mobile enough to travel cross country or over unimproved roads with the maneuver force, and be sufficiently lethal to negate weapons of mass destruction; (3) acquiring MEADS will affect higher priority missile programs or the infrastructure that supports those programs unless DOD increases the Ballistic Missile Defense Organization's (BMDO) budget allocation; (4) BMDO forecasted in March 1998 that it needed about $1.8 billion for fiscal year (FY) 1999 though FY 2007 to pay its portion of MEADS' estimated $3.6-billion design and development cost; (5) in addition, BMDO will need another $10.1 billion for FY 2005 through FY 2016 to acquire eight battalions of equipment; (6) the European partners are expected to contribute about one-half of the design and development funds; (7) thus, for FY 1999 through FY 2005--the years for which BMDO is now budgeting--the U.S. cost could be reduced to about $1.4 billion; (8) BMDO has no funds budgeted for MEADS after FY 1999 and has been reviewing various program options to find a less expensive acquisition strategy; (9) DOD officials believe that a joint cooperative effort with U.S. allies is the best means of acquiring MEADS because it reduces cost, improves political ties, and builds a more effective coalition force; (10) however, DOD did not fully assess funding and technology transfer issues before initiating the international program and may not be able to achieve these benefits; (11) U.S. and European program participants said that the United States may be viewed as an unreliable partner if it cannot fund its portion of the program, which could threaten the U.S.' ability to participate in future collaborative efforts; (12) even if the United States remains in the program, it may have difficulty developing a truly interoperable weapon without sharing valuable technology; (13) the international structure may also prevent contractors from pursuing the most cost-effective system solution; (14) contractors are finding it difficult to use existing technology developed for other systems because the process for transferring U.S. information to foreign countries is slow and the United States is reluctant to transfer some critical technology; and (15) difficulties might have been avoided if security experts had been included in negotiations of the international agreement.	7,076	649
Pension advances and pension investments are products that, while based on or related to pension benefits, are generally distinct from the pensions themselves. A pension advance is an up-front lump sum provided to a consumer in exchange for a certain number and dollar amount of the consumer's future pension payments plus various fees. Pension investments, the related product, provide investors a future income stream when they make an up-front lump-sum investment in one or more pensioners' incomes. Multiple parties can be involved in pension advance transactions, including consumers (pensioners), investors, and pension advance companies. After the pensioner signs the pension advance contract, the pension advance company gives the lump sum to the pensioner after deducting, if applicable, life-insurance premiums or other fees from the lump sum. Pension advance companies may also be involved in the related pension investment transaction. These companies can identify financing sources (investors) to provide the lump-sum monies to a specific pensioner or to multiple pensioners. The investor pays the lump- sum amount by depositing the funds into the bank or escrow account that was previously established. The investor receives periodic payments, such as on a monthly basis, over the agreed-upon period either from the pension advance company or through the escrow account. See figure 1 for an illustration of the parties that we identified as part of our June 2014 report in the multistep pension advance processes that we reviewed. Various state and federal laws could potentially apply to pension advances, depending on the structure of the product and transaction, among other things. For example, certain provisions that prohibit the assignment of benefits could apply to pension advances, depending on whether these advances involve directly transferring all or part of the pension benefit to a third party. In addition, potentially applicable state laws include each state's consumer protection laws such as those governing Unfair and Deceptive Acts and Practices (UDAP) and usury laws that specify the maximum legal interest rate that can be charged on a loan. Depending on the overall structure of the products involved, state securities laws could also apply. Various state and federal agencies have oversight roles and responsibilities related to consumer and investor issues. CFPB, FTC, and SEC may have consumer and investor-related oversight roles related to pension advance transactions depending on a number of factors, including the structure of the pension advance product and transaction. Many other federal agencies may have pension oversight roles related to the pension itself depending on whether the pensioner was a private- sector or federal employee or a military veteran: EBSA, Treasury, and PBGC have oversight over private-sector pensions; OPM has oversight over federal civilian pensions; DOD has oversight over military pensions; and VA has oversight over a needs-based benefit program called a "pension." States may also oversee and investigate pension advance transactions. As we describe later in this testimony, the state of New York worked with CFPB to file a lawsuit in August of 2015 against two of the firms that we referred to CFPB for review and investigative action. In June 2014, we reported on the number and characteristics of entities offering pension advances and the marketing practices that pension advance companies employ. During our review, we identified at least 38 companies that offered lump-sum advance products in exchange for pension payment streams. Eighteen of the 38 companies we identified were concentrated in one state and 17 of these 38 companies also offered lump-sum cash advances for a wide range of other income streams, in addition to pension advances, including lottery winnings, insurance settlements, and inheritances. Another 17 companies exclusively focused on offering pension advances. We also found that at least 30 out of 38 companies that we identified had a relationship or affiliation with each other, including working as a subsidiary or broker, or the companies were the same entity operating with more than one name. However, only 9 out of those 30 companies clearly disclosed these relationships to consumers on the companies' websites. While companies having affiliations is not uncommon, the lack of transparency to consumers regarding with whom they are actually conducting business can make it difficult to know whom to file a complaint against if the pensioner is dissatisfied or make it difficult to research the reputability of the company before continuing to pursue the business relationship. See figure 2 for an illustration of some of the relationships between companies that we identified during the June 2014 review. At least 34 out of 38 pension advance companies that we identified marketed and offered their services to customers nationwide, operating primarily as web-based companies and marketing through websites and other social-media outlets. Twenty-eight of the 38 companies that we identified used marketing materials or sales pitches designed to target consumers in need of cash to address an urgent need such as paying off credit-card debts, tuition costs, or medical bills, or appealed to consumers' desire to have quick access to the cash value of the pension that they have earned. Eleven of the 38 companies that we identified used marketing materials or sales pitches designed to target consumers with poor or bad credit. These 11 companies encouraged those with poor credit to apply, stating that poor or bad credit was not a disqualifying factor. We also observed this type of marketing during our undercover investigative phone calls. For example, a representative from one company stated that the company uses a credit report to determine the maximum lump sum that it can provide to the pensioner, and stated that no application would likely be declined. Six pension advance companies provided our undercover investigator with quotes for pension advances with terms that did not compare favorably with other financial products such as loans and lump-sum payment options provided directly through private-sector pension plans. We compared the 99 offers provided to our undercover investigators by six pension advance companies in response to phone calls and online quote requests with those of other financial products. Specifically, we compared the terms with: (1) relevant state usury rates for loans and (2) lump-sum options offered through defined-benefit pension plans. As discussed below, we found that most of the six pension advance companies' lump-sum offers (1) had effective interest rates that were significantly higher than equivalent regulated interest rates, and (2) were significantly smaller than the lump-sum amounts that would have to be offered in a private-sector pension plan that provided an equivalent lump- sum option. We determined that the effective interest rate for 97 out of 99 offers provided to our undercover investigator by six companies ranged from approximately 27 percent to 46 percent. Most of these interest rates were significantly higher than the legal limits set by some states on interest rates assessed for consumer credit, known as usury rates or usury ceilings. For example, in comparison to the usury rate for California of 12 percent, we determined that the quotes for lump-sum payments that our undercover investigator received from three pension advance companies for a resident of California had effective interest rates ranging from approximately 27 percent to 83 percent. The effective interest rates on some of these offers could be even higher than the rates we calculated to the extent some pension advance companies require the pensioner to purchase life insurance, and "collaterally assign" the life- insurance policy to the company, to protect the company in the event of the pensioner's death during the term of the contract. For many of the quotes our undercover investigator received, it was unclear whether the pensioner would be responsible for any life-insurance premium payments. See table 1 for additional examples of usury-rate comparisons for states where our fictitious pensioners resided for our case studies. We compared pension advance offers that our undercover investigator received to lump-sum options that can be offered in pension plans, where a lump sum can be elected by plan participants in lieu of monthly pension payments. The amount of such a lump-sum option of a private-sector plan must comply with Employee Retirement Income Security Act of 1974 (ERISA) and Internal Revenue Code requirements that regulate the distribution of the present value of an annuity by defining a minimum benefit amount to be paid as a lump sum if the plan offers a lump-sum option and a private-sector pensioner chooses that option. We determined the minimum lump-sum amount under ERISA rules for private defined-benefit plan sponsors. On the basis of our analysis of 99 pension advances offered by six companies, we determined that the vast majority of the offers our undercover investigator received (97 out of 99) were for between approximately 46 and 55 percent of the minimum lump sum that would be required under ERISA regulations. This means that if these transactions were covered under ERISA regulations, the pensioners would receive about double the lump sum that they were offered by pension advance companies. Again, to the extent pension advance companies require the pensioner to pay for life insurance, the terms of the deal would be even more unfavorable than indicated by these lump-sum comparisons. Additional information on the basis for the ERISA calculations is included in our June 2014 report. In January 2015, we reported that pension plan participants potentially face a reduction in retirement income if they accept a lump sum offer. Since the time of our review, Treasury announced plans to amend regulations related to the use of lump-sum payments to replace lifetime income received by retirees under defined benefit pension plans. Specifically, these amendments generally would prohibit plans from replacing a pension currently being paid with a lump sum payment. As noted above, our June 2014 comparison observed that ERISA-regulated lump-sum payments from pension plan sponsors were considerably higher than the lump sum amounts offered by pension advance companies. In the future, pension advance offers may appear more appealing to some consumers who require money immediately that do not otherwise have the option to obtain an ERISA-regulated lump sum payment. Our June 2014 report identified questionable elements of pension advances, such as the lack of disclosure and unfavorable agreement terms. Whether certain disclosure laws apply to pension advance products depends partly on whether the product and its terms meet the definition of "credit" as set in the Truth in Lending Act (TILA), and whether pension advances are actually loans and should be subject to relevant TILA laws is a long-standing unsettled question. During our June 2014 review, we found that the costs of pension advances were not always clearly disclosed to the consumer and some companies were inconsistent about whether the product was actually a loan. For example, 31 out of the 38 companies we identified did not disclose to pensioners an effective interest rate or comparable terms on their websites. For loans, under TILA, companies would be required to disclose an effective interest rate for the transaction. We also found that some of the offers provided to our undercover investigator by six pension advance companies were not clearly presented. Specifically, these companies provided a variety of offers based on differing number of years for the term as well as differing amounts of the monthly pension to be paid to the company. For example, one company provided a quote including 63 different offers with varying terms and monthly payment amounts to our fictitious federal pensioner. We considered this volume of information to be overwhelming while not including basic disclosures, such as the effective interest rate or an explanation of the additional costs of life insurance. In addition, the full amount of additional fees such as life-insurance premiums was not always transparently disclosed in the written quotes that six pension advance companies provided to our undercover investigator. We also found that some of the 38 companies we reviewed were not consistent in identifying whether pension advances are loans. For example, while nine companies referred to these products as a loan or "pension loan" on their websites, six of these companies stated elsewhere on their websites that these products are not loans. During our review we found that there was limited federal oversight related to pension advances. Both CFPB and FTC are authorized to protect consumers and to regulate the types of financial and commercial practices that consumers should be protected against, some of which appear to be relevant to practices that we describe in our June 2014 report. However, at the time of our 2014 review, neither agency had undertaken any direct oversight or public enforcement actions regarding pension advances. According to CFPB officials, they were concerned about the effect of pension advances on consumers, but stated that they had not taken an official position or issued any regulations regarding pension advance transactions or products, or taken any related enforcement actions. According to FTC officials, the agency had not taken any public law-enforcement action as they had not received many complaints regarding this issue. As noted in our 2014 report, conducting a review to identify whether some questionable practices--such as the ones highlighted in our report--are unfair or deceptive or are actually loans that should be subject to disclosure rules under TILA, and taking any necessary oversight or enforcement action, could help CFPB and FTC ensure that vulnerable pensioners are not harmed by companies trying to exploit them. Hence, we recommended that CFPB and FTC review pension advance practices and companies, and exercise oversight and enforcement as appropriate. CFPB agreed with this recommendation and took action by investigating pension advance companies with questionable business practices. We also referred the 38 companies that we identified in our review to CFPB for further review and investigative action, if warranted. In August 2015, CFPB filed suit against two of the companies included in our review for a variety of violations including, among others, unfair, deceptive, and abusive acts or practices in violation of the Consumer Financial Protection Act of 2010 and false and misleading advertising of loans. FTC also agreed with our recommendation and, according to FTC officials, the agency has also taken actions to review consumer complaints related to pension advances, pension advance advertising, and the pension advance industry overall. In our June 2014 report, we highlighted that consumer financial education can play a key role in helping consumers understand the advantages and disadvantages of financial products, such as pension advances. As we reported, it can be particularly important for older adults to be informed about potentially risky financial products, given that this population can be especially vulnerable to financial exploitation. The federal government plays a wide-ranging role in promoting financial literacy, with a number of agencies providing financial-education initiatives that seek to help consumers understand and choose among financial products and avoid fraudulent and abusive practices. CFPB plays a role in financial education, having been charged by statute to develop and implement initiatives to educate and empower consumers (in general) and specific target groups to make informed financial decisions. At the time of our 2014 review, we found that CFPB and four other agencies had taken some actions to provide consumer education on pension advances. However, several other federal agencies--including some that regularly communicate with pensioners as part of their mission--did not provide information about pension advance products and their associated risks and were not aware of CFPB publications at the time of our review. Also, these agencies reported that they had not identified many related complaints and some were just learning about pension advance products. We recommended that CFPB coordinate with the federal agencies that regularly communicate with pensioners on the dissemination of existing consumer-education materials on pension advances. CFPB agreed with this recommendation and released a consumer advisory about pension advances in March 2015. In addition, CFPB provided the Financial Literacy and Education Commission with material related to pension advances in April of 2015. Similarly, FTC--which educates consumers on consumer products and avoiding scams through multimedia resources-- had not previously provided any specific consumer education about pension advances. However, in response to our review, in 2014, FTC also posted additional consumer-education information about pension advances on its agency website. In conclusion, some older Americans are both at greater risk of being in financial distress and of being financially exploited as they typically live off incomes below what they earned during their careers and assets that took a lifetime to accumulate. Some pension advance companies market their products as a quick and easy financial option that retirees may turn to when in financial distress from unexpected costly emergencies or when in need of immediate cash for other purposes. However, pension advances may come at a price that may not be well understood by retirees. As illustrated by examples in my statement and by related consumer complaints and lawsuits, the lack of transparency and disclosure about the terms and conditions of these transactions, and the questionable practices of some pension advance companies, could limit consumer knowledge in making informed decisions, put retirement security at risk, and make it more difficult for consumers to file complaints with federal agencies, if needed. CFPB and FTC have taken actions to implement the recommendations that we made to review pension advance practices and companies, and exercise oversight and enforcement as appropriate, as well as to disseminate consumer-education materials on pension advances. We believe their implementation of these recommendations will help to strengthen federal oversight or enforcement of pension advance products while ensuring that consumer-education materials on pension advances reach their target audiences, especially given that Treasury's recent announcement restricting permitted benefit increases may make these products more desirable to pensioners. Chairman Collins, Ranking Member McCaskill, and Members of the Committee, this concludes my prepared remarks. I look forward to answering any questions that you may have at this time. For further information on this testimony, please contact Stephen Lord at (202) 512-6722 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Latesha Love, Assistant Director; Gabrielle Fagan; John Ahern; and Nada Raoof. Also contributing to the report were Julia DiPonio, Charles Ford, Joseph Silvestri, and Frank Todisco. 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.	Recent questions have been raised about companies attempting to take advantage of retirees using pension advances. In June 2014, GAO issued a report on pension advances. The report (1) described the number and characteristics of pension advance companies and marketing practices; (2) evaluated how pension advance terms compare with those of other products; and (3) evaluated the extent to which there is federal oversight. This testimony summarizes GAO's June 2014 report (GAO-14-420) and actions taken by CFPB and FTC in response to GAO's recommendations. In June 2014, GAO identified 38 pension advance companies and related marketing practices. GAO conducted a detailed nongeneralizable assessment of 19 of these companies. GAO used undercover investigative phone calls to identify additional marketing practices and obtain pension advance offers. This information was compared with the terms of other financial products, such as personal loans. GAO also examined the role of selected federal agencies with oversight of consumer protection and pension issues. In a June 2014 report, GAO identified at least 38 companies that offered individuals lump-sum payments or "advances" in exchange for receiving part or all of their pension payment streams. The 38 companies used multistep pension advance processes that included various other parties. At least 21 of the 38 companies were affiliated with each other in ways that were not apparent to consumers. Some companies targeted financially vulnerable consumers with poor or bad credit nationwide. GAO undercover investigators received offers from 6 out of 19 pension advance companies. These offers did not compare favorably with other financial products or offerings, such as loans and lump-sum options through pension plans. For example, the effective interest rates on pension advances offered to GAO's investigators typically ranged from approximately 27 percent to 46 percent, which were at times close to two to three times higher than the legal limits set by the related states on the interest rates assessed for various types of personal credit. GAO identified questionable elements of pension advance transactions, including lack of disclosure of some rates or fees, and certain unfavorable terms of agreements. GAO recommended that the Bureau of Consumer Financial Protection (CFPB) and Federal Trade Commission (FTC)--the two agencies with oversight responsibility over certain acts and practices that may harm consumers--provide consumer education about these products, and that CFPB take appropriate action regarding identified questionable practices. Since the time of GAO's review, CFPB has investigated pension advance companies that GAO referred to the agency and disseminated additional consumer-education materials on pension advances. Similarly, FTC posted consumer education on pension advances on its website, and FTC officials report that they have reviewed consumer complaints related to pension advances, pension advance advertising, and the pension advance industry overall. CFPB's and FTC's actions are a positive step toward strengthening federal oversight or enforcement of pension advance products. In its June 2014 report, GAO recommended that CFPB and FTC review the pension advance practices identified in that report and exercise oversight or enforcement as appropriate. GAO also recommended that CFPB coordinate with relevant agencies to increase consumer education about pension advances. CFPB and FTC agreed with and have taken actions to address GAO's recommendations.	3,844	675
MDA's BMDS is being designed to counter ballistic missiles of all ranges--short, medium, intermediate, and intercontinental. Because ballistic missiles have different ranges, speeds, sizes, and performance characteristics, MDA is developing multiple systems that, when integrated, provide multiple opportunities to destroy ballistic missiles before they can reach their targets. The BMDS architecture includes space-based sensors, ground- and sea-based radars, ground- and sea- based interceptor missiles, and a command and control, battle management, and communications system to provide the warfighter with the necessary communication links to the sensors and interceptor missiles. Table 1 provides a brief description of individual BMDS systems, which MDA refers to as elements of the BMDS. As noted in the table, two programs were proposed for cancellation in April 2013 as part of DOD's Fiscal Year 2014 President's Budget Submission. When MDA was established in 2002, the Secretary of Defense granted it exceptional flexibility to set requirements and manage the acquisition of the BMDS in order to quickly deliver protection against ballistic missiles. This decision enabled MDA to rapidly deliver assets but we have reported that it has come at the expense of transparency and accountability. Moreover, to meet tight deadlines, MDA has employed high-risk acquisition strategies that have resulted in significant cost growth, schedule delays, and in some cases, performance shortfalls. Examples of key problems we have cited in reports in recent years are highlighted below. In recent years, MDA has experienced several test failures. These, as well as a test anomaly and delays, disrupted MDA's flight test plan and the acquisition strategies of several components. Overall, these issues forced MDA to suspend or slow production of three out of four interceptors being manufactured. The GMD program in particular has been disrupted in its attempts to demonstrate the CE-II interceptors by two test failures. As a result of a failed flight test in January 2010 due to an assembly process quality issue, MDA added a retest designated as Flight Test GMD-06a (FTG-06a). However, this retest also failed in December 2010 due to the effects of vibration on the kill vehicle's guidance system. As a result of these failures, MDA decided to halt GMD flight testing and restructure its multiyear flight test program, halt production of the GMD interceptors, and redirect resources to return- to-flight testing activities. Additionally, as we reported in April 2013, the costs to demonstrate and fix CE-II capability have grown from $236 million to over $1.2 billion and are continuing to grow. MDA acquisitions have faced significant cost growth, schedule delays, and/or performance shortfalls due to a highly concurrent acquisition approach. Concurrency is broadly defined as the overlap between technology development and product development or between product development and production. While some concurrency is understandable, committing to product development before requirements are understood and technologies are mature or committing to production and fielding before development is complete is a high-risk strategy that often results in performance shortfalls, unexpected cost increases, schedule delays, and test problems. High levels of concurrency were present in MDA's initial efforts and remain present in current efforts. There has been limited visibility into cost and schedule progress associated with the BMDS. We have reported on the limited usefulness of MDA's acquisition baselines for oversight due to (1) a lack of clarity, consistency, and completeness; (2) a lack of high- quality supporting cost estimates and schedules; and (3) instability in the content of the baselines. MDA has made limited progress in developing the individual system models it uses to assess performance of the BMDS elements and linking those models. Models and simulations are critical to understanding BMDS capabilities. The complex nature of the BMDS, with its wide range of connected elements, requires integrated system-level models and simulations to assess its performance in a range of system configurations and engagement conditions. Quality issues have also impeded missile defense development in These were due to workmanship issues, the use of recent years. undocumented and untested manufacturing processes and poor control of manufacturing materials, among other factors. Congress and DOD have taken steps in recent years to address concerns over MDA's acquisition management strategy, accountability, and oversight. These include efforts to provide more information on cost, schedule, and other baselines; efforts to prevent quality problems; and efforts to begin obtaining independent cost estimates. In April 2013, we reported that in the past year MDA gained important knowledge through its test program, including successfully conducting its most complex integrated air and missile defense flight test to date, and it took some positive steps to reduce acquisition risks for two of its programs. It has also improved the clarity of baseline information it reports to Congress. Specifically, in April 2013 we reported that in October 2012, MDA conducted the largest integrated air and missile defense flight test to date, achieving near simultaneous intercepts of multiple targets by various BMDS interceptors. This test was a combined developmental and operational flight test that for the first time used warfighters from multiple combatant commands and employed multiple missile defense systems. All five targets--three ballistic and two cruise missiles--were launched and performed as expected. In this test, THAAD also intercepted a medium range target for the first time and an Aegis ship conducted successfully a standard missile-2 Block IIIA engagement against a cruise missile. This test also provided valuable data to evaluate interoperability between several systems during a live engagement. In April 2013, we reported that in fiscal year 2012, the Aegis BMD SM-3 Block IB and THAAD programs also attained important knowledge in their flight test programs. In May 2012, the Aegis BMD SM-3 Block IB system intercepted a short-range target for the first time. In June 2012, the system completed another successful intercept which provided more insight into the missile's enhanced ability to discriminate the target from other objects during an engagement. In October 2011, THAAD successfully conducted its first operational flight test prior to entering full- rate production.intercepted two short-range targets, demonstrating that the system can perform under operationally realistic conditions from mission planning through the end of the engagement. Additionally, this test supported the resumption of interceptor manufacturing, and was used by the Army as support for accepting the first two THAAD batteries. This also marked the During the test, THAAD fired two missiles that first time Army and DOD test and evaluation organizations confirmed that the test and its results resembled the fielded system. We also reported in April 2013 that MDA took steps to reduce acquisition risk by decreasing the overlap between technology and product development for two of its programs--the Aegis BMD SM-3 Block IIA and Block IIB programs. By taking steps to reconcile gaps between requirements and available resources before product development begins, MDA makes it more likely that programs can meet cost, schedule, and performance targets. The Aegis BMD SM-3 Block IIA program added time and money to extend development following significant problems with four components. MDA reduced its acquisition risk by delaying the program's system preliminary design review for more than one year and, as a result, in March 2012, the program successfully completed the review because it allowed additional development of the components. We also reported in April 2013 that the Aegis BMD SM-3 Block IIB program had taken important steps to reduce concurrency and increase the technical knowledge it planned to achieve before development by delaying product development until after its preliminary design review was completed. Pub. L. No. 110-181, SS 223(g), repealed by Pub. L. No. 112-81, SS 231(b) (2011). operations and support, and disposal costs.key milestones and tasks, such as important decision points, significant increases in performance knowledge, modeling and simulation events, and development efforts. Some also show time frames for flight and ground tests, fielding, and events to support fielding. In its 2012 BAR, MDA made several useful changes to its reported resource and schedule baselines in response to our concerns and congressional direction. For example, MDA reported the full range of life cycle costs borne by MDA; defined and explained more clearly what costs are in the resource baselines or were excluded from the estimates; included costs already incurred in the unit cost for Targets and Countermeasures so they were more complete; added a separate delivery table that provided more detailed information on deliveries and inventories; and added a list of significant decisions made or events that occurred in the past year--either internal or external to the program--that affected program progress or baseline reporting. Although the MDA has made some progress, the new MDA Director faces considerable challenges in executing acquisition programs; strengthening accountability; assessing alternatives before making new investment commitments; developing and deploying U.S. missile defense in Europe and using modeling and simulations to understand capabilities and limitations of the BMDS. In April 2013 we reported that though MDA has gained important insights through testing and taken some steps to reduce acquisition risk and increase transparency, it still faces challenges stemming from high-risk acquisition strategies. As noted earlier, MDA has undertaken and continues to undertake highly concurrent acquisitions. While some concurrency is understandable, committing to product development before requirements are understood and technologies are mature or committing to production and fielding before development is complete is a high-risk strategy that often results in performance shortfalls, unexpected cost increases, schedule delays, and test problems. It can also create pressure to keep producing to avoid work stoppages. Our April 2012 report detailed how the Aegis BMD SM-3 Block IB, GMD, and THAAD programs undertook highly concurrent acquisition strategies. For example, to meet the presidential directive to deploy an initial set of missile defense capabilities by 2004, the GMD program concurrently matured technology, designed the system, tested the design, and produced and deployed an initial set of missile defense capabilities. CE-I interceptors were rapidly delivered to the warfighter but they required an expensive retrofit and refurbishment program that is still ongoing. Similarly, MDA proceeded to concurrently develop, manufacture, and deliver 12 of the next generation of interceptors, the CE-IIs. They were also delivered prematurely to the warfighter and will require an extensive and expensive retrofit. In April 2012, we also reported that the Aegis Ashore and PTSS programs were adopting acquisition strategies with high levels of concurrency. The Aegis Ashore program, for instance, began product development on two systems--one designated for testing and the other operational--and set the acquisition baseline before completing the preliminary design review. Best practices, by contrast, call for such baselines to be set after this review because the review process is designed to ensure the program has sufficient knowledge about resources and requirements before engaging in large-scale acquisition activities. Similarly, for its new PTSS, MDA planned to develop and produce two industry-built satellites while a laboratory-led contractor team was still in the development phase of building two lab development satellites. Such an approach would not enable decision makers to fully benefit from the knowledge about the design to be gained from on-orbit testing of the laboratory-built satellites before committing to the next industry-built satellites. In our April 2013 report, we noted that the concurrent high risk approaches for the GMD and Aegis BMD SM-3 Block IB programs were continuing to have negative effects, while the THAAD program was able to overcome most of its issues. For instance, discovery of the CE-II design problem while production was already under way increased MDA costs to demonstrate and fix CE-II capability from approximately $236 million to over $1.2 billion, due to the costs of additional flight tests including the target and test-range, investigating the failure, developing failure resolutions, and fixing the already delivered missiles. Costs continue growing because MDA further delayed the next intercept test planned for fiscal year 2012. At this time, the next intercept test date is not yet determined as MDA is considering various options. While the Aegis BMD SM-3 Block IB program slowed production to address developmental issues that arose when the program experienced a failure and a flight anomaly in early flight tests, it experienced further difficulties completing testing of a new maneuvering component--contributing to delays for a third flight test needed to validate the interceptor's capability. We also reported in April 2013 that MDA was continuing to follow high risk acquisition strategies for its Aegis Ashore, PTSS, and Targets and Countermeasures programs. For example, this year we reported that the Targets and Countermeasures acquisition strategy is adding risk to an upcoming complex, costly operational flight test involving multiple MDA systems because it plans to use unproven targets. Using these new targets puts this major test at risk of not being able to obtain key information should the targets not perform as expected. Developmental issues with this new medium-range target as well as identification of new software requirements have already contributed to delaying the test, which was originally planned for the fourth quarter of fiscal year 2012 and is now planned for the fourth quarter of fiscal year 2013. In 2012, we recommended MDA make adjustments to the acquisition schedules to reduce concurrency. DOD agreed and partially addressed the recommendation. Specifically, MDA reduced concurrency in the Aegis BMD SM-3 Block IIA and Block IIB programs, but continues to include high levels of concurrency in other programs as discussed above. We also recommended in 2013 that the Secretary of Defense direct MDA's new Director to add non-intercept flight tests for each new type of target DOD partially concurred, stating that missile developed to reduce risk.the decision to perform a non-intercept target test must be balanced against cost, schedule and programmatic impacts. While there may be exceptions that need to occur when there is a critical warfighter need, we believe, whenever possible, that MDA should avoid using undemonstrated targets, particularly for costly and complex major operational tests. In April 2013 we reported that while MDA made substantial improvements to the clarity of its reported resource and schedule baselines in fiscal year 2012, it has made little progress improving the quality of its cost estimates that support its resource baseline since we made a recommendation to improve these estimates in our March 2011 report.resource baselines are not yet sufficiently reliable, in part because they do not include costs from military services in reported life cycle costs for its programs. Instability due to MDA's frequent adjustments to its acquisition baselines also makes assessing progress over time extremely difficult and, in many cases, impossible. Despite some positive steps forward since 2004, the baselines are of limited use for meaningfully assessing BMDS cost and schedule progress. In particular, MDA's In our March 2011 report, we assessed MDA life cycle cost estimates using the GAO Cost Estimating and Assessment Guide. We found that the cost estimates we assessed, that were used to support MDA's resource baselines, were not comprehensive, lacked documentation, were not completely accurate, or were not sufficiently credible. In April 2013 we reported that, in June 2012, MDA completed an internal Cost Estimating Handbook, largely based on our guide which, if implemented, could help address nearly all of the shortfalls we identified. Because the Handbook was only recently completed, it is too early to assess whether the quality of MDA's cost estimates have improved. In our April 2013 report, we found that while the agency made improvements to its reported resource baselines to include all of the life cycle costs funded by MDA from development through retirement of the program, the baselines do not include operation and support costs funded by the individual military services. According to our guide, cost estimates should be comprehensive. Comprehensive estimates include both the government and contractor costs of the program over its full life cycle, from inception of the program through design, development, deployment, and operation and support to retirement. MDA officials told us in 2011 that MDA does not consider military service operation and support funds to be part of the baselines because the services execute the funds. It is unclear what percentage operation and support costs are in the case of MDA programs because they have not been reported. For programs outside of MDA these costs can be significant, and as a result the reported life cycle costs for some MDA programs could be significantly understated. In our April 2013 report, we recommended that the Secretary of Defense direct MDA's new Director to include in its resource baseline cost estimates all life cycle costs, specifically the operations and support costs from the military services in order to provide decision makers with the full costs of ballistic missile defense systems. DOD partially concurred with this recommendation, agreeing that decision makers should have insight into the full life cycle costs of DOD programs, but disagreeing that they should be reported in MDA's BAR. DOD did not identify how the full life cycle costs should be reported. We continue to believe that these costs should be reported because good budgeting requires that the full costs of a project be considered when making decisions to provide resources. In addition, DOD has reported full operation and support costs to Congress for major defense acquisition programs where one military service is leading the development of an acquisition planned to be operated by many military services. We also believe that MDA's BAR is the most appropriate way to report the full costs to Congress because it already includes the acquisition costs and the MDA funded operation and support costs. In July 2012, we also used our Schedule Assessment Guide to assess five MDA program schedules that support the baselines and found that none fully met the best practices identified in the guide. For example, three programs took steps to ensure resources were assigned to their schedule activities, but one program did not do so and the other only partially did so. Moreover, none of the five programs we reviewed had an integrated master schedule for the entire length of acquisition as called for by the first best practice, meaning the programs are at risk for unreliable completion estimates and delays. DOD concurred with our recommendations to ensure that best practices are applied to those schedules as outlined in our guide, and MDA programs have taken some actions to improve their schedules, though they have not yet had time to fully address our recommendations. We plan to continue to monitor their progress because establishing sound and reliable schedules is fundamental to creating realistic schedule and cost baselines. Lastly, as we reported in March 2009, in order for baselines to be useful, they need to be stable over time so progress can be measured and so that decision makers can determine how to best allocate limited resources. In April 2013, we reported that most major defense acquisition programs are required to establish baselines prior to beginning product development.DOD, include key performance, cost, and schedule goals. Decision makers can compare the current estimates for performance, cost, and schedule goals against a baseline in order to measure and monitor progress. Identifying and reporting deviations from the baseline in cost, schedule, or performance as a program proceeds provides valuable information for oversight by identifying areas of program risk and its causes. These baselines, as implemented by However, as we reported in April 2013, MDA only reports annual progress by comparing its current estimates for unit cost and scheduled activities against the prior year's estimates. As a result, MDA's baseline reports are not useful for tracking longer term progress. When we sought to compare the latest 2012 unit cost and schedule estimates with the original baselines set in 2010, we found that because the baseline content had been adjusted from year to year, in many instances the baselines were no longer comparable. I would like to highlight the problems we identified in Aegis Ashore to illustrate how these adjustments limited visibility into cost or schedule progress. MDA prematurely set the Aegis Ashore baseline before program requirements were understood and before the acquisition strategy was firm. The program has subsequently added significant content to the resource baseline to respond to acquisition strategy changes and requirements that were added after the baseline was set. In addition, activities from Aegis Ashore's 2010 BAR schedule baseline were split into multiple events, renamed, or eliminated altogether in the program's 2012 BAR schedule baseline. MDA also redistributed planned activities from the Aegis Ashore schedule baselines into several other Aegis BMD schedule baselines. These major adjustments in program content made it impossible to understand annual or longer-term program cost progress. Rearranging content to other baselines also made tracking the progress of these activities very difficult and in some cases impossible. We recommended in our April 2013 report that the Secretary of Defense direct MDA's new Director to stabilize the acquisition baselines so that meaningful comparisons can be made over time that support oversight of those acquisitions. DOD concurred with this recommendation. Our April 2013 report discussed a variety of other challenges facing MDA that I would like to highlight today. First, in light of growing fiscal pressures, it is becoming increasingly important that MDA have a sound basis before investing in new efforts. But MDA has not analyzed alternatives in a robust manner before making recent commitments. Second, during the past several years, MDA has been responding to a mandate from the President to develop and deploy new missile defense systems in Europe for defense of Europe and the United States. Our work continues to find that a key challenge facing DOD is to keep individual system acquisitions synchronized with the planned time frames of the overall U.S. missile defense capability planned in Europe. Third, MDA also is challenged by the need to develop the tools--the models and simulations--to understand the capabilities and limitations of the individual systems before they are deployed, which will require the agency to overcome technical limitations in the current approach to modeling missile defense performance. While MDA recently committed to a new approach in modeling and simulation that could enable them to credibly model individual programs and system-level BMDS performance, warfighters will not benefit from this effort until two of the currently planned three phases for U.S. missile defense in Europe have already been deployed in 2011 and 2015 respectively. Because MDA faces growing fiscal pressure as it develops new programs at the same time as it supports and upgrades existing ones, DOD and MDA face key challenges getting the best value for its missile defense investments. We have frequently reported on the importance of establishing a sound basis before committing resources to developing a new product. We have also reported that part of a sound basis is a full analysis of alternatives (AOA). The AOA is an analytical study that is intended to compare the operational effectiveness, cost, and risks of a number of alternative potential solutions to address valid needs and shortfalls in operational capability. A robust AOA can provide decision makers with the information they need by helping establish whether a concept can be developed and produced within existing resources and whether it is the best solution to meet the warfighter's needs. Major defense acquisition programs are generally required by law and DOD's acquisition policy to conduct an AOA before they are approved to enter the technology development phase. Because of the flexibilities that have been granted to MDA, its programs are not required to complete an AOA before starting technology development. Nevertheless, MDA's acquisition directive requires programs to show they have identified competitive alternative materiel solutions before they can proceed to MDA's technology development phase. However, this directive provides no specific guidance on how this alternatives analysis should be conducted or what criteria should be used to identify and assess alternatives, such as risks and costs. We reported in February 2013 that the Aegis BMD SM-3 Block IIB had not conducted a robust alternatives analysis and also reported in April 2013 that MDA did not conduct robust alternatives analyses for the PTSS program. Both of these programs were recently proposed for cancellation in the Fiscal Year 2014 President's Budget Submission. In our April 2013 report, we recommended that the Secretary of Defense direct the new MDA Director to undertake robust alternatives analyses for new major missile defense efforts currently underway and before embarking on other new missile defense programs. Doing so can help provide a foundation for developing and refining new program requirements, understanding the technical feasibility and costs of alternatives and help decision makers determine how to balance and prioritize MDA's portfolio of BMDS investments.DOD concurred with our recommendation but asserted MDA already performs studies and reviews that function as analyses of alternatives. We have found, however, that these studies are not sufficiently robust. In September 2009, the President announced a new approach to provide U.S. missile defense in Europe. This four-phase effort was designed to rely on increasingly capable missiles, sensors, and command and control systems to defend Europe and the United States. In March 2013, the Secretary of Defense canceled Phase 4, which called for Aegis BMD SM- 3 Block IIB interceptors, and announced several other plans, including deploying additional ground based interceptors in Fort Greely, Alaska, and deploying a second AN/TPY-2 radar in Japan. DOD declared the first phase of U.S. missile defense in Europe operational in December 2011. The current three-phase effort is shown in figure 1. We reported in April 2012 that in order to meet the 2009 presidential announcement to deploy missile defenses in Europe, MDA has undertaken and continues to undertake highly concurrent acquisitions. We reported in April 2013 that, according to MDA documentation, system capabilities originally planned for the first three phases are facing delays, either in development or in integration and testing. The systems delivered for Phase 1 do not yet provide the full capability planned for the phase. Phase 1 was largely defined by existing systems that could be quickly deployed because of the limited time between the September 2009 announcement and the planned deployment of the first phase in 2011. MDA planned to deploy the first phase in two stages--the systems needed for the phase and then upgrades to those systems in 2014. However, an MDA official told us that MDA now considers the system upgrades stage to be part of the second phase, which may not be available until the 2015 time frame. For Phase 2, some capabilities, such as an Aegis weapon system software upgrade, may not yet be available. MDA officials stated they are working to resolve this issue. For Phase 3, some battle management and Aegis capabilities are currently projected to be delayed. We recommended in our April 2012 report that DOD review the extent to which capability delivery dates announced by the President in 2009 were contributing to concurrency in missile defense acquisitions and identify schedule adjustments where significant benefits could be obtained by reducing concurrency. DOD concurred with this recommendation. We reported in April 2013 that a key challenge for both the Director of MDA and the warfighter is understanding the capabilities and limitations of the systems MDA is going to deploy, particularly given the rapid pace of development. According to MDA's Fiscal Year 2012 President's Budget Submission, models and simulations are critical to understanding BMDS operational performance because assessing performance through flight tests alone is prohibitively expensive and can be affected by safety and test range constraints. In August 2009, U.S. Strategic Command and the BMDS Operational Test Agency jointly informed MDA of a number of system-level limitations in MDA's modeling and simulation program that adversely affected their ability to assess BMDS performance. Since then, we reported in March 2011 and again in April 2012 that MDA has had difficulty developing its models and simulations to the point where it can assess operational performance. In April 2013, we reported that MDA recently committed to a new approach in modeling and simulation that officials stated could enable them to credibly model individual programs and system-level BMDS performance by 2017. To accomplish this, MDA will use only one simulation framework, not two, to do ground testing and performance assessments. With one framework, the agency anticipates data quality improvements through consistent representations of the threat, the environment, and communications at the system level. Without implementing these changes, MDA officials told us it would not be possible to credibly model BMDS performance by 2017, in time to assess the third phase of U.S. missile defense in Europe. MDA program officials told us that the next major assessment of U.S. missile defense in Europe for the 2015 deployment will continue to have many of the existing shortfalls. As a result, MDA is pursuing initiatives to improve confidence in the realism of its models in the near term, one of which involves identifying more areas in the models where credibility can be certified by the BMDS Operational Test Agency. Another focuses on resolving the limitations identified jointly by the Operational Test Agency and U.S. Strategic Command. Lastly, MDA officials told us they are refining the process used to digitally recreate system-level flight tests in order to increase confidence in the models. Because MDA recently committed to a new approach for modeling and simulation, we did not make recommendations in our 2013 report. However, it is important that this effort receive sufficient management attention and resources, given past challenges and the criticality of modeling and simulation. In conclusion, many of the challenges I have highlighted today are rooted in both the schedule pressures that were placed on MDA when the agency was directed in 2002 to rapidly field an initial missile defense capability and the flexibilities that were granted MDA so that it could do so. Today, however, initial capability is in place; MDA has begun to transition more mature systems to the military services; it has had to propose canceling two major efforts in the face of budget reductions, concerns about affordability, and technical challenges; and the employment of BMDS systems is becoming increasingly interdependent, thereby increasing the potential consequences of problems discovered late in the development cycle. In recent years, both Congress and MDA have recognized that conditions have changed and steps need to be taken that reduce acquisition risk, while increasing transparency and accountability. However, especially in light of growing budget pressures, additional actions are needed, including sufficiently analyzing alternatives before making major new investment commitments; stabilizing acquisition baselines and ensuring they are comprehensive and reliable; ensuring acquisition strategies allow for the right technical and programmatic knowledge to be in place before moving into more complex and costly phases of development; and demonstrating new types of targets in less critical tests before they are used in a major test in order to lower testing risks The appointment of a new Director provides an opportunity to address these challenges, but doing so will not be easy as MDA is still under significant schedule pressures and the agency is undergoing a transition to respond to new Secretary of Defense direction to expand the GMD capabilities. As such, we look forward to continuing to work with MDA to identify and implement actions that can reduce acquisition risk and facilitate oversight and better position MDA to respond to today's demands. Chairman Udall, Ranking Member Sessions, and Members of the Subcommittee, this concludes my statement. I am happy to answer any questions you have. For future questions about this statement, 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 statement. Individuals making key contributions to this statement include David B. Best, Assistant Director; Aryn Ehlow; Ivy Hubler; Meredith Allen Kimmett; Wiktor Niewiadomski; Kenneth E. Patton; John H. Pendleton; Karen Richey; Brian T. Smith; Steven Stern; Robert Swierczek; Brian Tittle; and Hai V. Tran. 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.	In order to meet its mission, MDA is developing a highly complex group of systems comprised of land-, sea-, and space-based sensors to track missiles, as well as ballistic missile interceptors and a battle management system. These systems can be integrated in different ways to provide protection in various regions of the world. Since its initiation in 2002, MDA has been given a significant amount of flexibility in executing the development and fielding of the ballistic missile defense system. This statement addresses recent MDA progress and the challenges it faces with its acquisition management. It is based on GAO's April 2013 report and reports on missile defense issued from September 2008 through July 2012. The Department of Defense's (DOD) Missile Defense Agency (MDA) has made some recent progress gaining important knowledge for its Ballistic Missile Defense System (BMDS) by successfully conducting several important tests. In addition, the agency made substantial improvements to the clarity of its cost and schedule baselines since first reporting them in 2010, and declared the first major deployment of U.S. missile defense in Europe operational in December 2011. MDA also took steps to reduce acquisition risk by decreasing the overlap between technology and product development for two of its programs. MDA faces considerable challenges in executing acquisition programs; strengthening accountability; assessing alternatives before making new investment commitments; developing and deploying U.S. missile defense in Europe and using modeling and simulations to understand capabilities and limitations of the BMDS. The appointment of a new director for MDA provides an opportunity to address these challenges. More specifically: Interceptor production for three of MDA's systems has been significantly disrupted during the past few years due to high-risk acquisition strategies which have resulted in delaying planned deliveries to the warfighter, raising costs, and disrupting the industrial base. Further, MDA continues to follow high-risk acquisition strategies for other programs. For example, its Targets and Countermeasures program is adding risk to an upcoming complex, costly operational flight test involving multiple MDA systems because it plans to use unproven targets. While MDA made substantial improvements to the clarity of its reported cost and schedule baselines, MDA's estimates are not comprehensive because they do not include costs from military services in reported life-cycle costs for its programs. Instability due to MDA's frequent adjustments to its acquisition baselines makes assessing progress over time using these baselines extremely difficult and, in many cases, impossible. While MDA has conducted some analyses that consider alternatives in selecting which acquisitions to pursue, it did not conduct robust analyses of alternatives for two of its new programs, both of which were recently proposed for cancellation. During the past several years, MDA has been responding to a mandate from the President to develop and deploy new missile defense systems in Europe for the defense of Europe and the United States. GAO's work continues to find that a key challenge facing DOD is to keep individual system acquisitions synchronized with the planned deployment time frames. MDA has also struggled for years to develop the tools--the models and simulations--to understand the capabilities and limitations of the individual systems before they are deployed. While MDA recently committed to a new approach that could enable them to credibly model individual programs and system-level BMDS performance, warfighters will not benefit from this effort until after the first two of the currently planned three phases for U.S. missile defense in Europe have been deployed in 2011 and 2015 respectively. GAO makes no new recommendations in this statement. In the April 2013 report, GAO made four recommendations to DOD to ensure MDA (1) fully assesses alternatives before selecting investments, (2) takes steps to reduce the risk that unproven target missiles can disrupt key tests, (3) reports full program costs, and (4) stabilizes acquisition baselines. DOD concurred with two recommendations and partially concurred with two, stating the decision to perform target risk reduction flight tests should be weighed against other programmatic factors and that its current forum for reporting MDA program costs should not include non-MDA funding. GAO continues to believe the recommendations are valid as discussed in that report.	6,886	886
HCFA's vision, which we support, is for a single, unified system to replace the nine current systems now used by Medicare, the nation's largest health insurer, serving about 37 million Americans. The goals of MTS are to better protect program funds from waste, fraud, and abuse; allow better oversight of Medicare contractors' operations; improve service to beneficiaries and providers; and reduce administrative expenses. At present, HCFA expects MTS to be fully operational in September 1999, and to process over 1 billion claims and pay $288 billion in benefits per year by 2000. These are ambitious goals, and we realize that developing such a system is complex and challenging. Currently, when legislative or administrative initiatives result in revised payment or coverage policies, each of the nine automated systems maintained by Medicare contractors to process claims must be modified. An integrated system would eliminate the need for such cumbersome and costly multiple processes. In January 1994, HCFA awarded a contract to GTE Government Systems Corporation to design, develop, and implement the new automated system for processing claims. Two related contracts were awarded: to Intermetrics, Inc., in April 1994 for what is known as independent verification and validation, or IV&V--a separate technical check on GTE's work; and to SETA Corporation in September 1995 for systems testing. Over the last 12 years, the federal government has spent more than $200 billion on information technology, and we have evaluated hundreds of these projects. On the basis of this work, we have determined that two basic, recurring problems constrain the ability of organizations to successfully develop large systems: (1) failure to adequately select, plan, prioritize, and control information system projects; and (2) failure to take advantage of business process improvements that can significantly reduce costs, improve productivity, and provide better services to customers. These problems have often led to meager results in federal agency efforts to design, develop, and acquire complex information systems. For example, after investing over 12 years of effort, the Federal Aviation Administration (FAA) chose to cut its losses in its problem-plagued Advanced Automation System by cancelling or extensively restructuring elements of this modernization of the nation's air traffic control system. The reasons for FAA's problems included the failure to (1) accurately estimate the project's technical complexity and resource requirements, (2) finalize system requirements, and (3) adequately oversee contractor activities. Similarly, our work on IRS' Tax Systems Modernization, designed to automate selected tax-processing functions, identified several weaknesses. For example, IRS lacked (1) a disciplined process for managing definition of requirements, and (2) a management process for controlling software development. These problems caused significant rework and delays. Last year, to help federal agencies improve their chances of success, we completed a study of how successful private and public organizations reached their goals of acquiring information systems that significantly improved their ability to carry out their missions. Our report describes an integrated set of fundamental management practices that were instrumental in producing success. The active involvement of senior managers, focusing on minimizing project risks and maximizing return on investment, was essential. To accomplish these objectives, senior managers in successful organizations consistently followed these practices--which have become known as best practices--to ensure that they received information needed to make timely and appropriate decisions. Among others, one key practice is for executives to manage information systems as investments rather than expenses. This requires using disciplined investment control processes that provide quantitative and qualitative information that senior managers can use to continuously monitor costs, benefits, schedules, and risks; and to ensure that structured systems-development methodologies are used throughout the system's life cycle. A consensus has emerged within the administration and the Congress that better investment decisions on information technology projects are needed to help the government improve service. Important changes recently made to several laws and executive policy guidance are instituting best-practice approaches of leading organizations into the federal government. This month, the Office of Management and Budget will issue guidance that describes an analytical framework for making information technology investment decisions. Developed in cooperation with GAO, this guidance calls for agencies to implement management practices to select, control, and evaluate information technology investments throughout their life cycles. HCFA has not yet instituted a set of well-defined investment control processes to measure the quality of development efforts and monitor progress and problems. This situation has contributed to a series of problems related to requirements-definition, schedule, and costs; these problems raise concerns that MTS may suffer the same fate as many other complex systems--extensive delays, large cost increases, and the inability to achieve potential benefits. First, HCFA has not sufficiently followed sound practices in defining MTS project requirements. As a result, HCFA has twice redirected the approach and, 2 years into the contract, requirements definition at the appropriate level of specificity has not been completed. Requirements, which are defined during the analysis phase of a project, document the detailed functions and processes the system is expected to perform and the performance level to be achieved. They are intended to correct deficiencies in the current system and take advantage of opportunities to improve program economy, efficiency, and service. Because requirements provide the foundation for designing, developing, testing, and implementing the system, it is critical that they be precisely defined to avoid ambiguity and overlap, and that they completely and logically describe all features of the planned system. Using an appropriate methodology to define requirements significantly reduces risk that requirements defects will cause technical problems. Originally, HCFA's plans called for GTE to document the current systems' requirements, while HCFA staff defined new or future requirements for MTS. However, in September 1994, HCFA concluded that GTE's analysis of the current systems did not contain enough detail to fully describe the current systems' requirements. HCFA then directed GTE to provide additional detail. In September 1995, HCFA concluded that the products GTE was developing were too detailed, and again directed GTE to refocus its efforts--this time, however, on assisting HCFA staff in defining future MTS requirements. On the basis of our experience in evaluating other systems, such multiple redirections in the analysis phase of a major project indicate that HCFA's process to control requirements lacks discipline. HCFA currently lacks an effective process for managing requirements, and has not provided adequate guidance to staff responsible for defining requirements. These deficiencies have also been cited by the IV&V contractor as an area of significant risk. Because of problems in completing the definition of requirements, and HCFA's plans to implement a fully functional MTS in September 1999, HCFA is proceeding into the next phase of system development, the design phase, before requirements have been completed. HCFA plans to select an MTS design alternative by the end of this calendar year, but requirements are not scheduled to be completed until September 1996. Because design alternatives are used to determine how the system will be structured, if the alternatives do not reflect key requirements, the system's future capabilities may be seriously constrained. The IV&V contractor pointed out that HCFA's plan to select the system design in parallel with defining system requirements also increases risks that the system will not meet important goals. HCFA officials told us they believe that MTS requirements are sufficiently defined to prepare high-level system-design alternatives, but the IV&V contractor disagrees. To support critical design decisions, requirements need to be sufficiently detailed to include such functions and processes as performance levels and response times. When we reviewed HCFA's preliminary set of requirements, we found that many of them did not contain enough detail. Second, HCFA's development schedule for MTS contains significant overlap--or concurrency--among the various system-development phases: analysis, design, programming, testing, validation, and implementation. As shown in figure 1, the April 1994 MTS schedule--an early estimate by HCFA--is used only to illustrate the sequential nature of these phases. The November 1995 schedule shows extensive concurrency; for example, the analysis and design phases are occurring simultaneously during the period from July 1994 to September 1996. In our January 1994 report on MTS, we stated that if a contractor advances too far into a succeeding system-development phase before sufficient progress has been made in the previous phase, the risk that technical problems will occur is significantly increased. Senior HCFA officials recently told us that the MTS schedule contains concurrency because it is important to deploy the system before the end of the century; otherwise, significant costs would be incurred to modify existing systems. What is needed is quantifiable information on this cost, compared with an assessment of the risks of concurrency. HCFA has not, however, implemented a formal process to assess and manage system-development risks. The IV&V contractor has also cited this lack of a formal risk-assessment process as a problem. In addition, while HCFA's MTS schedule has been revised several times because of the redirection of requirements definition in the analysis phase, the initial and final system-implementation dates have remained largely unchanged. As a result, the time scheduled to complete the rest of the system-development phases to meet those dates is now significantly compressed. For example, because HCFA did not adjust the initial operating capability date, it is now scheduled, at one point in a 1-year period, to work concurrently on the remaining development phases--design, programming, testing, and validation. On the basis of our previous work on large systems-development efforts, we believe that failure to allow for sufficient time to complete system-development phases increases risk and will likely result in reduced systems capability. Moreover, HCFA has not developed an integrated schedule that reflects both HCFA and contractor activities, work products, and time frames needed to perform these activities. Such a schedule provides an important tool for closely monitoring progress and problems in completing various activities. Without detailed insight about the actual status of all development activities, management will not have the information it needs to make timely decisions. HCFA's IV&V contractor also cited concerns about the lack of an integrated schedule baseline for MTS. HCFA officials agreed that such a schedule is important. Finally, HCFA has not sufficiently developed disciplined processes to adequately monitor progress in achieving cost and benefit objectives, which are important to managing projects as investments. The estimated MTS project costs, pegged by HCFA at $151 million in 1992, have not been updated since then, and HCFA is not tracking internal costs associated with the project, such as personnel, training, and travel. According to HCFA officials, they plan to update their cost estimate next year, to reflect their current understanding of MTS' capabilities. Similarly, except for estimated administrative savings of $200 million a year during the first 6 years of operation (1997-2002), HCFA has not yet quantified other important expected benefits of MTS, such as targets for reducing fraud, waste, and abuse, and improving services to beneficiaries and providers. Without current information on costs and potential benefits, HCFA executives will not be in the best position to realistically monitor performance or identify and maximize the system's true return on investment. We have seen an inescapable pattern in agencies' development of information systems: even on a small scale, those that are not developed according to sound practices encounter major, expensive problems later on. The larger the project, the bigger the risk. It takes serious, sustained effort and disciplined management processes to effectively manage system development. Effective oversight greatly reduces exposure to risk; without it, risk is dramatically and needlessly increased. The risks we see in the development of MTS can be substantially reduced if HCFA management implements some of the best practices that have been proven effective in other organizations: managing systems as investments, changing information management practices, creating line manager ownership, better managing resources, and measuring performance. HCFA still has time to correct these deficiencies. We are encouraged by HCFA's expression of interest in learning about how to implement the best practices in systems development used by successful organizations, and look forward to working with them. This concludes our statement, Mr. Chairmen. We will be happy to respond to any questions you or other members of the subcommittees may have at this time. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. 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.	GAO discussed the Health Care Financing Administration's (HCFA) approach to managing the Medicare Transaction System (MTS). GAO noted that: (1) MTS is designed to unify the nine Medicare claims-processing systems, improve Medicare contractor oversight, improve services to beneficiaries and providers, reduce administrative expenses, and better protect Medicare program funds from waste, fraud, and abuse; (2) although HCFA plans to mitigate large scale problems by implementing MTS in increments and design MTS to allow for future modifications, the lack of an effective management approach exposes the system to undue risks; (3) HCFA has not adequately defined MTS project requirements, has not identified significant system-development overlap, and lacks reliable cost and benefit information; and (4) HCFA could substantially reduce MTS development risks by implementing some of the best practices that have been proven effective in other organizations, such as changing HCFA information management practices, creating line manager ownership, better managing MTS resources, and measuring MTS project performance.	2,849	215
Student financial aid programs are administered by Education's Office of Student Financial Aid Programs under title IV of the Higher Education Act of 1965, as amended. The four major programs providing student aid currently in use are the Federal Family Education Loan Program (FFELP), the Federal Direct Loan Program (FDLP), the Federal Pell Grant Program, and campus-based programs. These programs together will make available over $50 billion to about 9 million students during the 1999-2000 academic year. FFELP and FDLP are the two largest postsecondary student loan programs, and Pell is the largest postsecondary grant program. FFELP provides student loans through private lending institutions; these loans are guaranteed against default by some 36 guaranty agencies and insured by the federal government. FDLP provides student loans directly from the federal government, while Pell provides grants to economically disadvantaged students. In many ways, Education's student financial aid delivery system is similar to functions performed in the banking industry, such as making loans, reporting account status, and collecting payments. The department currently maintains 11 major systems for administering student financial aid programs. These systems were developed independently over time by multiple contractors in response to new programs or mandates. They have resulted in a complex, highly heterogeneous systems environment. The systems range from legacy mainframes, several originally developed over 15 years ago, to recently developed client-server environments. Information systems are at the heart of the department's ability to carry out its mission. According to its own assessments, the student financial aid delivery process could experience major problems if the systems upon which it relies are not fully Year 2000 (Y2K) compliant in time. Such risks include delays in disbursements; reduction in Education's ability to transfer payments, process applications, or monitor program operations; and the potential inability of postsecondary education students to verify the status of their loans or grants. Last September, the department had reported to the Office of Management and Budget (OMB) that of its 14 mission-critical systems (11 involving student financial aid), 4 had been implemented and were operating as Y2K compliant. Education, along with other executive branch agencies, faced a March 31, 1999, OMB deadline for implementation of Y2K-compliant mission-critical systems. Given the situation at the time, we saw three key issues that threatened the department's ability to carry out its mission: systems testing, data exchanges, and business continuity and contingency planning. Thorough Y2K testing is essential to providing reasonable assurance that systems process dates correctly and will not jeopardize an organization's ability to perform core business operations. Agencies must test not only the Y2K compliance of individual applications, but also the complex interactions among numerous converted or replaced computer platforms, operating systems, utilities, applications, databases, and interfaces. Because of Education's late start and the compression of its schedule to meet the March 31 deadline, the time available for key testing activities of mission-critical systems was limited. We pointed out that Education needed to mitigate critical risks that affected its ability to award and track billions of dollars in student financial aid by ensuring adequate testing of its systems. We said that maintaining testing and implementation schedules while ensuring testing adequacy would be essential. Effectively addressing testing reduces the risk that the department's ability to deliver financial aid to students could be compromised. Data exchange--the transfer of information across systems--is the second area of risk we identified at Education last September. Conflicting formats or data processed on noncompliant systems could spread errors from system to system, compromising not only data but also the systems themselves. To mitigate this risk, organizations need to inventory and assess their data exchanges, reach agreements with exchange partners on formats and protocols, and develop contingency plans in the event of failure. Education's student financial aid environment is very large and complex; it includes over 7,000 schools, 6,500 lenders, and 36 loan guaranty agencies-- not to mention other federal agencies. Figure 1 is a simplified graphic representation of that environment. As we reported in September, to address its data exchanges with schools, lenders, and guaranty agencies, Education dictated how the data that these institutions provide to the department should be formatted. The department handles this in one of two ways: it either provides software to institutions, such as EDExpress, or it provides the technical specifications for the institution to use in developing the necessary interface. As of last fall, the department had been active in coordinating with its data exchange partners. Beyond this, however, we pointed out that Education needed to engage in end-to-end testing of its mission-critical business processes, including data exchanges. Further complicating data exchange compliance is the need to ensure that data are not only formatted consistently but are accurate. As we have previously reported, Education has experienced serious data integrity problems in the past. As Education reported last September, its own surveys showed that many of its data exchange partners had a long way to go. For example, in the summer of 1998, the department and the American Association of Community Colleges conducted surveys of the Y2K readiness of postsecondary schools. They found that up to one-third of the schools did not have a compliance plan in place. The third area we discussed last September as critical for Education was business continuity and contingency planning. Some problems are inevitable as any organization enters the next century. It is vital, then, that realistic contingency plans be developed to ensure the continuity of core business operations in the event of Y2K-induced failures. And as our testimony pointed out, continuity and contingency plans must focus on more than agency systems alone; they must likewise address data provided by their business partners and the public infrastructure. One weak link anywhere in the chain of critical dependencies can cause major disruption. The department has been committed to developing business continuity and contingency plans for each mission-critical business process and its supporting systems. It initiated contingency planning in February 1998, and appointed a senior executive to manage the development and testing of continuity and contingency plans for all student financial aid operations. Completion of such plans was targeted for March 31, 1999. As of March 31, 1999, the Department of Education reported that all of its 14 mission-critical systems--including the 11 student financial aid delivery systems--were Y2K compliant and in operation. Our review of three of these systems found adequate test documentation. However, the department has not yet closed out four of its systems as completing the Y2K compliance process in accordance with Education-specific guidance; other systems issues also remain outstanding, although they are generally considered low-risk. Testing of data exchanges and end-to-end testing of key business processes are continuing according to the department's schedule, as is the refinement of business continuity and contingency plans. As part of our work, we selected three student financial aid systems and reviewed the contractor's change control/quality control process, test plans, and test results. We found adequate documentation supporting baseline, regression, and future date testing at the unit and system levels, as summarized in table 1. Education reported that its 14 mission-critical systems were compliant as of March 31, but it still has remaining tasks to complete for several of these systems before certifying them as completing the Y2K compliance process. The final step of the department's close out process includes a Year 2000 System Closeout form that is signed by the system manager, principal office coordinator, Year 2000 project management team liaison, and either the independent verification and validation (IV&V) contractor or a representative of the Year 2000 Program Office support contractor. The signatures certify that the system has completed the Y2K compliance process, consisting of successfully passing appropriate Y2K validation tests (including IV&V), and identifying and testing data exchanges. As of May 9, the department had not closed out 4 of its 14 mission-critical systems, including 2 student financial aid systems. Education expects to close out three of the remaining four systems by the end of this month but has not yet received final concurrence from IV&V contractors, who are waiting to review documentation pending from the department. According to Education officials, the fourth system Education's Local Area Network (EDNET) requires additional funding for Y2K interoperability. Education has requested these funds as part of a supplemental budget request to OMB for Y2K emergency funding. In addition to closing out the remaining 4 systems, 7 of the other 10 mission-critical systems have remaining tasks (excluding data exchange testing) that still need to be completed. For example, the Campus Based System's computing environment was converted in February 1999 to another operating system; however, the contractor for the data center has not provided the IV&V contractor with an updated inventory of its hardware and system-related software (e.g., operating system, system utilities, compilers, etc.). The inventory is due to the IV&V contractor in mid-May for review. Another example of an open item is a noncompliant software product used by the Direct Loan Origination System. The software product was upgraded in April, but the IV&V contractor is still waiting for documentation. According to Education officials and the IV&V contractors, these open issues are considered low-risk items and are in the process of being resolved. With the exception of data exchange testing (discussed below), Education expects to resolve these issues over the next few months. The department needs to be diligent in making sure that these issues are indeed resolved expeditiously. The department is also currently in the process of developing a new mission-critical system--the Recipient Financial Management System--to replace the current Pell Grant Recipient Financial Management System. The first two phases of the Recipient Financial Management System are expected to be implemented on May 26, 1999, with the third phase following on June 25, 1999, and the final phase scheduled for implementation on August 13, 1999. According to department officials, the new system was developed to be Y2K compliant and is scheduled to begin compliance testing this month. Beyond the testing of individual mission-critical systems, we reported last fall that Education needed to devote a significant amount of time to testing its data exchanges as part of its end-to-end testing approach. In recognition of the importance of data exchanges, the Higher Education Amendments of 1998 specifically required that Education "fully test all data exchange routes for Year 2000 compliance via end-to-end testing, and submit a report describing the parameters and results of such tests to the Comptroller General no later than by March 31, 1999." In response to this mandate, the department submitted a report describing various aspects of its end-to-end testing approach and results to date. OMB has also identified student aid as one of 42 high-impact federal programs and has assigned the Department of Education as the lead agency. Education's approach includes the following: Testing and validating the data exchange software that the department develops and provides to postsecondary institutions to support the administration and application of federal student financial aid, which includes EDExpress, Free Application for Federal Student Aid (FAFSA) Express, and FAFSA on the Web. Testing all of its data exchanges during the renovation and validation process by simulating the trading partner's role (i.e., sending and receiving data to and from the systems). Testing the data exchange with the actual trading partner. A series of test dates has been scheduled for this purpose--as listed in table 2--to confirm that the transmission performs correctly for a particular entity. In addition to data exchange testing, as part of its continuing outreach activities to data exchange partners, Education is in the process of sending out another survey this month to over 7,000 postsecondary institutions to be used in assessing how educational institutions are progressing with Y2K compliance efforts. The department expects to have results by June 1999. Education also maintains an Internet web site that contains Y2K information such as "Dear Colleague" letters about Y2K efforts, Education- developed software certification letters, and its publication entitled Year 2000 Readiness Kit: A Compilation of Y2K Resources for Schools, Colleges, and Universities. Also in development, according to Education, are plans to demonstrate the readiness of its student aid application system by having students at a local university apply for aid on systems (at the university and at an Education data center) with the clock set forward to February 29, 2000. Education also reports that as of this month, 18 of the 36 student loan guaranty agencies have Y2K-compliant systems. Of the remaining 18 guaranty agencies still working on Y2K activities, 11 are expected to be compliant by June 1999, with another 3 expected to be compliant by September 1999. Of the remaining 4, 1 guaranty agency reports it will not be compliant until December 1999. As part of its oversight function, the department, which will include staff from the Office of the Inspector General, is planning site visits to several guaranty agencies over the next few months to review their Y2K efforts. In keeping with the department's commitment to engage in business continuity and contingency planning, in November 1998 it posted an invitation for comment on its Y2K contingency planning process for student financial aid. Since then, a draft plan dated February 5, 1999, has been posted to its web site for review and comment by external trading partners. The draft document contains detailed plans for eight key business processes and associated subprocesses, outlining the process goal, description, and impact analysis. For each subprocess, the business impact analysis addresses failure scenarios, time horizon to failure, normal performance levels, emergency performance levels, risk mitigation options, and contingency options. The mission-critical business processes are student aid application and eligibility determination; student aid origination and disbursement; student enrollment tracking and reporting; guarantor and lender payments; repayment and collection; institutional eligibility and monitoring; customer service and communication; and Federal Family Education Loan Program origination, disbursement, repayment, and collection. Education also intends to test its business continuity and contingency plans, and has requested additional funding in its supplemental budget request to OMB to do so. The department has conducted some preliminary tests and anticipates doing more. It currently expects to complete all of these tests by June 15, 1999. While much of the work on renovating and validating mission-critical systems has been completed, and the risk of student financial aid delivery system failures has been significantly reduced, the department needs to continue making Y2K a top priority. Accordingly, it needs to focus particular attention on the following activities. Expeditiously resolving open issues delaying certification of the remaining four mission-critical systems still pending formal closeout. Continue resolving and tracking open issues, including environmental or functional changes made to existing systems; in doing so, ensure the involvement of IV&V contractors. Ensuring that the new Recipient Financial Management System has been adequately tested for Y2K compliance as each phase is implemented between now and August. Continue end-to-end testing of critical business processes involving Education's internal systems and its external data exchange partners. Ensure that results are monitored for completeness and any problems that may arise are addressed promptly--including concerns raised by the IV&V contractors. Continue outreach activities with schools, guaranty agencies, and other participants in the student financial aid community to share successes and lessons learned to help further reduce the likelihood of Y2K failures. Continue refining and testing the student financial aid business continuity and contingency plans, encouraging the involvement of postsecondary institutions, guaranty agencies, and other external trading partners. In summary, Mr. Chairman, the Department of Education has made progress toward making its programs and supporting systems Year 2000 compliant. However, work remains to complete Education's planned Y2K program so as to ensure that the risk of disruption to student financial aid delivery is minimized, and that the department is prepared to handle emergencies that may arise. 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. 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.	Pursuant to a congressional request, GAO discussed the Department of Education's efforts to ensure that its computer systems supporting critical student financial aid activities will be able to process information reliably through the turn of the century, focusing on: (1) the progress Education has made to date in making its information systems year 2000 compliant; and (2) the future tasks facing the department. GAO noted that: (1) as of March 31, 1999, Education reported that all of its 14 mission-critical systems--including the 11 student financial aid delivery systems--were year 2000 compliant and in operation; (2) GAO's review of three of these systems found adequate test documentation; (3) however, the department has not yet closed out four of its systems as completing the year 2000 compliance process in accordance with Education-specific guidance; other systems issues also remain outstanding, although they are generally considered low-risk; (4) testing of data exchanges and end-to-end testing of key business processes are continuing according to the department's schedule, as is the refinement of business continuity and contingency plans; (5) while much of the work on renovating and validating mission-critical systems has been completed, and the risk of student financial aid delivery system failures has been significantly reduced, the department needs to continue making year 2000 a top priority; and (6) accordingly, it needs to focus particular attention on the following activities: (a) expeditiously resolving open issues delaying certification of the remaining four mission-critical systems still pending formal closeout; (b) continue resolving and tracking open issues, including environmental or functional changes made to existing systems; in doing so, ensure the involvement of independent verification and validation (IV&V) contractors; (c) ensuring that the new Recipient Financial Management System has been adequately tested for year 2000 compliance as each phase is implemented between now and August; (d) continue end-to-end testing of critical business processes involving Education's internal systems and its external data exchange partners; (e) ensure that results are monitored for completeness and any problems that may arise are addressed promptly--including concerns raised by the IV&V contractors; (f) continue outreach activities with schools, guaranty agencies, and other participants in the student financial aid community to share successes and lessons learned to help further reduce the likelihood of year 2000 failures; and (g) continue refining and testing the student financial aid business continuity and contingency plans, encouraging the involvement of post secondary institutions, guaranty agencies, and other external trading partners.	3,722	547
DOD's primary representative for supplier-base issues is the Office of the Deputy Under Secretary of Defense for Industrial Policy (Industrial Policy). Its mission is to sustain an environment that ensures the industrial base on which DOD depends is reliable, cost-effective, and sufficient to meet its requirements. Industrial Policy defines reliability as suppliers providing contracted products and service in a timely manner; cost- effectiveness as the delivery of products and services at or below target costs; and sufficiency as suppliers delivering contracted products and services that meet prescribed performance requirements. DOD's Program Executive Officers manage a portfolio of programs related to weapon systems. DOD also relies on a cadre of military and civilian officials-- known as program managers--to lead the development and delivery of individual weapon systems. Program managers or their designees interact with prime contractors who manage subcontractors to provide the final good or service to DOD. Currently, DOD relies primarily on about six prime contractors who manage thousands of subcontractors for DOD systems. DOD has a variety of authorities, including laws, regulations, and an executive order, that govern its interaction with the defense supplier base. There are several key authorities available to DOD for maintaining information on its suppliers as well as ensuring a domestic capability for certain items, such as radiation-hardened microprocessors. In addition, the Department of Commerce has authority to assess the supplier base to support the national defense, and has conducted 15 supplier-base assessments in the past 5 years, including studies on imaging and sensor technology. See appendix II for a description of selected key defense supplier-base authorities. Although DOD has undertaken a variety of efforts to monitor the defense supplier base, it lacks a framework and consistent approach to identify and monitor concerns in the supplier base. The military services, Industrial Policy, and other DOD components collect information about the health and viability of certain defense supplier-base sectors. However, DOD has not applied departmentwide criteria to determine supplier-base characteristics that could result in reduced or nonavailability of needed items. As part of its supplier-base monitoring efforts, DOD has previously created lists of specific items that are considered critical at a point in time, but lists such as these run the risk of becoming obsolete and do not focus on supplier-base characteristics that could guide identification of problems. To better target its monitoring resources, Industrial Policy recently established criteria for supplier-base characteristics that could be indicators of supply concerns. These criteria have primarily been applied to the missile and space defense sectors and have not been used to guide the identification and monitoring of supplier-base concerns for all sectors departmentwide. The military services and other DOD components conduct studies on their respective suppliers, often in response to supplier concerns for individual programs. For example, the Army's Aviation and Missile Research, Development, and Engineering Center studies availability issues for Army missile and space programs, such as the availability of raw materials for these programs. The Air Force Research Laboratory conducts assessments that range from annual studies of key supply sectors to evaluations of the supplier base for individual components or materials, such as beryllium. Within the Navy, the Fire Scout vertical takeoff and unmanned aerial vehicle program had an industrial capability assessment conducted of its supplier base before it proceeded to the production phase of the program. Officials from the Missile Defense Agency told us they have dedicated staff to monitor the supplier base for each of the agency's 12 programs and have contracted for support to help improve supply-chain management between the agency's program offices and their prime contractors. The Secretary of Defense is required by legislation to report annually to Congress on the supplier base. Industrial Policy prepares these reports, which provide a broad analysis of supplier trends and summarize supplier- base studies performed by various DOD components. For example, Industrial Policy reports on the percentage of prime contracts with a value of $25,000 or greater awarded to foreign suppliers. In addition, Industrial Policy also intermittently reports on foreign reliance for selected weapon programs. For example, in both 2001 and 2004, Industrial Policy reported to Congress on overall foreign reliance for 8 and 12 selected weapon programs, respectively. Industrial Policy also reports annually on industrial capabilities, including a macro-level summary of DOD's seven supplier sectors and a summary of capabilities assessments conducted within DOD--which totaled 47 in 2007. Industrial Policy also provides quarterly updates on the financial and economic metrics of various defense suppliers; convened a roundtable of companies to identify barriers to conducting business with DOD; chartered a cross-department work group to collaborate on tasks related to defense supplier-base challenges, such as sole sources of supply and barriers to competition; and conducted other activities to foster knowledge of the defense supplier base. To support supplier-base analyses by Industrial Policy and the military services, the Defense Contract Management Agency's Industrial Analysis Center conducts program- and sector-specific defense supplier-base studies, as well as conducting analysis to support DOD's studies of foreign reliance. While these multiple efforts have provided the various DOD components with information about specific suppliers, they have not provided a DOD-wide view of supplier-base characteristics that could be indicators of problems--in large part because the efforts are not guided by departmentwide criteria for identifying and monitoring supplier-base concerns. In addition, DOD has also developed lists of items deemed critical at a point in time as part of its supplier-base monitoring efforts. For example, in 2003, after insufficient visibility, planning, and programming led to shortages of several mission-essential items during Operations Iraqi Freedom and Enduring Freedom, the Joint Staff directed the military services, the Defense Logistics Agency, the Defense Contract Management Agency, and the Combatant Commanders to create a list of the their respective top 20 "Critical Few" material readiness-shortfall items. Criteria for selecting items included those with high variances in wartime versus peacetime demand, military-unique characteristics without a commercial substitute, and limited industrial-base capacity. DOD developed a classified list of 25 items in 2003 that, according to officials, has not been updated. Similarly, an Army regulation and Air Force directive cite the development and use of "critical items lists." However, officials from both services stated that the language in these authorities is outdated and the lists, if ever developed, are no longer used. According to Industrial Policy, lists such as these only capture items that are deemed critical at a point in time and, therefore, do not reflect changes in industry, technology, and DOD requirements. The Air Force has initiated efforts to establish criteria to track supplier- base concerns. Specifically, the Air Force's Space and Missile Systems Center, under direction from the National Security Space Office, established a Space Industrial Base Program in order to address issues affecting the Air Force's ability to develop and deploy space systems. According to Air Force officials, this action was a result of DOD Directive 5101.2. The center developed a method for identifying and tracking defense items with supplier-base concerns, defining such items as those whose loss or impending loss of manufacturers or suppliers has the potential to severely affect the program in terms of schedule, performance, or cost if left unresolved. Specifically, criteria for identifying and monitoring these items is based on supplier-base characteristics such as uneconomical production requirements, foreign-source competition, limited availability, or increasing cost of items and raw materials used in the manufacturing process. According to the Space and Missile Systems Center, based on the criteria it developed, it identified approximately 80 critical items in its space systems and coordinated with the Aerospace Corporation, a federally funded research and development center, to track the supplier base for these items. According to Industrial Policy, the breadth of DOD's programs requires that it selectively monitor DOD's supplier base. In turn, to better target supplier-monitoring resources, Industrial Policy recently established criteria for identifying conditions that could be indicators of supplier-base concerns for certain defense items, deeming these items as "important." Its criteria for such important items include those produced by a sole source; used by three or more programs; representing obsolete, enabling, or emerging technologies; requiring long lead times to manufacture; or having limited surge-production capability. According to Industrial Policy, this internal effort grew out of DOD's development of its critical asset list, and the organization uses the "important" designation to help it identify components and their suppliers that have the most potential to negatively affect production across program and service lines. However, while Industrial Policy uses these criteria, it is not aware of similar use by other DOD organizations. Industrial Policy has used these criteria to identify important components in the missile and space sectors, and has yet to use these criteria to guide the identification and monitoring of supplier-base concerns for all sectors departmentwide. According to Industrial Policy, the missile and space sectors have the preponderance of important items because they contain few commercial off-the-shelf components and a greater number of defense-unique components and, therefore, these sectors contain the most sole-source suppliers. According to Industrial Policy, these sectors are most likely to experience rapid production increases during times of conflict--another contributing factor. Examples of items identified in these sectors include thermal batteries, tactical missile rocket motors, lithium-ion batteries, and traveling-wave tubes. While still early in the process, Industrial Policy reported that it has used these criteria to help identify and work towards mitigating supplier-base concerns within the space and missile sectors. Specifically, the Defense Production Act Title III was used to improve domestic manufacturing performance for two items deemed important--traveling-wave tubes and long-life lithium-ion batteries. In a separate effort, Industrial Policy stated it is collaborating with the Defense Logistics Agency's National Defense Stockpile Center to create departmentwide criteria for the terms, "critical," "strategic," and "important" and expects the Defense Logistics Agency to report to Congress by the end of calendar year 2008 on the results of this effort. As required by statute, in 2007 DOD established a Strategic Materials Protection Board to determine the need to provide long-term domestic supply of materials critical to national security to ensure that national defense needs are met, analyze risks associated with potential nonavailability of these materials from domestic sources, and recommend a strategy to the President to ensure domestic availability of these materials. The Board has initially defined critical materials as those that perform a unique function for defense systems and have no viable alternative; DOD dominates the market for the material; and has significant and unacceptable risk of supply disruption if there are insufficient U.S. or reliable non-U.S. suppliers. However, the Board's focus is to assess only the criticality of materials, such as specialty metals, not to identify and track critical defense items or components. DOD often relies on the military services, program offices, or prime contractors to identify supplier-base concerns, including gaps and potential gaps, with no departmentwide requirement for when to report these gaps to higher-level offices. Over the past 5 years, most program officials we surveyed faced gaps in their supplier base or had sole sources of supply for certain items. To address these supplier concerns, programs often relied on the prime contractors, which had more detailed knowledge of the supplier base, and left it to the contractor's judgment to report gaps and take actions to address supplier challenges. Further, program officials reported that they generally use their discretion in determining when to report identified gaps and planned actions to higher DOD levels. As a result, DOD's ability to know when a departmentwide approach is needed to mitigate these concerns may be limited. DOD often relies on its individual program offices to ensure that their respective supplier bases are sufficient. According to officials from Industrial Policy, individual program offices are to ensure that their supplier base is sufficient, and Industrial Policy would become involved only when supplier-base concerns might affect multiple programs or more than one military service, therefore requiring a corporate DOD approach. Most of the program officials we surveyed had supplier-base concerns in the last 5 years (see table 1). Specifically, 16 of the 20 program officials we surveyed reported facing supplier gaps or potential gaps, including obsolescence of component parts or technologies, diminishing manufacturing sources for components, and production challenges. In addition, 15 of the 20 program officials identified sole sources of supply for components of their weapon systems. Seventeen of the program officials we surveyed said these supplier-base concerns were identified by their prime contractors, which maintain detailed knowledge of the supplier base. Many of the program officials we interviewed maintain frequent contact with their prime contractors and noted that this level of communication facilitates supplier-base knowledge. Specifically, 19 out of 20 program officials we surveyed said their prime contractor often identified and provided supplier-base information to them and that communication was frequent when a supplier-base concern arose. Program officials had varying degrees of knowledge of their supplier tiers--18 reported that they maintain knowledge of their program's supplier base at the prime- contractor level, while 9 maintained knowledge of the lowest-tier subcontractor of the supply chain. One program official noted that knowledge of the lower-tier suppliers is gained as issues arise, and another stated that knowledge of these lower tiers is based on assessed "criticality" to the program--which is defined on a program-by-program basis. The four prime contractors that we interviewed about their own corporate insight into the supplier base noted that they had extensive internal corporate metrics to evaluate the health and performance of their subcontractors, which offered the companies a degree of visibility into their supply chains, from second-tier subcontractors to lower-tier suppliers of raw materials. For example, one of the prime contractors had software that allowed it to analyze and measure data on each supplier within its network. It captured data on each supplier's performance based on the quality of its work and the delivery of its product, which resulted in a combined performance rating. Examples of other metrics tracked include supplier biography, report card results, trend analysis of performance ratings over a period of time such as a calendar year, and the combined performance rating of a part that a supplier manufactures for a particular system. To address reported supplier gaps, program offices took a variety of actions. For example, actions to address supplier gaps in the area of obsolescence ranged from large-scale purchases, known as life-time buys, to initiating component redesign. In other instances the gap has not yet been solved. The Space Tracking Surveillance System program relies on one company to supply the base materials used to produce nickel- hydrogen batteries, which are critical to this program. However, this company plans to cease production of these batteries in 2009 or shortly thereafter; yet an alternate source of supply has not been identified. In another instance the Hellfire Missile program is working with the Army Program Executive Officer for Missiles and Space along with Industrial Policy to request a waiver to procure a chemical that is no longer produced in the United States from a company in China. The program is also exploring whether a Navy facility could produce the chemical in the quantities needed by this and other military programs that use this chemical. Program officials and prime contractors we spoke with stated that they use their discretion for when to report supplier-base concerns. Programs are not required to report supplier issues to their program executive officer or to higher levels within DOD, such as Industrial Policy, and most programs do not have contractual requirements with their prime contractor to direct when a supplier issue must be reported. While program officials reported working closely with their prime contractors to address concerns once they were identified, program officials and prime contractors we spoke with told us that it is a judgment call as to when to report supplier-base concerns to higher levels within DOD. For example, for the 20 program officials we surveyed, 17 reported that they had shared information on supplier concerns with their cognizant program executive officer. However, only four programs, all of which faced supplier gaps in the last 5 years, reported sharing such information with Industrial Policy. Thirteen program officials we surveyed stated that no requirement exists for when their program office should report supplier-base concerns to higher levels within DOD. Similarly, nine of 20 program officials told us that no requirement exists for what should trigger a prime contractor to report a supplier-base concern to them. One of these programs, the B-2 Spirit stealth bomber, is in the process of creating a requirement for when its prime contractor should notify it of supplier concerns. According to program officials, the Hellfire missile and Navy Fire Scout programs have imposed contractual requirements on their prime contractors to report any supplier concerns. Other program officials stated that while no formal requirement existed, there was an understanding between their prime contractor and the program office that any activity that will affect schedule, which could include supplier-base concerns, must be reported to the program office. While addressing supplier gaps at the program- or program executive officer-level may be appropriate in many cases, program offices across the military services rely on the same supplier base in some instances. In such cases, concerns with these suppliers can become even more crucial if it is a sole-source supplier. For example, multiple DOD programs in the space sector rely on one provider for traveling-wave tube amplifiers needed for satellite navigation purposes. According to officials from the Air Force's Space and Missile Systems Center, it closely tracks this supplier because any disruption in its production capability could adversely affect the cost, schedule, and performance of multiple space programs. In addition, officials from the Patriot Advanced Capability-3 missile program told us that production delays with its inertial measurement unit also affected the Army's Tactical Missile System program, as it uses this same unit from this company. However, DOD may not be aware of these types of cross- department concerns in other supplier-base sectors because it does not have a framework for programs to report information on supplier gaps and vulnerabilities for critical items. In addition, Industrial Policy may benefit from receiving information on supplier gaps and vulnerabilities to help it achieve its mission to sustain an environment that ensures the industrial base on which DOD depends is reliable, cost-effective, and sufficient to meet its requirements. A framework for programs to report supplier-gap information could assist Industrial Policy's decisions on when to activate available tools to mitigate supplier-base concerns, such as the authorities under the Defense Production Act. As we recently reported in a review of Defense Production Act use since its 2003 reauthorization, 25 DOD projects have received Title III funding over the past several years, totaling almost $420 million in assistance. Almost half of the projects received funds in order to establish a domestic source of supply or to help alleviate dependence on sole sources of supply. Recent major projects include Radiation Hardened Microelectronics Capital Expansion and a Beryllium Industrial Base Production Initiative. While DOD has a number of efforts to monitor its supplier base, these efforts lack a framework and set of characteristics to identify and track supplier-base concerns and allow for consistent reporting to higher levels within DOD, such as Industrial Policy. A failure to systematically identify and address supplier-base concerns could result in untimely discoveries of supply vulnerabilities, which could potentially affect DOD's ability to meet national security objectives. While DOD components, such as the Air Force's Space and Missile Systems Center, have taken action to identify and monitor supplier-base concerns, these efforts have been limited in scope or lacked departmentwide involvement. DOD has an opportunity to leverage the various efforts taken by its components into a departmentwide framework for identifying and monitoring supplier-base concerns. Considering the dynamic nature of the defense supplier base, this model could take into account recent efforts by Industrial Policy to establish characteristics that could be indicators of supply concerns. Further, by relying on individual program offices and their contractors to determine when it is appropriate to raise concerns, DOD cannot be assured that it is identifying all gaps that may need to be addressed at a departmentwide level. Until DOD establishes departmentwide characteristics for consistent identification and monitoring of supplier- base concerns and develops requirements for elevating supplier-base concerns--at both the contractor and program levels--it will continue to lack the visibility needed to oversee a robust supplier base. We are recommending that the Secretary of Defense direct Industrial Policy, in coordination with the military services and other relevant DOD components, to consider the following two actions to identify and monitor the supplier base: 1. Leverage existing DOD efforts to identify criteria of supplier-base problems and fully apply these criteria to guide the identification and monitoring of supplier-base concerns throughout DOD. 2. Create and disseminate DOD-wide written requirements for reporting potential concerns about supplier-base gaps. These requirements should delineate when, and to what level, supplier-base concerns should be elevated and should take into account the two levels of reporting--prime contractors to program offices and program offices to higher levels in DOD. DOD provided comments on a draft of this report. DOD also provided technical comments, which we incorporated as appropriate. In commenting on our first recommendation, DOD concurred with the need to leverage existing DOD efforts to identify criteria of supplier-base problems and fully apply these criteria to guide the identification and monitoring of supplier-base concerns throughout DOD. DOD indicated that its ongoing Defense Acquisition Guidebook update presents a fitting and timely opportunity to institutionalize these criteria into departmental acquisition policy. DOD partially concurred with our second recommendation, stating that while there is merit in having formal, published criteria for making judgments regarding when program offices should report supplier issues to Industrial Policy, similar formal reporting criteria or contractual mechanisms are not needed for prime contractors to report supplier-base concerns to the program office. DOD expects prime contractors to maintain internal corporate metrics to evaluate the health and performance of their subcontractors and likewise expects program offices to maintain frequent and open communication with their prime contractors on supplier-base issues. Our recommendation is for DOD to consider how best to facilitate the flow of this information between program offices and their prime contractors, regardless of whether it is through a contractual requirement or other means. This is particularly important given the large role that contractors play in monitoring the supplier base. While we found that almost all of the 20 program officials we surveyed relied on their prime contractors to provide supplier-base information, including identification of supplier-base concerns, there is no guidance to ensure that information is consistently elevated to the appropriate levels. As such, we maintain that a mechanism is needed to facilitate the flow of information from the prime contractor to the program office, and from the program office to higher levels within DOD-- especially for those concerns whose characteristics meet the criteria for making judgments regarding suppliers and components for DOD. We also provided a draft of this report to the Department of Commerce. The department reviewed the draft and provided no comments. DOD's written comments are reprinted in appendix III. We are sending copies of this report to interested congressional committees; the Secretaries of Defense and Commerce; and the Director, Office of Management and Budget. In addition, this report will be made available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-4841 or [email protected] if you or your staff have any questions concerning this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Others making key contributions to this report are listed in appendix IV. To assess Department of Defense (DOD) efforts to monitor its defense supplier base and identify and address gaps that might exist in its supplier base, we reviewed relevant laws and regulations, such as sections of Title 10, U.S. Code, the DOD 5000 series, National Security Space Acquisition Policy 03-01, and the Defense Production Act of 1950, as amended. We also met with officials and reviewed documents from multiple DOD components as well as defense companies, to discuss efforts, policies, and guidance. We met with officials from DOD's Office of the Deputy Under Secretary of Defense for Industrial Policy (Industrial Policy) to review its processes and actions for monitoring the defense supplier base. We also discussed with Industrial Policy its role in preparing and submitting the Annual Industrial Capabilities Report to Congress. We met with the Defense Contract Management Agency's Industrial Analysis Center to discuss its role in studying DOD's supplier-base sectors. We met with officials from the U.S. Air Force, Army, Navy, and the Missile Defense Agency to review and discuss their policies and practices for monitoring the defense supplier base. We also met with officials from the Department of Commerce, Bureau of Industry and Security, to discuss their role in monitoring the defense supplier base through its authorities to conduct surveys and analyses, and prepare reports on specific sectors of the U.S. defense supplier base. We also met with a Senior Fellow of the International Security Program, Defense Industrial Initiatives Group, who at that time was with the Center for Strategic and International Studies, to discuss his studies and perspectives on the defense supplier base. In addition, we selected a nongeneralizable sample of 20 DOD weapon programs (see table 2) based on criteria including representation of the aerospace or electronics industry; representation of various stages of the acquisition life cycle, to include those with mature and emerging technologies; cross-representation of DOD components--Air Force, Army, Navy, and the Missile Defense Agency; and selection of at least one DX- rated program, based on our review of the most current list of approved DX programs, dated November 7, 2007, posted by Industrial Policy as of the time we selected the programs to survey. GAO also has ongoing work through its annual "Assessments of Selected Weapon Programs," for many of these programs, which allowed the team to build upon our prior work efforts and existing DOD contacts. To better understand the general supplier-base knowledge, identification of supply gaps, and the use of domestic and international sourcing and tracking of these sources, we designed and administered a Web-based survey to program officials most knowledgeable about the supplier base for each of the 20 programs. We pretested a draft of our survey during January and February 2008, with officials at five DOD program offices. In the pretests, we were generally interested in the clarity of the questions as well as the flow and layout of the survey. After these pretests, we then made appropriate revisions to the survey instrument. We conducted the survey between April and June 2008, through a series of e-mails beginning on April 1 with prenotification e-mails, activated the survey on April 7, and sent follow-up e-mails to nonrespondents on April 14 and 22, 2008. We closed the survey on June 6, 2008, with a 100 percent response rate. To further determine how programs maintain knowledge of and monitor their supplier base, we then tailored follow-up questions to all 20 program officials to solicit information and documentation in areas such as communication between and among DOD and its prime contractors, and expansion on areas where programs experienced supplier gaps. We also met with and obtained information and documentation from the prime contractor for several of these programs, including officials from Boeing, Lockheed Martin, Northrop Grumman, and Raytheon. We conducted this performance audit from September 2007 to August 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. Table 3 below describes several key authorities available to the Department of Defense (DOD) for both maintaining information on its suppliers as well as ensuring a domestic capability for certain items. In addition to the contact name above, John Neumann, Assistant Director; Tara Copp; Lisa Gardner; Michael Hanson; Ian Jefferies; Marie Ahearn; Jean McSween; and Karen Sloan made key contributions to this report. Defense Production Act: Agencies Lack Policies and Guidance for Use of Key Authorities. GAO-08-854. Washington, D.C.: June 26, 2008. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO- 08-467SP. Washington, D.C.: March 31, 2008. Defense Infrastructure: Management Actions Needed to Ensure Effectiveness of DOD's Risk Management Approach for the Defense Industrial Base. GAO-07-1077. Washington, D.C.: August 31, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. Highlights of a GAO Forum: Managing the Supplier Base in the 21st Century. GAO-06-533SP. Washington, D.C.: March 31, 2006. Best Practices: Better Support of Weapon System Program Managers Needed to Improve Outcomes. GAO-06-110. Washington, D.C.: November 30, 2005. Federal Procurement: International Agreements Result in Waivers of Some U.S. Domestic Source Restrictions. GAO-05-188. Washington, D.C.: January 26, 2005. Defense Acquisitions: Knowledge of Software Suppliers Needed to Manage Risk. GAO-04-678. Washington, D.C.: May 25, 2004. Joint Strike Fighter Acquisition: Observations on the Supplier Base. GAO-04-554. Washington, D.C.: May 3, 2004.	The Department of Defense (DOD) relies on thousands of suppliers to provide weapons, equipment, and raw materials to meet U.S. national security objectives. Yet, increased globalization in the defense industry and consolidation of the defense supplier base into a few prime contractors has reduced competition and single-source suppliers have become more common for components and subsystems. For this report, GAO (1) assessed DOD's efforts to monitor the health of its defense supplier base, and (2) determined how DOD identifies and addresses gaps that might exist in its supplier base. To conduct its work, GAO reviewed supplier-base-related laws, regulations, and guidelines; met with officials from DOD's Office of Industrial Policy, defense contractors, and other DOD officials; and surveyed 20 major DOD weapon acquisition program officials on potential supplier-base gaps. DOD's efforts to monitor its supplier base lack a departmentwide framework and consistent approach. Its monitoring efforts generally respond to individual program supplier-base concerns or are broader assessments of selected sectors. As part of its supplier-base monitoring efforts, DOD has also previously identified lists of critical items--which according to DOD's Office of Industrial Policy (Industrial Policy) do not reflect the dynamic changes that occur in industry, technology, and DOD requirements. While DOD recently established criteria for identifying supplier-base characteristics that could be problem indicators--such as sole-source suppliers and obsolete or emerging technologies--these criteria have primarily been applied to the missile and space sectors and have not been used to guide the identification and monitoring of supplier-base concerns for all sectors departmentwide. DOD uses an informal approach to identify supplier-base concerns, often relying on the military services, program offices, or prime contractors to identify and report these concerns, including gaps or potential gaps. As no requirement for when to report such gaps to higher-level offices exist, knowledge of defense supplier-base gaps across DOD may be limited. While 16 of the 20 program officials GAO surveyed reported that they identified supplier gaps or potential gaps over the past 5 years, only 4 reported sharing this information with Industrial Policy. These gaps included obsolescence of components and items with only one available supplier. Program offices often relied on the prime contractor to identify and help address supplier-base gaps, and prime contractors and programs generally used their discretion as to when to report gaps to higher levels. As a result, Industrial Policy may not be receiving information to help it activate available tools, such as the authorities under the Defense Production Act, to mitigate supplier-base gaps.	6,331	544
Although the DHS criteria for primary screening require an improved ability to detect certain nuclear materials at operational thresholds, ASPs could meet the criteria for improvement while still failing to detect anything more than lightly shielded material. DNDO officials acknowledge that passive radiation detection equipment, which includes both the new and current-generation portal monitors, is capable of detecting certain nuclear materials only when this material is unshielded or lightly shielded. For this reason, the DOE threat guidance used to set PVTs' detection threshold is based on the equipment's limited sensitivity to anything more than lightly shielded nuclear material rather than on the assumption that smugglers would take effective shielding measures. DOE developed the guidance in 2002 and 2003 when CBP began deploying PVTs for primary screening. DOE and national laboratory officials responsible for the guidance told us the assumption of light shielding was 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. In contrast, PVTs are more sensitive to the relatively strong radiation signature of other nuclear materials, and the threat guidance assumes a higher level of shielding for setting the operational threshold for detection of such materials. However, even for such materials, the DOE threat guidance assumes that shielding would not exceed a level provided by the contents of an average cargo container. Moreover, DNDO has not completed efforts to fine-tune PVTs' software and thereby improve sensitivity to nuclear materials. As a result, the criteria compare ASPs to the current performance of PVTs and do not take potential improvements into account, which affects any assessment of "significant" improvement over current technology. DNDO officials expect they can achieve small improvements to PVTs' performance through additional development of "energy windowing," a technique currently being used in PVTs to provide greater sensitivity than otherwise possible. Pacific Northwest National Laboratory officials responsible for developing the technique also told us small improvements may be possible, and CBP officials have repeatedly urged DNDO to investigate the potential of the technique. DNDO collected the data needed to further develop energy windowing during the 2008 performance testing at the Nevada Test Site but has not yet funded Pacific Northwest National Laboratory efforts to analyze the data and further develop the technique. Other aspects of the criteria for a significant increase in operational effectiveness require that ASPs either provide more than a marginal improvement in addressing other limitations of current-generation equipment or at least maintain the same level of performance in areas in which the current-generation equipment is considered adequate: The primary screening requirement for an 80 percent reduction in the rate of innocent alarms could result in hundreds of fewer secondary screenings per day, thereby reducing CBP's workload and delays to commerce. The actual reduction in the volume of innocent alarms would vary and would be greatest at the nation's busiest ports of entry, such as Los Angeles/Long Beach, where CBP officials report that PVTs generate up to about 600 innocent alarms per day. A DNDO official said the requirement for an 80 percent reduction in innocent alarms was developed in conjunction with CBP and was based on a level that would provide meaningful workload relief. The primary screening criteria requiring that ASPs provide at least the same level of sensitivity to plutonium and medical and industrial isotopes, but not specifying an improvement, were based on DNDO's assessment that PVTs adequately detect such materials, which have a stronger radiation signature than HEU. In addition, CBP officials said that including medical and industrial isotopes in the criteria addressed a CBP requirement for verifying that those transporting certain quantities of these materials into the United States are properly licensed. The secondary screening requirement that ASPs reduce the probability of misidentifying special nuclear material by one-half addresses the inability of relatively small handheld devices to consistently locate and identify potential threats in large cargo containers. For example, a handheld device may fail to correctly identify special nuclear material if the material is well-shielded or the device is not placed close enough to a radiation source to obtain a recognizable measurement. According to CBP and DNDO, the requirement for a reduction in the average time to conduct secondary screenings is not more specific because the time varies significantly among ports of entry and types of cargo being screened. Improvements to the 2008 round of testing addressed concerns we raised about earlier rounds of ASP testing. However, the testing still had limitations, and the preliminary results are mixed. As we testified in September 2008, DHS's improvements to the 2008 round of ASP testing addressed concerns we raised about previous tests. 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, including those that could be used in a nuclear weapon. The improvements addressed concerns we previously raised about the potential for bias and provided credibility to the results within the limited range of scenarios tested by DNDO. For example, we reported in 2007 that DNDO had allowed ASP contractors to adjust their systems after preliminary runs using the same radiological materials that would be used in the formal tests. In contrast, the plan for the 2008 performance test stipulated that there would be no system contractor involvement in test execution, and no ASP contractors were at the test location on the day we observed performance testing. Furthermore, DNDO officials told us, and we observed, that they did not conduct preliminary runs with threat objects used in the formal tests. In 2007, we reported that DNDO did not objectively test the handheld identification devices because it did not adhere to CBP's standard operating procedure for using the devices to conduct a secondary inspection, which is fundamental to the equipment's performance in the field. DNDO addressed this limitation in the 2008 round of performance testing: CBP officers operated the devices and adhered as closely to the standard operating procedure as test conditions allowed. While the test conditions did not allow CBP officers to obtain real-time technical support in interpreting the device's measurements, as they would in the field to increase the probability of correctly identifying a radiation source, DNDO officials said they addressed this limitation. For example, they treated a decision by a CBP officer to indicate the need for technical support as a correct outcome if the test scenario involved the use of a potential threat, such as HEU. Other aspects of testing, while not specifically addressing concerns we previously raised, also added credibility to the test results. Based on our analysis of the performance test plan, we concluded that the test design was sufficient to identify statistically significant differences between the new technology and current-generation systems when there were relatively large differences in performance. Specifically, DNDO conducted a sufficient number of runs of each scenario used in the 2008 performance testing to identify such differences. With regard to the general conduct of the 2008 round of testing, two aspects, in particular, enhanced the overall rigor of the tests: (1) criteria for ensuring that ASPs met the requirements for each phase before advancing to the next, and (2) the participation of CBP and the DHS Science and Technology Directorate. The test and evaluation master plan established criteria requiring that the ASPs have no critical or severe issues rendering them completely unusable or impairing their function before starting or completing any test phase. In addition, the criteria established a cumulative limit of 10 issues requiring a work-around (e.g., a straightforward corrective step, such as a minor change in standard operating procedures) and 15 cosmetic issues not affecting proper functioning. DNDO and CBP adhered to the criteria even though doing so resulted in integration testing conducted at the Pacific Northwest National Laboratory taking longer than anticipated and delaying the start of field validation. For example, DNDO and CBP did not allow a vendor's ASP system to complete integration testing until all critical or severe issues had been resolved. The involvement of CBP and the DHS Science and Technology Directorate provided an independent check, within DHS, of DNDO's efforts to develop and test the new portal monitors. For example, the lead CBP official involved in ASP testing told us that DNDO provided an initial assessment of the severity of issues uncovered during testing, but CBP made the final decision on categorizing them as critical, severe, work-around, or cosmetic issues. CBP also added a final requirement to integration testing before proceeding to field validation to demonstrate ASPs' ability to operate for 40 hours without additional problems. According to CBP officials, their efforts to resolve issues prior to field validation reflect the importance CBP places on ensuring that ASPs are sufficiently stable and technically mature to operate effectively in a working port of entry and thereby provide for a productive field validation. 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; the final phase, consisting of 21 days of continuous operation, is scheduled to begin at one seaport after the completion of field validation. The Science and Technology Directorate identified two critical questions to be addressed through operational testing: (1) Will the ASP system improve operational effectiveness (i.e., detection and identification of threats) relative to the current-generation system, and (2) is the ASP system suitable for use in the operational environment at land and sea ports of entry? The suitability of ASPs includes factors such as reliability, maintainability, and supportability. Because the operational testing conducted at one seaport is not sufficient to fully answer these questions--for example, because the testing will not allow threat objects to be inserted into cargo containers--the directorate plans to also conduct an independent analysis of the results from previous test phases, including performance testing. The 2008 testing still had limitations, which do not detract from the test results' credibility but do require that results be appropriately qualified. Limitations included the following: The number of handheld identification device measurements collected during performance testing was sufficient to distinguish only particularly large differences from ASPs' identification ability. In particular, the standard operating procedure for conducting secondary inspections using ASPs, which requires less time than when using handheld devices, allowed DNDO to collect more than twice as many ASP measurements and to test ASPs' identification ability against more radiation sources than used to test handheld identification devices. The performance test results cannot be generalized beyond the limited set of scenarios tested. For example, DNDO used a variety of masking and shielding scenarios designed to include cases where both systems had 100 percent detection, cases where both had zero percent detection, and several configurations in between so as to estimate the point where detection capability ceased. However, the scenarios did not represent the full range of possibilities for concealing smuggled nuclear or radiological material. For example, DNDO only tested shielding and masking scenarios separately, to differentiate between the impacts of shielding and masking on the probabilities of detection and identification. As a result, the performance test results cannot show how well each system would detect and identify nuclear or radiological material that is both shielded and masked, which might be expected in an actual smuggling incident. Similarly, DNDO used a limited number of threat objects to test ASPs' detection and identification performance, such as weapons-grade plutonium but not reactor-grade plutonium, which has a different isotopic composition. A report on special testing of ASPs conducted by Sandia National Laboratories in 2007 recommended that future tests use plutonium sources having alternative isotopic compositions. Sandia based its recommendations on results showing that the performance of ASP systems varied depending on the isotopic composition of plutonium. The Science and Technology Directorate's operational testing is designed to demonstrate that the average time between equipment failures (the measure of ASPs' reliability) is not less than 1,000 hours. Thus, the testing will not show how reliable the equipment will be over a longer term. DHS Science and Technology Directorate officials recognize this limitation and said they designed operational testing only to demonstrate compliance with the ASP performance specification. Furthermore, to the extent that the Science and Technology Directorate relies on performance test results to evaluate ASPs' ability to detect and identify threats, its analysis of ASPs' effectiveness will be subject to the same limitations as the original testing and analysis conducted by DNDO. 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. However, we did not obtain DNDO's final report on performance testing conducted at the Nevada Test Site until early April 2009, and thus we had limited opportunity to evaluate the report. In addition, we are not commenting on the degree to which the final report provides a fair representation of ASPs' performance. Preliminary results from performance testing 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. DNDO did not test ASPs or PVTs against moderate or greater shielding because such scenarios are beyond both systems' ability. (See fig. 3 for a summary of performance test results for detection of certain nuclear materials.) 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--another indication of the fundamental limitation of passive radiation detection. Other phases of testing, particularly integration testing, uncovered multiple problems 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 several months behind in testing due to the severity of the problems it encountered during integration testing; the problems were so severe that it may have to redo previous test phases to be considered for certification. The other vendor's system completed integration testing, but CBP suspended field validation of the system after 2 weeks because of serious performance problems that may require software revisions. In particular, CBP found that the performance problems resulted in an overall increase in the number of referrals for secondary screening compared to the existing equipment. According to CBP, this problem will require significant corrective actions before testing can resume; such corrective actions could in turn change the ability of the ASP system to detect threats. The problem identified during field validation was in addition to ones identified during integration testing, which required multiple work-arounds and cosmetic changes before proceeding to the next test phase. For example, one problem requiring a work-around related to the amount of time it takes for the ASP to sound an alarm when a potential threat material has been detected. Specifications require that ASPs alarm within two seconds of a vehicle exiting the ASP. However, during testing, the vendor's ASP took longer to alarm when a particular isotope was detected. The work-around to be implemented during field validation requires that all vehicles be detained until cleared by the ASP; the effect on commerce must ultimately be ascertained during field validation. CBP officials anticipate that they will continue to uncover problems during the first few years of use if the new technology is deployed in the field. The officials do not necessarily regard such problems to be a sign that testing was not rigorous but rather a result of the complexity and newness of the technology and equipment. Delays to the schedule for the 2008 round of testing have allowed more time for analysis and review of results, particularly from performance testing conducted at the Nevada Test Site. The original schedule, which underestimated the time needed for testing, anticipated completion of testing in mid-September 2008 and the DHS Secretary's decision on ASP certification between September and November 2008. DHS officials acknowledged that scheduling a certification decision shortly after completion of testing would leave limited time to complete final test reports and said the DHS Secretary could rely instead on preliminary reports if the results were favorable to ASPs. DHS's most recent schedule anticipated a decision on ASP certification as early as May 2009, but DHS has not updated its schedule for testing and certification since suspending field validation in February 2009 due to ASP performance problems. Problems uncovered during testing of ASPs' readiness to be integrated into operations at U.S. ports of entry have caused the greatest delays to date and have allowed more time for DNDO to analyze and review the results of performance testing. Integration testing was originally scheduled to conclude in late July 2008 for both ASP vendors. The one ASP system that successfully passed integration testing did not complete the test until late November 2008--approximately 4 months behind schedule. (The delays to integration testing were due in large part to the adherence of DNDO and CBP to the criteria discussed earlier for ensuring that ASPs met the requirements for each test phase.) In contrast, delays to performance testing, which was scheduled to run concurrently with integration testing, were relatively minor. Both ASP systems completed performance testing in August 2008, about a month later than DNDO originally planned. The schedule delays have allowed more time to conduct injection studies--computer simulations for testing the response of ASPs and PVTs to the radiation signatures of threat objects randomly "injected" (combined) into portal monitor records of actual cargo containers transported into the United States, including some containers with innocent sources of radiation. However, DNDO does not plan to complete the studies prior to the Secretary of Homeland Security's decision on certification even though DNDO and other officials have indicated that the studies could provide additional insight into the capabilities and limitations of advanced portal monitors. According to DNDO officials, injection studies address the inability of performance testing conducted at the Nevada Test Site to replicate the wide variety of cargo coming into the United States and the inability to bring special nuclear material and other threat objects to ports of entry and place them in cargo during field validation. Similarly, while they acknowledged that injection studies have limitations, DOE national laboratory officials said the studies can increase the statistical confidence in comparisons of ASPs' and PVTs' probability of detecting threats concealed in cargo because of the possibility of supporting larger sample sizes than feasible with actual testing. A February 2008 DHS independent review team report on ASP testing also highlighted the benefits of injection studies, including the ability to explore ASP performance against a large number of threat scenarios at a practical cost and schedule and to permit an estimate of the minimum detectable amount for various threats. DNDO has the data needed to conduct the studies. It has supported efforts to collect data on the radiation signatures for a variety of threat objects, including special nuclear materials, as recorded by both ASP and PVT systems. It has also collected about 7,000 usable "stream-of-commerce" records from ASP and PVT systems installed at a seaport. Furthermore, 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, addressing deficiencies in the stream-of-commerce data delayed the studies, and 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. Given that radiation detection equipment is already being used at ports of entry to screen for smuggled nuclear or radiological materials, the decision whether to replace existing equipment requires that the benefits of the new portal monitors be weighed against the costs. DNDO acknowledges that ASPs are significantly more expensive than PVTs to deploy and maintain, and based on preliminary results from the 2008 testing, it is not yet clear that the $2 billion cost of DNDO's deployment plan is justified. Even if ASPs are able to reduce the volume of innocent cargo referred for secondary screening, they are not expected to detect certain nuclear materials that are surrounded by a realistic level of shielding better than PVTs could. Preliminary results of DNDO's performance testing show that ASPs outperformed the PVTs in detection of such materials during runs with light shielding, but ASPs' performance rapidly deteriorated once shielding was slightly increased. Furthermore, DNDO and DOE officials acknowledged that the performance of both portal monitors in detecting such materials with a moderate amount of shielding would be similarly poor. This was one of the reasons that performance testing did not include runs with a moderate level of shielding. Two additional aspects of the 2008 round of testing call into question whether ASPs' ability to provide a marginal improvement in detection of nuclear materials and reduce innocent alarms warrants the cost of the new technology. First, the DHS criteria for a significant increase in operational effectiveness do not take into account recent efforts to improve the current-generation portal monitors' sensitivity to nuclear materials through the "energy windowing" technique, most likely at a much lower cost. Data on developing this technique were collected during the 2008 round of performance testing but have not been analyzed. Second, while DNDO made improvements to the 2008 round of ASP testing that provided credibility to the test results, its test schedule does not allow for completion of injection studies prior to certification even though the studies could provide additional insight into the performance of the new technology. Without results from injection studies, the Secretary of Homeland Security would have to make a decision on certification based on a limited number of test scenarios conducted at the Nevada Test Site. Assuming that the Secretary of Homeland Security certifies ASPs, CBP officials anticipate that they will discover problems with the equipment when they start using it in the field. Integration testing uncovered a number of such problems, which delayed testing and resulted in ASP vendors making multiple changes to their systems. Correcting such problems in the field could prove to be more costly and time consuming than correcting problems uncovered through testing, particularly if DNDO proceeds directly from certification to full-scale deployment, as allowed under the congressional certification requirement that ASPs provide a significant increase in operational effectiveness. We recommend that the Secretary of Homeland Security direct the Director of DNDO to take the following two actions to ensure a sound basis for a decision on ASP certification: Assess whether ASPs meet the criteria for a significant increase in operational effectiveness based on a valid comparison with PVTs' full performance potential, including the potential to further develop PVTs' use of energy windowing to provide greater sensitivity to threats. Such a comparison could also be factored into an updated cost-benefit analysis to determine whether it would be more cost-effective to continue to use PVTs or deploy ASPs for primary screening at particular ports of entry. 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. If ASPs are certified, we further recommend 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--for example, by initially deploying ASPs at a limited number of ports of entry. We provided a draft of this report to DOE and DHS for their review and comment. DOE provided technical comments, which we have incorporated into our report as appropriate. DHS's written comments are reproduced in appendix II. DHS agreed in part with our recommendations. Specifically, DHS stated that it believes its plan to deploy ASPs in phases, starting at a small number of low-impact locations, is in accordance with our recommendation to develop an initial deployment plan that allows problems to be uncovered and resolved prior to full-scale deployment. We agree that this deployment plan would address our recommendation and note that DHS's comments are the first indication provided to us of the department's intention to pursue such a plan. In contrast, DHS did not concur with our recommendations to (1) assess whether ASPs meet the criteria for a significant increase in operational effectiveness based on a comparison with PVTs' full potential, including further developing PVTs' use of energy windowing; and (2) revise the ASP testing and certification schedule to allow sufficient time for completion of all tests, including injection studies. With regard to energy windowing, DHS stated that using current PVT performance as a baseline for comparison is a valid approach because the majority of increased PVT performance through energy windowing has already been achieved. While DHS may be correct, its assessment is based on expert judgment rather than the results of testing and analysis being considered by the department to optimize the use of energy windowing. Given the marginal increase in sensitivity required of ASPs, we stand by our recommendation to assess ASPs against PVTs' full potential. DHS can then factor PVTs' full potential into a cost-benefit analysis prior to acquiring ASPs. On this point, DHS commented that its current cost-benefit analysis is a reasonable basis to guide programmatic decisions. However, upon receiving DHS's comments, we contacted DNDO to obtain a copy of its cost-benefit analysis and were told the analysis is not yet complete. With regard to injection studies, DHS agreed that the schedule for ASP certification must allow sufficient time for review and analysis of test results but stated that DHS and DOE experts concluded injection studies were not required for certification. DHS instead stated that the series of ASP test campaigns would provide a technically defensible basis for assessing the new technology against the certification criteria. However, DHS did not rebut the reasons we cited for conducting injection studies prior to certification, including test delays that have allowed more time to conduct the studies and the ability to explore ASP performance against a large number of threat scenarios at a practical cost and schedule. On the contrary, DHS acknowledged the delays to testing and the usefulness of injection studies. Given that each phase of testing has revealed new information about the capabilities and limitations of ASPs, we believe conducting injection studies prior to certification would likely offer similar insights and would therefore be prudent prior to a certification decision. DHS provided additional comments regarding our assessment of the relative sensitivity of ASPs and PVTs and our characterization of the severity of the ASPs' software problems uncovered during field validation. With regard to sensitivity, DHS implied that our characterization of the relative ability of ASPs and PVTs is inaccurate and misleading because we did not provide a complete analysis of test results. We disagree. First, in meetings to discuss the preliminary results of performance testing conducted at the Nevada Test Site, DNDO officials agreed with our understanding of the ability of ASPs and PVTs deployed for primary screening to detect shielded nuclear materials. Furthermore, contrary to the assertion that a complete analysis requires a comparison of ASPs to handheld identification devices, our presentation is consistent with DHS's primary screening criterion for detection of shielded nuclear materials, which only requires that ASPs be compared with PVTs. Finally, while we agree that the performance test results require a more complete analysis, DNDO did not provide us with its final performance test report until early April 2009, after DHS provided its comments on our draft report. In the absence of the final report, which DNDO officials told us took longer than anticipated to complete, we summarized the preliminary results that DNDO presented to us during the course of our review as well as to congressional stakeholders. With regard to ASP software problems uncovered during field validation, we clarified our report in response to DHS's comment that the severity of the problems has not yet been determined. DHS stated that its preliminary analysis indicates the problems should be resolved by routine adjustments to threshold settings rather than presumably more significant software "revisions." However, given the history of lengthy delays during ASP testing, we believe that DHS's assessment of the severity of problems encountered during field validation may be overly optimistic. 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 Secretaries of Homeland Security and Energy; the Administrator of NNSA; and interested congressional committees. The report will also 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) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. To evaluate the degree to which Department of Homeland Security's (DHS) criteria for a significant increase in operational effectiveness address the limitations of the current generation of radiation detection equipment, we clarified the intent of the criteria through the Domestic Nuclear Detection Office's (DNDO) written answers to our questions and through interviews with U.S. Customs and Border Protection (CBP) officials. We also took steps to gain a fuller understanding of the strengths and limitations of the current-generation equipment, which the criteria use as a baseline for evaluating the effectiveness of advanced spectroscopic portals (ASP). In particular, we obtained copies of the Department of Energy (DOE) threat guidance and related documents used to set polyvinyl toluene (PVT) thresholds for detection of nuclear materials. We interviewed DOE and national laboratory officials responsible for the threat guidance about the process for developing it and the basis for its underlying assumptions, including shielding levels. We also interviewed DNDO and Pacific Northwest National Laboratory officials regarding the extent to which PVTs currently deployed at ports of entry meet the guidance and the development and use of energy windowing to enhance PVTs' sensitivity to nuclear materials. To evaluate the rigor of the 2008 round of testing as a basis for determining ASPs' operational effectiveness, we reviewed the test and evaluation master plan and plans for individual phases of testing, including system qualification testing conducted at vendors' facilities, performance testing conducted at the Nevada Test Site for evaluating ASP detection and identification capabilities, and integration testing conducted at Pacific Northwest National Laboratory for evaluating the readiness of ASPs to be used in an operational environment at ports of entry. We also reviewed draft plans for field validation conducted at CBP ports of entry and the DHS Science and Technology Directorate's independent operational test and evaluation. In reviewing these documents, we specifically evaluated the extent to which the performance test design was sufficient to identify statistically significant differences between the ASP and current- generation systems and whether DHS had addressed our concerns about previous rounds of ASP testing. We interviewed DNDO, CBP, and other DHS officials responsible for conducting and monitoring tests, and we observed, for one day each, performance testing at the Nevada Test Site and integration testing at DOE's Pacific Northwest National Laboratory. We also interviewed representatives of entities that supported testing, including DOE's National Nuclear Security Administration and Pacific Northwest National Laboratory, the National Institute of Standards and Technology, and the Johns Hopkins University Applied Physics Laboratory. We reviewed the DHS independent review team report of previous ASP testing conducted in 2007, and we interviewed the chair of the review team to clarify the report's findings. Finally, we examined preliminary or final results for the phases of testing completed during our review, and we interviewed DNDO and CBP officials regarding the results. To evaluate the test schedule, we analyzed the initial working schedule DNDO provided to us in May 2008 and the schedule presented in the August 2008 test and evaluation master plan, and we tracked changes to the schedule and the reasons for any delays. We interviewed DNDO and other officials with a role in testing to determine the amount of time allowed for analysis and review of results. We interviewed DNDO and Pacific Northwest National Laboratory officials regarding the injection studies, including reasons for delays in the studies and plans for including the results as part of the ASP certification process. We conducted this performance audit from May 2008 to May 2009 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Ned Woodward, Assistant Director; Dr. Timothy Persons, Chief Scientist; James Ashley; Steve Caldwell; Joseph Cook; Omari Norman; Alison O'Neill; Rebecca Shea; Kevin Tarmann; and Eugene Wisnoski made key contributions to this report.	The Department of Homeland Security's (DHS) Domestic Nuclear Detection Office (DNDO) is testing new advanced spectroscopic portal (ASP) radiation detection monitors. DNDO expects ASPs 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. Congress has required that the Secretary of DHS certify that ASPs provide a significant increase in operational effectiveness before obligating funds for full-scale procurement. GAO was asked to review (1) the degree to which DHS's criteria for a significant increase in operational effectiveness address the limitations of existing radiation detection equipment, (2) the rigor of ASP testing and preliminary test results, and (3) the ASP test schedule. GAO reviewed the DHS criteria, analyzed test plans, and interviewed DHS officials. The DHS criteria for a significant increase in operational effectiveness require a minimal improvement in the detection of threats and a large reduction in innocent alarms. Specifically, the criteria require a marginal improvement in the detection of certain weapons-usable nuclear materials, considered to be a key limitation of current-generation portal monitors. The criteria require improved performance over the current detection threshold, which for certain nuclear materials is based on the equipment's limited sensitivity to anything more than lightly shielded materials, but do not specify a level of shielding that smugglers could realistically use. In addition, DNDO has not completed efforts to improve current-generation portal monitors' performance. As a result, the criteria do not take the current equipment's full potential into account. With regard to innocent alarms, the other key limitation of current equipment, meeting the criteria could result in hundreds fewer innocent alarms per day, thereby reducing CBP's workload and delays to commerce. DHS increased the rigor of ASP testing in comparison with previous tests. For example, DNDO mitigated the potential for bias in performance testing (a concern GAO raised about prior testing) by stipulating that there would be no ASP contractor involvement in test execution. Such improvements added credibility to the test results. However, the testing still had limitations, such as a limited set of scenarios used in performance testing to conceal test objects from detection. Moreover, the preliminary results are mixed. The results show that the new portal monitors have a limited ability to detect certain nuclear materials at anything more than light shielding levels: 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 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. CBP officials anticipate that, if ASPs are certified, new problems will appear during the first few years of deployment in the field. While DNDO's schedule underestimated the time needed for ASP testing, test delays have allowed more time for review and analysis of results. DNDO's original schedule anticipated completion in September 2008. Problems uncovered during testing of ASPs' readiness to be integrated into operations at U.S. ports of entry caused the greatest delays to this schedule. DHS's most recent schedule anticipated a decision on ASP certification as early as May 2009, but DHS recently suspended field validation due to ASP performance problems and has not updated its schedule for testing and certification. In any case, DNDO does not plan to complete computer simulations that could provide additional insight into ASP capabilities and limitations prior to certification even though 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.	7,210	843
According to the State Department's 2002 Annual Performance Plan, the department's counterterrorism goals are to reduce the number of terrorist attacks, bring terrorists to justice, reduce or eliminate state-sponsored terrorist acts, delegitimize the use of terror as a political tool, enhance the U.S. response to terrorism overseas, and strengthen international cooperation and operational capabilities to combat terrorism. The Secretary of State is responsible for coordinating all U.S. civilian departments and agencies that provide counterterrorism assistance overseas. The Secretary also is responsible for managing all U.S. bilateral and multilateral relationships intended to combat terrorism abroad. State requested over $2.3 billion to combat terrorism in fiscal year 2003. This includes more than $1 billion for overseas embassy security and construction, as well as for counterterrorism assistance and training to countries cooperating with the global coalition against terrorism. Table 1 provides a breakdown of State's funding to combat terrorism. By contrast, State spent about $1.6 billion in fiscal year 2001 and received about $1.8 billion to combat terrorism in fiscal year 2002. State received an additional $203 million through the Emergency Response Fund as part of the $40 billion appropriated by the Congress in response to the September 11, 2001, terrorist attacks against the United States. The Office of Management and Budget reported that determining precise funding levels associated with activities to combat terrorism is difficult because departments may not isolate those activities from other program activities. Some activities serve multiple purposes--for example, upgrades to embassy security help protect against terrorism as well as other crimes. The State Department conducts multifaceted activities in an effort to prevent terrorist attacks on Americans abroad. For example, to protect U.S. officials, property, and information abroad, the Bureau of Diplomatic Security provides local guards for embassies and armored vehicles for embassy personnel (see fig. 2). In addition, it provides undercover teams to detect terrorist surveillance activities. Following the 1998 embassy bombings in Africa, State upgraded security for all missions, which included strengthening building exteriors, lobby entrances, and the walls and fences at embassy perimeters (see fig. 3). The upgrades also included closed-circuit television monitors, explosive detection devices, walk- through metal detectors, and reinforced walls and security doors to provide protection inside the embassy. In addition, State plans to replace some existing embassies with buildings that meet current security standards, such as having a 100-foot setback from streets surrounding embassies. State also has programs to protect national security information discussed at meetings or stored on computers. These programs include U.S. Marine security guards controlling access to embassies, efforts to prevent foreign intelligence agencies from detecting emanations from computer equipment, and computer security programs. State has several programs to help warn Americans living and traveling abroad against potential threats, including those posed by terrorists. For example, to warn Americans about travel-related dangers, in fiscal year 2001 the Bureau of Consular Affairs issued 64 travel warnings, 134 public announcements, and 189 consular information sheets. In addition, missions employ a "warden system" to warn Americans registered with an embassy of threats against their security. The system varies by mission but uses telephone, E-mail, fax, and other technologies as appropriate. Finally, the Bureau of Diplomatic Security manages the Overseas Security Advisory Councils program. The councils are a voluntary, joint effort between State and the private sector to exchange threat- and security-related information. Councils currently operate in 47 countries. In addition, State manages and funds programs to train foreign government and law enforcement officials to combat terrorism abroad. These programs include the following: the Antiterrorism Assistance Program, implemented by the Bureau of Diplomatic Security, to enhance the antiterrorism skills of law enforcement and security personnel in foreign countries; the International Law Enforcement Academies, managed by the Bureau for International Narcotics and Law Enforcement Affairs, to provide law enforcement training in four locations around the world. The Departments of State, the Treasury, and Justice--including the Bureau of Diplomatic Security, Federal Bureau of Investigation, and other U.S. law enforcement agencies--provide the on-site training; the Department of Justice's Overseas Prosecutorial Development and Assistance Training and the International Criminal Investigation Training Assistance Program. The State Department provides policy oversight and funds this training, which is intended to build rule-of-law institutions, and includes general law enforcement and anticrime training for foreign nationals. State conducts numerous programs and activities intended to disrupt and destroy terrorist organizations. These programs and activities rely on military, multilateral, economic, law enforcement, and other capacities, as the following examples illustrate: The Bureau of Political-Military Affairs coordinates with Department of Defense on military cooperation with other countries. It has been State's liaison with the coalition supporting Operation Enduring Freedom, processing 72 requests for military assistance from coalition partners since September 11, 2001. The Bureau of International Organization Affairs helped craft and adopt United Nations Security Council Resolution 1373, obligating all member nations to fight terrorism and report on their implementation of the resolution. It also assisted with resolutions extending U.N. sanctions on al Qaeda and the Taliban and on certain African regimes, including those whose activities benefit terrorists. The Department of State's Office of the Coordinator for Counterterrorism, the Bureau of International Narcotics and Law Enforcement, and the Economic Bureau work with the Department of the Treasury and other agencies to stem the flow of money and other material support to terrorists. According to the State Department, since September 11, the United States has blocked $34.3 million in terrorist related assets. The Office of the Legal Advisor pursues extradition and mutual legal assistance treaties with foreign governments. The Office of the Legal Advisor also works with the U.N. and with other nations in drafting multilateral agreements, treaties, and conventions on counterterrorism. The Bureau of Diplomatic Security, working with the Department of Justice, cooperates with foreign intelligence, security, and law enforcement entities to track and capture terrorists in foreign countries, assist in their extradition to the United States, and block attempted terrorist attacks on U.S. citizens and assets abroad. The Office of the Coordinator for Counterterrorism, in conjunction with the Department of Justice and other agencies, coordinates State's role in facilitating the arrest of suspected terrorists through an overseas arrest, known as a rendition, when the United States lacks an extradition treaty. The Bureau of Diplomatic Security manages the Rewards for Justice Program. This program offers payment for information leading to the prevention of a terrorist attack or the arrest and prosecution of designated individuals involved in international terrorism. These rewards reach up to $25 million for those involved in the September 11 attacks. The Bureau of Intelligence and Research prepares intelligence and threat reports for the Secretary of State, high-level department officials, and ambassadors at U.S. missions. It also monitors governmentwide intelligence activities to ensure their compatibility with U.S. foreign policy objectives related to terrorism, and it seeks to expand the sharing of interagency data on known terrorist suspects. The State Department is responsible for leading the U.S. response to terrorist incidents abroad. This includes measures to protect Americans, minimize incident damage, terminate terrorist attacks, and bring terrorists to trial. Once an attack has occurred, State's activities include measures to alleviate damage, protect public health, and provide emergency assistance. The Office of the Coordinator for Counterterrorism facilitates the planning and implementation of the U.S. government response to a terrorist incident overseas. In a given country, the ambassador would act as the on-scene coordinator for the response effort. (See figure 4.) In addition, several other bureaus respond to the aftermath of a terrorist attack and help friendly governments prepare to respond to an attack by conducting joint training exercises. The Bureau of Political-Military Affairs is tasked with helping to prepare U.S. forces, foreign governments, and international organizations to respond to the consequences of a chemical, biological, radiological, or nuclear incident overseas. For example, the bureau is developing a database of international assets that could be used to respond to the consequences of a terrorist attack using weapons of mass destruction. It also participates in major interagency international exercises, which are led by DOD. In addition, the bureau assisted in the first operational deployment of a U.S. consequence management task force, working with the DOD regional command responsible for conducting the war in Afghanistan. Several bureaus and offices deploy emergency response teams to respond to terrorist attacks. For example, the Office of the Coordinator for Counterterrorism deploys multi-agency specialists in the Foreign Emergency Support Team (FEST) to assist missions in responding to ongoing terrorist attacks. For example, at the request of the Ambassador, the FEST can be dispatched rapidly to the mission. As one component of this team, the Bureau of Political-Military Affairs can deploy a Consequence Management Support Team to assist missions in managing the aftermath of terrorist attacks. In addition, the Bureau of Overseas Buildings Operations Emergency Response Team helps secure embassy grounds and restore communications following a crisis. See appendix II for a comprehensive list of State's programs and activities to combat terrorism. The State Department is responsible for coordinating all federal agencies' efforts to combat terrorism abroad. These include the Departments of Defense, Justice, and the Treasury; the various intelligence agencies; the FBI and other law enforcement agencies; and USAID. In addition, State coordinates U.S. efforts to combat terrorism multilaterally through international organizations and bilaterally with foreign nations. State uses a variety of methods to coordinate its efforts to combat terrorism abroad, including the following: In Washington, D.C., State participates in National Security Council interagency working groups, issue-specific working groups, and ad hoc working groups. For example, the Office of the Coordinator for Counterterrorism maintains policy oversight and provides leadership for the interagency Technical Support Working Group--a forum that identifies, prioritizes, and coordinates interagency and international applied research and development needs and requirements to combat terrorism. At U.S. embassies, State implements mission performance plans that coordinate embassy activities to combat terrorism, country team subgroups on terrorism, emergency action committees to organize embassy response to terrorist threats and incidents, and ad hoc working groups. For example, selected embassies have country team subgroups dedicated to law enforcement matters, chaired by the Deputy Chief of Mission. Working with related bureaus and agencies such as the Regional Security Office, FBI Legal Attache, and Treasury Department Financial Attache, these subgroups coordinate efforts to combat terrorism among the various agencies overseas. In Washington, D.C., and elsewhere, State exchanges personnel with other agencies for liaison purposes. In Washington, D.C., for example, State personnel serve as liaisons at the CIA's Counter-Terrorism Center. The department also provides each U.S. regional military command with a Political Advisor, who helps the respective commanders coordinate with State Department Headquarters and with U.S. embassies on regional and bilateral matters, including efforts to combat terrorism. We received written comments from the Department of State that are reprinted in appendix III. State wrote that the report is a "useful guide" and "good outline" of State's activities and roles in the campaign against terrorism. State noted that there are many more often intangible and hard- to-measure actions taking place as part of the department's contribution to fighting terrorism. State also provided technical comments, which we incorporated where appropriate. We are sending copies of this report to interested congressional committees and to the Secretary of State. We will make copies available to others on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4128. Another GAO contact and staff acknowledgments are listed in appendix IV of this report. The Department of State coordinates U.S. government efforts to combat terrorism abroad. Within the department, multiple bureaus and offices manage programs and activities to combat terrorism. State also works with several U.S. and foreign government agencies in carrying out these programs and activities. Table 2 presents the programs and activities and the bureaus responsible for managing them. The table also presents information about some of the U.S. government agencies with which State cooperates. Table 2 describes: the strategic framework of State's efforts to combat terrorism abroad; State's programs and activities to prevent terrorism abroad; State's programs and activities to disrupt and destroy terrorist State's programs and activities to respond to terrorist incidents abroad. In addition to the contact named above, Edward George, Addison Ricks, Steve Caldwell, Mark Pross, James Lawson, Lori Kmetz, Yolanda Elserwy, Reid Lowe, and Cheryl Weissman made key contributions to this report. The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. 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.	Efforts to combat terrorism have become an increasingly important part of government activities. These efforts have also become important in the United States' relations with other countries and with international organizations, such as the United Nations (U.N.). The Department of State is charged with coordinating these international efforts and protecting Americans abroad. State has helped direct the U.S. efforts to combat terrorism abroad by building the global coalition against terrorism, including providing diplomatic support for military operations in Afghanistan and other countries. State has also supported international law enforcement efforts to identify, arrest, and bring terrorists to justice, as well as performing other activities intended to reduce the number of terrorist attacks. The State Department conducts multifaceted activities in its effort to prevent terrorist attacks on Americans abroad. For Americans traveling and living abroad, State issues public travel warnings and operates warning systems to convey terrorism-related information. For American businesses and universities operating overseas, State uses the Overseas Security Advisory Councils--voluntary partnerships between the State Department and the private sector--to exchange threat information. To disrupt and destroy terrorist organizations abroad, State has numerous programs and activities that rely on military, multilateral, economic, law enforcement, intelligence, and other capabilities. State uses extradition treaties to bring terrorists to trial in the United States and cooperates with foreign intelligence, security, and law enforcement entities to track and capture terrorists in foreign countries. If the United States has no extradition agreements with a country, then State, with the Department of Justice, can work to obtain the arrest of suspected terrorist overseas through renditions. The State Department leads the U.S. response to terrorist incidents abroad. This includes diplomatic measures to protect Americans, minimize damage, terminate terrorist attacks, and bring terrorists to justice. To coordinate the U.S. effort to combat terrorism internationally, State uses a variety of mechanisms to work with the Departments of Defense, Justice, and the Treasury; the intelligence agencies; the Federal Bureau of Investigation; and others. These mechanisms include interagency working groups at the headquarters level in Washington, D.C., emergency action committees at U.S. missions overseas, and liaison exchanges with other government agencies.	3,112	463
The Congress passed PRWORA in 1996, making sweeping changes to national welfare policy and placing new emphasis on the goal of work and personal responsibility. The Congress recognized the unique economic hardship facing the 40 percent of American Indians living on reservations by exempting anyone living on reservations with high unemployment from the law's 60-month time limit on receipt of TANF cash assistance.Furthermore, the act gave federally recognized American Indian tribes the option to administer their own TANF programs either individually or as part of a consortium, an option they did not have in the past. Under the Aid to Families With Dependent Children (AFDC) program, the precursor to TANF, tribal members enrolled in state welfare programs. Under PRWORA, tribes implementing their own TANF programs have greater flexibility than states in some areas. For example, for state programs, PRWORA sets numerical goals for the percentage of adults to be participating in work activities and specifically defines the approved work activities that count for the purposes of meeting these federal participation rate goals. The law set state work participation rate goals at 25 percent in fiscal year 1997, increasing to 50 percent in fiscal year 2002. In contrast, tribes can set their own participation rate goals and may define work activities more broadly, subject to approval from HHS. Finally, while states must adhere to a federal time limit on cash benefits of 60 months or less, tribal programs can set their own time limits. Tribes have the same flexibility as states to set their own eligibility requirements and to determine what policies will govern mandatory sanctions for noncompliance with program rules. Tribes and states also have the same flexibility to determine what types of work supports, such as childcare, transportation, and job training, they will provide to recipients. Some of the requirements to which tribal TANF programs are subject differ from those to which states are subject. For example, eligible tribes must submit a 3-year tribal TANF plan directly to HHS for review and approval; HHS does not approve states' plans, though it certifies that they are complete. Unlike states, whose TANF grants are based on the highest of three possible funding formulas, tribal grants must be based on the amount the state spent in fiscal year 1994 for all American Indians residing in the tribe's designated service area. In addition, tribes are not eligible for several sources of additional TANF funding that were originally provided for the states. These include performance bonuses, a population/poverty adjuster (for high-population/low-spending states), and a contingency fund for states experiencing economic downturns. Finally, whereas a state can receive a caseload reduction credit, which reduces its work participation rate goal when its caseloads falls, tribes are not eligible to receive caseload reduction credits. Tribes have used various strategies to stimulate economic development; however, unemployment and poverty rates remain high on reservations. To improve the economy on reservations, tribes own many types of enterprises. Despite these efforts, most Indians living on reservations are poor, and many tribes lack some of the key factors research has shown to be associated with economic growth on reservations. While some tribes encourage private companies owned by nonmembers to locate on their reservations, many tribes responding to our survey place more emphasis on developing tribally owned enterprises. Eighty-seven of the 133 tribes responding to our survey question reported that they place more emphasis on promoting tribally owned enterprises than on encouraging private companies owned by nonmembers to locate on reservations. Tribes have launched their own enterprises in a number of sectors, which could include gaming, tourism, manufacturing, natural resources, and agriculture or ranching (see fig. 1). Of the 110 tribes with enterprises that responded to our survey question, 22 have enterprises that are concentrated in a single sector and 88 have enterprises in more than one sector. Many tribes own and operate gaming facilities. Contrary to the common perception that tribal gaming has dramatically improved the economic circumstances for many tribes, the most lucrative account for a small percent of all tribally owned gaming facilities. According to our 1997 report, which provides the most recent comprehensive analysis of tribal gaming revenues, 40 percent of total gaming revenues were generated by only 8 of 178 tribally operated gaming facilities. For example, the Coeur d'Alene gaming facility in Idaho, near Spokane, Washington, and Lake Coeur d'Alene, a major tourist area, generates about $20 million in profit per year. In contrast, officials from the San Carlos Apache Tribe indicated that its gaming facility, located in a remote area, 90 miles from Phoenix, Arizona, barely makes enough money to cover its costs. Furthermore, gaming facilities do not always generate employment for tribal members. Nationally, only a quarter of all jobs in tribally operated gaming facilities are held by American Indians. The practice of distributing gaming royalties to tribal members is not widespread and, contrary to common perception, payments that are made are not making tribal members wealthy. About a quarter of the tribes that responded to our survey question distributed a portion of their revenues from gaming facilities and other enterprises through per capita payments to members. Of the 87 tribes that reported operating a gaming facility, 28 reported providing per capita payments to members. Of those, 16 provided payments of less than $5,000 (see table 1). Despite tribes' efforts to stimulate the economy on reservations, American Indian families on reservations still have high unemployment and poverty rates. BIA has reported that in 1999--the most recent year for which data are available--more than 40 percent of American Indians living on or near reservations between the ages of 16 and 64 were unemployed, and of those who were employed, a third were below the federal poverty guideline. Unemployment was even higher on some reservations. For example, on the Blackfeet reservation, 74 percent of adults were not employed and 22 percent of employed adults were poor. Our survey results indicate that poverty and unemployment rates remain high on many reservations. Fifty of the 127 tribes with reservations that responded to our survey question reported that at least half of all families living on their reservations had incomes below the federal poverty level. In addition, 51 tribes reported that 50 percent or more of adults living on the tribes' reservations were unemployed. Tribal officials we visited indicated that the isolated geographic location and distance from markets of many reservations as well as a lack of education and job skills among workers living on the reservation impact economic growth. For example, a modular home manufacturing plant on the Blackfeet Reservation in Montana has had trouble finding and keeping enough workers with construction skills to expand its business. To overcome this obstacle, the enterprise has worked with the local community college to offer construction training to tribal members on the reservation. The gaming facility owned by the White Mountain Apache tribe was forced to hire non-tribal members. Officials explained that because members lack the basic work and life skills needed to hold such jobs, nonmembers hold most of the better-paid jobs. A number of tribes also lack some key factors research has shown to be important for economic growth on reservations. These include fully exercised sovereignty, effective governing institutions, and a strategic orientation. For example, 45 of the 142 tribes that responded to our survey question stated that they are not participating in a self-governance initiative. In addition, although research indicates the separation of tribal governance and economic development contributes to effective governing institutions, 78 of the 145 tribes that responded to our survey question stated that they do not have an economic development committee or organization that is separate from their tribal government. Finally, 56 of the 140 tribes that responded to our survey question reported they did not have a written plan for improving economic conditions on the reservation, although research indicates that having such a formal approach is an indicator of strategic orientation. The number of American Indian families receiving cash assistance in state TANF programs in the 34 states with federally recognized Indian tribes decreased between 1994 and 2001, from almost 68,000 to about 26,000.Part of this decline occurred because many American Indian TANF recipients were served by tribal TANF programs in 2001 and are not included in the data. While data on tribal TANF program caseloads are not available for 2001, tribes have estimated that they could serve as many as 22,000 families. Even if those participating in tribal TANF programs were taken into account, the decline in American Indian families receiving TANF is significant. In comparison, the number of all families receiving TANF fell from about 3.4 million families in 1994 to about 1.5 million in 2001. In some states, the share of the caseload made up of American Indians has risen. According to HHS data, the share of the TANF caseload made up of American Indians increased in 6 of the 34 states with federally recognized tribes. As shown in figure 2, the increase has been greatest in South Dakota, Montana, and North Dakota. In South Dakota, the proportion of cash assistance families that were American Indian increased from under 60 percent in 1994 to about 80 percent in 2001. According to the 2000 census, about 8 percent of South Dakota's population were American Indians. Although data are not available to confirm this, it is possible that the decline in the number of American Indians receiving TANF has predominantly occurred among those not living on reservations, who represent a majority of all American Indians. Based on responses to our survey, the size of the TANF caseload on some reservations has in fact stayed about the same or even increased. Forty-nine of 97 tribes responding to our survey question reported that the number of tribal members receiving TANF was about the same size or larger than it had been in 1997. Several factors may contribute to the lack of welfare caseload decline among American Indians in certain places. These include the scarcity of jobs on reservations; the difficulty reservation residents have accessing work supports, such as job training and child care; and cultural or religious ties to tribal lands and strong ties to families and communities that make it difficult for many American Indians to relocate. In addition, like many other TANF recipients, many American Indian TANF recipients have characteristics such as low education levels and few job skills, which can make it difficult for them to get and keep jobs. PRWORA gives tribal TANF programs flexibility in many areas to tailor their programs to their communities, for example, by defining their own work activities and work participation rate goals, time limits, and eligibility requirements. The 36 tribal TANF programs are given the flexibility to define the activities they count toward meeting the work participation requirement more broadly than state TANF programs, subject to approval by HHS. According to data provided by tribal TANF programs to HHS, about a fifth of all adults engaged in work activities participate in activities that would not count toward meeting work participation rate goals under state plans (see fig. 3), but do count toward meeting work participation goals under tribal programs. For example, the Port Gamble S'Klallam tribe, whose reservation is located on Washington's Puget Sound, allows recipients to count time spent engaged in traditional subsistence gathering and fishing towards meeting the TANF work requirement. In general, rather than adopting an approach similar to most states that emphasizes job search and work, tribal TANF programs tend to encourage recipients to engage in education or training activities. While all of the tribal TANF program officials that responded to our survey question reported using TANF funds for job search, screening and assessment, and other employment services, most also used TANF funds for a variety of education services. Fourteen of the 18 tribal TANF programs responding to our survey question reported that a greater share of their recipients were enrolled in educational activities such as high school equivalency programs, community college, or other job training, than were engaged in employment. In contrast, a majority of TANF recipients engaged in work activities in state programs are in unsubsidized jobs. Officials from several of the tribes we visited reported that their tribal TANF programs emphasize education and training activities because their recipients have low rates of high school completion and high rates of illiteracy. Tribal TANF programs have flexibility to set their own time limits, subject to HHS approval. To date, HHS has not approved any tribal TANF plans with a time limit of greater than 60 months, although at least one tribe has submitted a plan proposing a longer time limit. Thirty-four of the 36 tribal TANF programs have time limits of 60 months; 2 programs have 24-month time limits. While a state may exempt no more than 20 percent of its caseload from time limits due to hardship, tribal programs have the flexibility to determine the share of the caseload they are allowed to exempt from time limits due to hardship. A majority of tribes have the same exemption limit as states, but HHS has approved 10 plans with higher exemption rates. If tribes want to extend benefits beyond the level approved in their plans, they must pay for the benefits with their own funds. Many tribal TANF programs are not subject to time limits because the unemployment rate on the reservations is greater than 50 percent. PRWORA exempts any month from counting toward an individual's time limit if that individual is living on a reservation with a population of at least 1,000 and an unemployment rate of 50 percent or greater, whether they are enrolled in a tribal program or a state program. Of the 29 tribal TANF programs that serve a single tribe, 16 are located on reservations that have unemployment rates of 50 percent or greater, according to the most recent BIA data. Tribes also have the flexibility to determine many of their own eligibility requirements. This includes the flexibility to determine the area that will be covered by their programs (the service area). Some tribes define their service area as their reservation or land base, while others serve families residing in nearby communities or within the counties that overlap with their reservations (see fig. 4). Tribes also have the flexibility to determine whom they will serve (the service population). Some tribes base eligibility on race or tribal membership; others serve all families in their service areas. Figure 5 shows the decisions all 36 tribal TANF programs have made about their service populations. Tribes have faced a number of challenges in implementing tribal TANF programs. Many tribes have found that data on the number of American Indians are inaccurate, complicating the determination of tribal TANF grant amounts and making it difficult to design and plan programs. Because tribes do not have the infrastructure they need to start their programs, tribes have had to solicit contributions from a variety of different sources to cover their significant start-up costs and ongoing operating expenses. In addition, because tribes do not have experience operating welfare programs, they lack the expertise needed to administer key program features, including determining eligibility. Some tribes have requested and received technical assistance from states and the federal government to help them develop this expertise. The challenges tribes have to overcome in order to plan, develop, and implement tribal TANF programs include, among others: Obtaining the population data necessary to conduct reliable feasibility studies and to plan and design tribal TANF programs. HHS and tribal officials told us that state data on American Indians is inaccurate, complicating the determination of TANF grant amounts and making it difficult to design and plan programs. The law specifies that federal tribal TANF grants must be based on the funds expended on American Indians who were residing in the program's designated service area and receiving AFDC from the state in fiscal year 1994. In practice, however, few states collected reliable data on the race of AFDC recipients in 1994, so some tribes negotiate the number on which their grant will be based, according to tribal officials. Having accurate data on American Indian caseloads is also critical for tribes as they design their programs and make decisions about how to allocate their resources. The degree to which any tribal TANF program's federal grant corresponds to its current caseload varies substantially. Some officials attribute this to underestimates of the number of American Indian families who were receiving AFDC in 1994. Others believe that eligible families are more likely to seek benefits from a tribal program, in part because of increased outreach. Changes in the economy and population growth over the past decade have also led to fluctuations in public assistance caseloads on some reservations. The majority of tribes with TANF programs responding to our survey question, 19 of 21, reported that the number of families they were currently serving was the same as, or smaller than, the number of families on which their grant was based. However, 2 of the 21 tribes reported that their TANF caseload was larger than the caseload on which their grant was based. Securing or leveraging the resources needed to establish the infrastructure needed to administer tribal TANF. Because most tribes starting tribal TANF programs do not have the infrastructure they need in place, they have secured and leveraged funding from a variety of sources to meet the basic "start-up" costs involved in setting up a new program. These start-up costs include those for basic infrastructure such as information technology systems. In addition, tribal TANF programs are not eligible to receive any of the performance incentives currently available to states. One infrastructure need that tribes have found particularly difficult to meet is the development of new information systems. Like states, tribal TANF programs are permitted to spend as much of their federal TANF grant on management information systems as they choose, and some tribes have developed systems for their new TANF programs. Unlike states, tribes did not receive additional federal funds expressly for the purpose of developing and operating automated information systems under AFDC, the precursor to the TANF program. Although most of the tribal TANF programs reported using an automated system to report TANF data, many--8 of 27--do not. For example, the Fort Belknap tribal TANF program in Montana has a caseload of 175 families, yet it does not have an automated information system for the collection, processing, and reporting of TANF data. Eleven tribes reported having an automated system devoted to their TANF program. Others use the state's computer system or contract with the state to collect, store, or process data for federal reporting purposes. Because most tribal TANF funds are used to provide benefits and services to TANF recipients, some tribes have leveraged funds from other federal programs or relied on other sources, including state TANF funds and tribal government contributions. States recognize that it is in their best interest if tribal TANF programs succeed, and therefore most provide at least some of their state maintenance of effort (MOE) funds to tribal programs in their state. HHS reports that 29 of 36 tribal TANF programs receive MOE funds from the states. Some states provide tribes with a share of MOE proportionate to the population they are serving; others provide some start-up costs; and others have not provided any funds. There is little incentive for states to contribute MOE to tribes. The law does not require states to contribute MOE to tribal programs, and in fact, if a tribe opts to administer a tribal TANF program, the state's MOE requirement drops by an amount that is proportional to the population served by the tribal program. However, any contributions made by states to tribal TANF programs do count toward a state's MOE requirement. Most tribal TANF programs that responded to our survey question, 24 of 27, reported that their tribal government made contributions to their TANF program. Eighteen of these respondents reported their tribes contributed office space or buildings. In addition, 15 programs received contributions from the tribal governments to cover other start-up costs. In addition to securing resources from federal, state, and tribal governments, some tribes have leveraged other funds to enable them to administer tribal TANF with limited resources. One way tribes have been able to do this is by combining TANF and other tribally administered federal employment and training programs into a single program with a single budget through a "477" plan. Tribes with 477 plans are able to save on administrative costs and reduce duplication of services by streamlining the administration of related programs. For example, a tribe with a 477 plan could provide job search and job preparation services to all tribal members through a single program, rather than having a separate program for TANF recipients. To date, 13 tribal TANF programs responding to our survey question have included TANF in their 477 plans. Two of the tribes we visited, the Confederated Salish and Kootenai tribe and the Sisseton- Wahpeton tribe, included their tribal TANF programs in 477 plans, and both tribes indicated that the ability to combine funding sources and streamline service delivery was instrumental in allowing them to administer tribal TANF within their budget constraints. Developing the expertise to better implement tribal TANF programs. Because they do not have experience in administering welfare programs, tribal TANF program administrators have had to quickly develop the expertise to plan and operate tribal TANF programs. Tribal TANF administrators have had to train staff on eligibility determination, data reporting requirements, and administration. They have also had to set up information systems, conduct feasibility studies, and leverage resources to help cover their costs. Most of the tribes that responded to our survey reported that states provided them with at least some technical assistance in these areas, but the amount of assistance provided by states varied. PRWORA does not require states to provide technical assistance to tribes, but 19 tribes reported that the state helped them to a great or very great extent in developing their initial concept paper describing their TANF program. In addition, 26 tribal TANF programs reported that they had received technical assistance and support from the state in developing or operating automated systems to collect and report TANF program data. A number of programs reported that they received assistance from the state on other aspects of administering a TANF program. Tribes also reported that HHS has provided them with technical assistance when asked. Tribal officials indicated that certain types of technical assistance were not readily available to them from states or the federal government. For example, tribes interested in administering tribal TANF often conduct studies to help them determine whether it is feasible to administer their own programs, but neither states nor the federal government had provided tribes with technical assistance on how best to conduct a feasibility study that would provide them with all of the information they needed to make an informed decision. Similarly, some of the tribes we visited indicated that they have little access to information about the "best practices" of other tribal TANF programs, which could help them meet TANF goals. PRWORA gives tribes a new opportunity to exercise their sovereignty by administering their own TANF programs. At this early stage of tribal TANF implementation, we see tribes making progress in exercising their flexibility by tailoring the design of their programs and engaging their members in a broad array of work activities. However, tribes face challenges in developing the data, systems, and expertise they need to operate their programs. While tribes have moved forward in establishing their own programs, it is not yet known whether these programs will help recipients find employment before reaching time limits. In addition, it is not yet clear whether the flexibility afforded to tribal TANF programs will allow them to continue to provide benefits and services to those who reach the time limit without obtaining a job. Whether tribal TANF programs will be successful in moving more American Indians from welfare into the workforce will ultimately depend on not only the ability of the programs to meet their recipients' need for income support, education, and training, but also the success of economic development efforts in providing employment opportunities for American Indians. Mr. Chairman, this concludes my prepared statement. I look forward to sharing the results of our final study with you in August. I will be happy to respond to any questions you or other Members of the Committee may have. For future contacts regarding this testimony, please call Cynthia M. Fagnoni at (202) 512-7215 or Clarita Mrena at (202)512-3022. Individuals making key contributions to this testimony included Kathryn Larin, Carolyn Blocker, Mark McArdle, Bob Sampson, Catherine Hurley, and Corinna Nicolaou.	Under welfare reform, American Indian tribes have the option to run Temporary Assistance for Needy Families (TANF) programs either alone or as part of a consortium of other tribes rather than receiving benefits and services from state TANF programs. Because of the difficult economic circumstances on many reservations, the law also gives tribal TANF programs more flexibility to design their programs than it gives to states. Tribes have used various strategies to stimulate economic development; however, unemployment and poverty rates remain high on reservations, and prospects for economic growth are limited. Nationally, the number of American Indian families receiving TANF assistance has declined significantly in recent years. On some reservations, however, caseloads have remained the same or increased. American Indians represent an increasing proportion of the total TANF caseload in some states. To date, 172 tribes, either alone or as part of a consortium, have used the act's flexibility to design and administer their own TANF programs. Tribes face challenges in implementing tribal TANF programs, including a lack of (1) reliable data on the number of American Indian TANF recipients; (2) infrastructure support, such as information systems; and (3) experience and expertise in administering welfare programs.	5,251	262
Vast sums of money funnel into America's higher education system each year through student financial aid programs authorized by Title IV of HEA, as amended. In 1995, about $35.2 billion in aid was made available to almost 7 million students to attend postsecondary institutions, with aid available projected to reach $40 billion in 1997. As funding for Title IV programs has increased, so have losses to the federal government from honoring its guarantee on student loans. In 1968, the government paid $2 million to cover loan defaults; in 1987, default payments exceeded $1 billion; and by 1991, default claim payments reached a staggering $3.2 billion. In 1992, GAO listed the student loan program as 1 of 17 high-risk federal program areas especially vulnerable to waste, fraud, abuse, and mismanagement. More specifically, we found, among other things, that (1) schools used the program as a source of easy income with little regard for students' educational prospects or the likelihood of their repaying loans and (2) management weaknesses plagued the Department that prevented it from keeping on top of these problems. The proprietary school sector has been associated with some of the worst examples of program abuse. In the United States, 5,235 proprietary schools represent about 50 percent of all postsecondary institutions. Most are small, enrolling fewer than 100 students, and offer occupational training of 2 years or less in fields ranging from interior design to computer programming. Proprietary schools enrolled more than 1 million students in fall 1993--about 10 percent of all undergraduates. Compared with nonprofit institutions, proprietary schools enroll higher percentages of women, minorities, and low-income students. About 67 percent of proprietary school students receive federal student aid under Title IV. While average default rates for all postsecondary institutions reached an all-time high of 22 percent in 1990, the default rate for proprietary schools exceeded 41 percent. This disparity has triggered numerous investigations. Congressional investigations, for example, discovered evidence of fraud and abuse by proprietary school owners. The Congress found that some proprietary schools focused their efforts on enrolling educationally disadvantaged students and obtaining federal funds rather than on providing meaningful training or education. The Congress also concluded that the regulatory oversight system of Title IV programs provided little or no assurance that schools were educating students efficiently or effectively. Several recommendations emanating from these findings were included in the 1992 amendments to HEA. The Title IV regulatory structure includes three actors--the Department of Education, states, and accrediting agencies--known as the "triad." Because of concern about federal interference in school operations, curriculum, and instruction, the Department has relied on accrediting agencies and states to determine and enforce standards of program quality. HEA recognizes the roles of the Department, the states, and the accrediting agencies as providing a framework for a shared responsibility for ensuring that the "gate" to student financial aid programs opens only to those institutions that provide students with quality education or training worth the time, energy, and money they invest. The Department plays two roles in gatekeeping. First, it verifies institutions' eligibility and certifies their financial and administrative capacity. In verifying institutional eligibility, the Department reviews documents provided by schools to ensure their compliance with state authorization and accreditation requirements; eligibility renewal is conducted every 4 years. In certifying that a school meets financial responsibility requirements, the Department determines whether the school can pay its bills, is financially sound, and that the owners and employees have not previously been convicted of defrauding the federal government. In certifying that institutions meet administrative requirements, the Department determines whether institutions have personnel resources adequate to administer Title IV programs and to maintain student records. Second, the Department grants recognition to accrediting agencies, meaning that the Department certifies that such agencies are reliable authorities as to what constitutes quality education or training provided by postsecondary institutions. In deciding whether to recognize accrediting agencies, the Secretary considers the recommendations of the National Advisory Committee on Institutional Quality and Integrity. The advisory committee consists of 15 members who are representatives of, or knowledgeable about, postsecondary education and training. Appointed by the Secretary of Education, committee members serve 3-year terms. The advisory committee generally holds public meetings twice a year to review petitions for recognition from accrediting agencies. The Department's Accrediting Agency Evaluation Branch is responsible for reviewing information submitted by the accrediting agencies in support of their petitions. Branch officials analyze submitted materials, physically observe an accrediting agency's operations and decision-making activities, and report their findings to the advisory committee. States use a variety of approaches to regulate postsecondary educational institutions. Some states establish standards concerning things like minimum qualifications of full-time faculty and the amount of library materials and instructional space. Other state agencies define certain consumer protection measures, such as refund policies. In the normal course of regulating commerce, all states require postsecondary institutions to have a license to operate within their borders. Because of concerns about program integrity, the Congress, in amending HEA in 1992, decided to strengthen the role of states in the regulatory structure by authorizing the creation of State Postsecondary Review Entities (SPRE). Under the amendments, the Department would identify institutions for review by SPREs, using 11 criteria indicative of possible financial or administrative distress. To review institutions, SPREs would use state standards to assess such things as advertising and promotion, financial and administrative practices, student outcomes, and program success. On the basis of their findings, SPREs would recommend to the Department whether institutions should retain Title IV eligibility. The Congress terminated funding for SPREs in 1995. The practice of accreditation arose as a means of having nongovernmental, peer evaluation of educational institutions and programs to ensure a consistent level of quality. Accrediting agencies adopt criteria they consider to reflect the qualities of a sound educational program and develop procedures for evaluating institutions to determine whether they operate at basic levels of quality. As outlined by the Department of Education, the functions of accreditation include certifying that an institution or program has met established standards, assisting students in identifying acceptable institutions, assisting institutions in determining the acceptability of transfer credits, creating goals for self-improvement of weaker programs and stimulating a general raising of standards among educational institutions, establishing criteria for professional certification and licensure, and identifying institutions and programs for the investment of public and private funds. Generally, to obtain initial accreditation, institutions must prepare an in-depth self-evaluation that measures their performance against standards established by the accrediting agency. The accrediting agency, in turn, sends a team of its representatives to the institution to assess whether the applicant meets established standards. A report, containing a recommendation based on the institution's self-evaluation and the accrediting agency's team findings, is reviewed by the accrediting agency's executive panel. The panel either grants accreditation for a specified period of time, typically no longer than 5 years, or denies accreditation. Once accredited, institutions undergo periodic re-evaluation. To retain accreditation, institutions pay sustaining fees and submit status reports to their accrediting agencies annually. The reports detail information on an institution's operations and finances and include information on such things as student enrollment, completion or retention rates, placement rates, and default rates. In addition, institutions are required to notify their accrediting agencies of any significant changes at their institutions involving such things as a change in mission or objectives, management, or ownership. Accrediting agencies judge whether institutions continue to comply with their standards on the basis of the information submitted by institutions and other information such as complaints. Whenever an accrediting agency believes that an institution may not be in compliance, the agency can take a variety of actions. For example, agencies may require institutions simply to provide more information so that they can render a judgment, conduct site visits to gather information, require institutions to take specific actions that address areas of concern, or, in rare instances, ultimately revoke accreditation. Recent information points to some favorable trends regarding the participation of proprietary schools in the Title IV program. Fewer proprietary schools participate in Title IV programs now than 5 years ago, a trend reflected in decreased numbers of schools accredited by the six primary accrediting agencies. Proprietary schools receive a much smaller share of Title IV aid dollars now than in the past. And, while the default rates for proprietary school students are still far above those associated with nonprofit institutions, the rates have declined over the past few years. For the six agencies we contacted, we observed a trend toward accrediting fewer institutions since 1992 (see table 1). Agency officials pointed out a number of reasons for the decreases, including recent changes in Title IV regulations, more aggressive oversight by accrediting agencies, school closures, and the fact that schools once accredited by two or more agencies are now accredited only by one. We observed no clear trends in other accreditation decisions such as an increasing or decreasing propensity to grant, deny, or revoke school accreditation over the past few years. Some accrediting agency officials told us that because they effectively prescreen institutions applying for accreditation, they would not expect to see much change in the number of cases in which accreditation is denied or applications are withdrawn. Proprietary schools' share of Title IV aid has steadily declined since the late 1980s. For example, about 25 percent of all Pell grant dollars went to students attending proprietary schools in 1986-87, but by 1992-93 that figure declined to about 18 percent (see fig. 1). While total Pell grant expenditures rose from $3.4 billion to $6.2 billion over these years, the amount retained by proprietary schools only increased from $.9 billion to $1.1 billion. For the subsidized Stafford loan program, the proprietary school share declined from nearly 35 percent of all dollars in 1986-87 to about 10 percent in 1992-93. In the Federal Family Education Loan Program, total dollars increased from $9.1 billion to $14.6 billion between 1986-87 and 1992-93, but dollars going to proprietary schools fell from $3.2 billion to $1.7 billion. The proportion of proprietary school students receiving Title IV aid has been declining as well, although these students remain more likely than others to receive aid. The proportion receiving aid fell from nearly 80 percent in 1986-87 to about 67 percent in 1992-93, while the proportion of students receiving aid at the public and private nonprofit schools remained steady. Furthermore, for proprietary school students who receive aid, the average dollar amount has risen more slowly than for students in other sectors. Average aid received by proprietary school students went up by 20 percent between 1986-87 and 1992-93; in contrast, the increase was 34 percent for public school students and 47 percent for private nonprofit school students. Loan default rates for proprietary school students have been declining in recent years, from 36.2 percent in 1991 to 23.9 percent in 1993 (see fig. 2), while default rates in other sectors have not changed. However, students at proprietary schools are still more likely than others to default on student loans. The most recent rates for 2- and 4-year nonprofit schools were 14 and 7 percent, respectively. One new measure adopted in the 1992 HEA amendments to help tighten eligibility for Title IV student financial aid programs was the so-called 85-15 rule. This provision prohibits proprietary schools from participating in Title IV programs if more than 85 percent of their revenues come from these programs. The presumption under the rule is that if proprietary schools are providing good services, they should be able to attract a reasonable percentage of their revenues from sources other than Title IV programs. In other words, the 85-15 rule is based on the notion that proprietary schools which rely overwhelmingly on Title IV funds may be poorly performing institutions that do not serve their students well and may be misusing student aid programs, and therefore should not be subsidized with federal student aid dollars. Since the 85-15 rule went into effect last July, proprietary schools that fail to meet the standard must report this to the Department within 90 days following the end of their fiscal year. Schools that meet the standard must include a statement attesting to that fact in their audited financial statements due to the Department within 120 days following the end of their fiscal year. The period has now elapsed for the vast majority of schools. Thus far, however, only four proprietary schools have notified the Department of their failure to meet the 85-15 standard. This finding may have a variety of possible explanations. For example, it may be that very few schools actually had more than 85 percent of their revenues coming from Title IV when the rule became law or that most such schools adjusted their operations to meet the standard when it took effect. Conversely, the actual number of schools that failed to meet the 85-15 standard could be substantially higher. According to the Department, about 25 percent of the 830 proprietary schools that submitted financial statements during the past 2 months have not properly documented whether they met the 85-15 standard. These schools may have met the 85-15 standard but misunderstood the reporting rules, or they may have failed to meet the 85-15 standard and intentionally not reported this fact in an attempt to avoid or postpone losing their Title IV eligibility. At the Chairman's request, we recently initiated a study to address the core of this issue: Is there a clear relationship between reliance on Title IV revenues and school performance? Using data from national accrediting associations, state oversight agencies, and the Department, we will attempt to determine whether greater reliance on Title IV funds is associated with poorer outcomes, such as lower graduation and placement rates. Annually, students receive over $3 billion from Title IV programs to attend postsecondary institutions that offer occupational training without regard to labor market circumstances. While Department regulations stipulate that proprietary schools--the principal vendors of occupational education and training under Title IV--provide instruction to "prepare students for gainful employment in a recognized occupation," schools are not required to consider students' likelihood of securing such employment. Students who enroll in occupational education programs, obtain grants, and incur significant debt often risk being unable to find work because they have been trained for fields in which no job demand exists. Proprietary school students are particularly vulnerable in this situation because, according to current research, unlike university graduates, they are less likely to relocate outside of their surrounding geographic region. The Department's Inspector General (IG) recently estimated that about $725 million in Title IV funds are spent annually to train cosmetology students at proprietary schools, yet the supply of cosmetologists routinely exceeds demand. For example, in 1990, 96,000 cosmetologists were trained nationwide, adding to a labor market already supplied with 1.8 million licensed cosmetologists. For that year, according to the Bureau of Labor Statistics, only 597,000 people found employment as cosmetologists, about one-third of all licensed cosmetologists. In Texas, the IG also found that, not surprisingly, the default rate for cosmetology students exceeded 40 percent in 1990. At the Chairman's request, we have also initiated a study to address this issue. States have information readily available to project future employment opportunity trends by occupation. We are analyzing its usefulness in identifying occupations that, in the short term, have an over- or undersupply of trained workers. Using this data in conjunction with databases from the Department, we hope to determine the pervasiveness of this problem and the Title IV costs associated with it. We expect to report our results on this matter to you early next year. Mr. Chairman, this concludes my prepared remarks, and, as I mentioned, we will be reporting to you in the near future on the results of our ongoing work for the Subcommittee. I am happy to answer any questions you may have at this time. For more information about this testimony, please call Wayne B. Upshaw at (202) 512-7006 or C. Jeff Appel at (617) 565-7513. Other major contributors to this testimony included Ben Jordan, Nancy Kinter-Meyer, Gene Kuehneman, Carol Patey, Jill Schamberger, Tim Silva, and Jim Spaulding. 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.	Pursuant to a congressional request, GAO examined whether proprietary schools receiving Title IV funding are providing students with quality educational programs. GAO found that: (1) fewer proprietary schools have been accredited since 1992 because of increases in school closures and oversight by accrediting agencies; (2) the proportion of proprietary school students receiving Title IV aid fell from 80 percent in the 1986-87 school year to 67 percent in the 1992-93 school year; (3) loan default rates fell, but remained substantially higher than those for students attending nonprofit institutions; (4) the 1992 Higher Education Act Amendments adopted a rule prohibiting schools from participating in Title IV programs if they receive more than 85 percent of their revenue from Title IV programs; (5) since the so-called 85-15 rule went into effect, only four proprietary schools have notified the Department of Education of their failure to meet the 85-percent standard; (6) schools not meeting the standard had more than 85 percent of their revenue coming from Title IV funding, improperly documented their eligibility, misunderstood the reporting rules, or intentionally misrepresented their findings; and (7) proprietary school students incur significant debt and are often unable to find jobs in their fields.	3,721	254
SSA administers two of the largest disability programs: the Disability Insurance (DI) program, enacted in 1956, and the Supplemental Security Income (SSI) program, enacted in 1972. In order to be eligible for DI or SSI benefits based on a disability, an individual must meet the definition of disability for these programs--that is, they must have a medically determinable physical or mental impairment that (1) prevents the individual from engaging in any substantial gainful activity, and (2) has lasted or is expected to last at least one year or result in death. To determine eligibility, SSA uses a five-step sequential process that is intended, in part, to expedite disability decisions when possible and limit administrative costs by conducting less intensive assessments at earlier steps (see fig. 1). At steps 1 and 2 of the process, SSA determines whether an applicant is working and meets income thresholds as well as the medical severity of impairments. If so, the applicant moves to step 3 of the process. At this step, SSA examiners assess the applicant's medical impairment(s) against the Listings of Impairments, also known as the medical listings, which are organized into 14 major body systems for adults and reflect medical conditions that have been determined by the agency to be severe enough to qualify an applicant for benefits. If the individual's impairment meets or is equal in severity to one or more of those in the listings, the individual is determined to have a disability. If not, SSA performs an assessment of the individual's physical and mental residual functional capacity. Based on this assessment, SSA determines whether the individual is able to perform past relevant work (step 4) or any work that is performed in the national economy (step 5). To inform determinations at steps 4 and 5, SSA uses a Department of Labor database--known as the Dictionary of Occupational Titles (DOT)--for an inventory of occupations performed in the national economy. Since 2003, SSA's and other federal disability programs have remained on our high-risk list, in part, because their programs emphasize medical conditions in assessing work capacity without adequate consideration of work opportunities afforded by advances in medicine, technology, and job demands. Since the 1990s, we, along with SSA's Office of Inspector General and the Social Security Advisory Board, have expressed concerns that the medical listings being used no longer provide sufficient criteria to evaluate disability applicants' inability to work and that SSA was simply extending the listings instead of periodically updating them. In 2008, we reported that SSA had established a new process for revising the listings--referred to by SSA as the "business process"--to better incorporate feedback into its continuous updates. This process, which has been in effect since 2003, includes incorporating feedback from multiple parties, including medical experts and claims examiners, to update their medical criteria. SSA should also gather external feedback through comments associated with regulatory actions, such as the publication of advanced notices of proposed rulemaking (advanced notices) and notices of proposed rulemaking (notices) in the Federal Register. In addition, one year after a revision is made, SSA should conduct a study reviewing the changes. According to SSA documentation, this internal case study, now referred to as the postimplementation study, should involve surveying the field regarding the results of the regulation and areas to improve, as well as reviewing the data to determine whether expectations from the revision have been proven. With respect to information on jobs in the national economy that supports SSA's occupational criteria, we and others have reported that the DOT, which SSA still relies on to assess eligibility at steps 4 and 5 of the process, is outdated. The DOT has not been updated since 1991, and Labor has since replaced the DOT with a new database called the Occupational Information Network (ONET).determined that ONET is not sufficiently detailed for evaluating DI and SSI disability claims and therefore has begun developing its own OIS in order to better reflect the physical and mental demands of work in the national economy. Since our last review in 2008, SSA has made several changes that hold promise for improving medical listings updates. First, the agency is using a two-tiered system for ongoing revisions to the listings. Under this system, SSA first completes a comprehensive listings update for a body system that reviews all the diseases and disorders listed within that system and makes revisions it determines are needed. For subsequent updates of listings for a body system that underwent a comprehensive revision, SSA will pursue a more targeted approach--that is, SSA will conduct ongoing reviews with the expectation of making targeted revisions for a small number of medical diseases or disorders that need to be updated. Agency officials told us that targeted updates should be completed more quickly than comprehensive updates, allowing them to focus on the most critical changes needed. However, officials also noted that these ongoing reviews could result in major or even no changes, as appropriate. As of early March 2012, SSA had begun the ongoing review process to consider opportunities for targeted revisions for 8 out of 14 adult body systems that were recently comprehensively revised. Also as of early March 2012, the agency had not yet completed comprehensive revisions for the six remaining systems, which the agency expects to do before they conduct subsequent reviews under the targeted approach. Another change, according to agency officials, is that in 2010 the SSA Commissioner set a 5-year cycle time for updating listings for each body system. Previously, SSA set expiration dates for periodically updating listings according to each body system, ranging from 3 to 8 years, but frequently extended them. SSA officials believe that conducting targeted reviews will generally allow the agency to conclude any necessary revisions prior to the 5-year expiration period. Additionally, they expect that using the "business process," which requires early public notification of changes and obtaining necessary data and feedback from internal and external parties, should help keep continuous reviews on track. See figure 2 for the status and expiration dates of listings for the 14 adult body systems, undergoing review for either comprehensive or possible targeted revisions, as of early March 2012. SSA has made another change by more extensively engaging the medical community to identify ways to improve the medical listings. For example, SSA contracted with the Institute of Medicine to study its medical criteria for determining disability and to make recommendations for improving the timeliness and accuracy of its disability decisions, resulting in a 2007 report with recommendations and a symposium of experts in 2010. SSA has addressed some of the institute's recommendations, such as making better use of its administrative data to update criteria and creating a standing committee through the institute to provide recommendations for listings revisions. SSA continues to face delays in completing both comprehensive and other ongoing updates. For example, as of early March 2012, SSA officials told us they still needed to complete comprehensive revisions for listings of six body systems that have been ongoing for the last 19 to 33 years, after numerous extensions beyond the original expiration periods (see table 1). Two of the remaining six body system listings--mental and neurological disorders, which are among those SSA uses most frequently in its eligibility determination process--have not been comprehensively revised for 27 years.to expire in 2012. Of these four, SSA is developing a notice of proposed rulemaking for three of them and has issued a notice on the fourth. However, it is unclear whether SSA will complete the revisions before they are set to expire. In 2008, SSA began a multiyear project to develop a new source of occupational information that will replace the outdated information currently being used to determine if claimants are able to do their past work or any other work in the national economy. Since the 1960s, SSA has been using the DOT, which contains a list of job titles found in the national economy and was last updated in 1991. The DOT provides SSA with descriptions of the physical demands of work--such as climbing, balancing, and environmental requirements--for each of the more than 12,000 occupations listed. According to SSA, these descriptions have been essential to its evaluations of how much a claimant can do despite his or her impairment and whether this level of functioning enables the claimant to do his or her past work or any other work. After its last limited update, Labor decided to replace the DOT with ONET, which has far fewer job titles compared with the DOT, but has served Labor's purposes more efficiently. According to an SSA report, after investigating potential alternatives, SSA decided that ONET and other existing databases with occupational information were not sufficiently detailed and able to withstand legal challenges for use in its decision-making process. SSA further decided to develop its own occupational information system, which would contain detailed information as in the DOT, but would also include additional information, such as the mental demands of work. In addition, the OIS should (1) meet SSA's legal, program, and data requirements; (2) be flexible enough to incorporate changes in SSA's policies and processes; and (3) be able to be updated to reflect the evolving workplace environment. In 2008, SSA began taking several steps to guide the development of its OIS. SSA created an internal office and working group, as well as an Occupational Information Development Advisory Panel, comprised of external experts in areas related to the development of occupational information systems. The advisory panel holds quarterly public meetings and has several subcommittees that review material and make recommendations to SSA on developing various components of the OIS. For example, in a 2009 report, the advisory panel supported the need for SSA to develop a new source of occupational information, rather than adapt ONET, and recommended the type of data SSA should collect, as well as suggested ways to classify occupations. To further inform its efforts, SSA has sought input from agencies or organizations that either collect occupational information or also use the DOT. For example, SSA officials held initial meetings with Labor and U.S. Census Bureau officials to gain information on sampling methods used for the ONET, the Occupational Employment Statistics program, and Census Bureau's household surveys. in the process of completing a Memorandum of Understanding that will formalize their collaboration efforts on the new OIS. According to an SSA official, as the OIS project progresses, SSA plans to convene ad hoc roundtables with experts and other agency officials to explore specific subject areas, such as sampling issues. Besides working with Labor and Census Bureau officials, SSA officials and panel members have sought input from other experts and current users of the DOT, such as SSA disability adjudicators and external rehabilitation professionals, by conducting a user needs analysis in 2009 and presenting the OIS project at events and conferences. The Occupational Employment Statistics program produces employment and wage estimates for approximately 800 occupations. The Census Bureau's household surveys include (1) the American Community Survey, which is an ongoing survey that provides annual data on demographics such as age, education, and disabilities, and (2) the Current Population Survey , which is primarily a labor force survey, conducted every month by the Census Bureau for the Bureau of Labor Statistics and provides data such as the national unemployment rate. key components of the OIS in order to implement the OIS by 2016 at an estimated cost of $108 million. For example, the plan includes several baseline activities to identify and study other occupational information systems and various approaches for analyzing occupations that may inform or could be leveraged in SSA's OIS data collection. The plan also includes activities to identify the primary occupational, functional, and vocational characteristics of current beneficiaries. Other key components of the plan include developing descriptions of work requirements, such as the physical and mental demands for jobs, and data collection and analysis strategies. SSA also plans to develop a strategy for piloting data collection nationwide within this time frame. As of February 2012, SSA had made progress on many of the baseline activities outlined in its research and development plan for the OIS. For example, according to an SSA official, its investigation of existing occupational information systems, now complete, has resulted in useful information about design issues other organizations have confronted and mitigated when creating their own system. Additionally, SSA's preliminary analysis of its own administrative data identified the most frequently cited occupations and functional and vocational characteristics of disability applicants. SSA officials told us the agency will target the occupations identified in this analysis for its pilot studies of the OIS. Also in 2011, SSA completed a comprehensive framework for assessing an individual's capacity to work--key to informing the OIS content, according to SSA officials--which was based on recommendations of outside experts as well as SSA's policy and program requirements. While SSA has made progress on several key activities, agency officials delayed 2011 completion dates for certain activities and anticipate making additional changes to its timeline as a result of not meeting its staffing goals for fiscal year 2011. For example, the activities that were delayed by several months included finalizing reports for the baseline studies and conducting a literature review that would inform how occupations might be analyzed for the OIS. SSA officials told us that they would have needed to have the full complement of projected 2012 staff by September 2011 to complete all of the 2012 planned activities within the estimated schedule. However, SSA officials said they did not have the budget to hire new staff in September 2011. To address this challenge, SSA officials hired consultants to meet some of their needs. SSA officials also met with the Office of Personnel Management to explore the possibility of an interagency agreement that would allow SSA to use one or two of the Office of Personnel Management's industrial organizational psychologists to help on a part-time basis. As part of our ongoing work, we are assessing SSA's current OIS project schedule and cost estimates against best practices, and have preliminarily identified some gaps in SSA's approach. For example, best practices require cost estimates to be comprehensive and include information about life cycle costs--that is, how much the project is expected to cost over time. However, while SSA has estimated the cost to research and develop the OIS, the estimate does not project the future costs to implement or maintain the system. The cost of sustaining an OIS could be significant, based on other agencies' experiences maintaining their systems for collecting national occupational information. We preliminarily identified other gaps, such as lack of documentation describing step by step how the cost estimate was developed so that those unfamiliar with the program could understand how it was created. For our final report due later in 2012, we plan to deliver more comprehensive findings on how well SSA is managing the development of its OIS against best practices, such as estimating costs of the OIS and ensuring that the project schedule reliably estimates related activities, the length of time they will take, and how they are interrelated. We will also identify any mitigation strategies the agency may have to address project risks, such as the risk of the agency not receiving full funding. Chairman Johnson, Ranking Member Becerra, and Members of the Subcommittee, this concludes my prepared statement. I will be happy to respond to any questions. For further information regarding this testimony, please contact me at 202-512-7215 or [email protected]. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony are Michele Grgich, Assistant Director, James Bennett, Kate Blumenreich, Julie DeVault, Alex Galuten, Sheila McCoy, Patricia M. Owens, Anjali Tekchandani, Kathleen Van Gelder, and Walter Vance. 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.	SSA administers two of the largest disability programs, with annual benefit payments that have grown fivefold over the last 20 yearsfrom $35 billion in 1990 to over $164 billion in 2010and the agency receives millions of new applications annually. GAO has designated federal disability programs as a high-risk area, in part because eligibility criteria have not been updated to reflect medical and technological advances and labor market changes. Given the size and cost of its disability programs, SSA needs updated criteria to appropriately determine who qualifies for benefits. In this statement, GAO discusses initial observations from its ongoing review and assessment of SSAs efforts to (1) update its medical criteria and (2) develop a new occupational information system. To do this, GAO reviewed prior GAO and SSA Inspector General reports; relevant federal laws and regulations; program documentation including policies, procedures, strategic goals, and supporting project plans; and cost estimates. GAO also interviewed SSA officials, project stakeholders, experts, and representatives from other agencies that administer disability programs. This work is ongoing and GAO has no recommendations at this time. GAO plans to issue its final report later in 2012. The Social Security Administration (SSA) has made several changes to improve the process it uses for updating its medical criteria, but continues to face challenges ensuring timely updates. SSA's medical criteria for adults are in the form of listings of medical conditions and impairments organized under 14 body systems, which SSA periodically updates. To help ensure timely, periodic updates of a body system's listings, SSA is moving away from comprehensively revising a body system's listings toward a more targeted approach, wherein SSA selects for revision those impairment listings most in need of change. To date, SSA has completed comprehensive revisions of listings for 8 of the 14 body systems and now is in the process of reviewing them to determine whether and which targeted revisions are appropriate. In 2010, the SSA Commissioner set a 5-year cycle time for updating listings for each body system, replacing the agency's prior practice of setting expiration dates for listings that ranged from 3 to 8 years and then frequently extending them. To further increase the timeliness and accuracy of decisions, SSA has sought recommendations from the Institute of Medicine and has acted on some of them, such as creating a standing committee to provide advice on updating the listings. However, SSA continues to face challenges keeping its listings up to date. For example, SSA is still working on completing comprehensive revisions of listings for six body systems that have been ongoing for 19 to 33 years. SSA staff told us that a lack of staff and expertise, along with the complexity and unpredictability of the regulatory process, have made it challenging to maintain its schedule of periodic updates for all listings. SSA has embarked on an ambitious plan to produce by 2016 an occupational inventory database to support its disability benefit decisions, but it is too soon to determine if SSA will meet key time frames. SSA currently relies on an occupational information source developed by the Department of Labor that was updated for the last time in 1991 and is viewed by many as outdated. In 2008, SSA initiated a project to develop its own occupational information system (OIS), which SSA expects will provide up-to-date information on the physical and mental demands of work, and in sufficient detail to support its disability benefit decisions. To guide the creation of its OIS, SSA established an advisory panel, collaborated with outside experts and other agencies, and in July 2011 issued a research and development plan detailing all relevant activities and goals between 2010 and 2016. As of February 2012, SSA had completed many initial research efforts, including investigating other types of occupational information systems and identifying job analysis methods. Despite preliminary progress, it is too early to determine if SSA will meet its target implementation date. SSA officials told us that due to staffing shortages it did not meet all initial goals on time and may need to adjust its time frames for future activities. While GAO is still evaluating SSA's schedule and cost estimates against best practices, we have preliminarily identified some potential gaps in SSA's approach, such as not reflecting the costs to both implement and maintain a new OIS.	3,469	894
Approximately 2.6 million federal employees throughout the United States and abroad execute the responsibilities of the federal government. Federal employees work in every state, with about 90 percent outside the Washington, D.C., metropolitan area. They perform functions across a multitude of sectors, from those vital to the long-term well-being of the country--such as environmental protection, intelligence, social work, and financial services--to those directly charged with aspects of public safety--including corrections, airport and aviation safety, medical services, border protection, and agricultural safety. Worker protection strategies are crucial to sustain an adequate workforce during a pandemic. During the peak of an outbreak of a severe influenza pandemic in the United States, an estimated 40 percent of the workforce could be unable to work because of illness, the need to care for ill family members, or fear of infection. Under the Implementation Plan, all federal agencies are expected to develop their own pandemic plans that along with other requirements, describe how each agency will provide for the safety and health of its employees and support the federal government's efforts to prepare for, respond to, and recover from a pandemic. Because the dynamic nature of pandemic influenza requires that the scope of federal government continuity of operations (COOP) planning includes preparing for a catastrophic event that is not geographically or temporally bounded, the Federal Emergency Management Agency concluded that planning for a pandemic requires a state of preparedness that is beyond traditional federal government COOP planning. For example, for pandemic planning purposes, essential functions may be more inclusive and extend longer than the 30-day traditional COOP-essential functions. Our survey questions for the 24 agencies were drawn from pandemic planning checklists and federal guidance to help agencies plan for protecting their employees during a pandemic. The 24 agencies we surveyed reported being in various stages of formulating their pandemic plans. While most of the agencies had developed plans, several reported that they were still formulating their plans. For example, in February 2009, the Small Business Administration (SBA) reported that it had begun to draft a more complete pandemic influenza annex to its COOP plan with an estimated completion date of spring 2009. The Department of Defense (DOD) had completed its overarching departmentwide plan, and DOD reported that its installations were tailoring their Force Health Protection Plans to include pandemic influenza considerations. Identifying essential functions and enumerating the employees who would perform them is the first step in training those employees, communicating the risks and expectations of working during a pandemic, and planning and budgeting for measures that would mitigate those risks. Nineteen agencies reported that they had identified essential functions at both the department and component levels that cannot be continued through telework in the event of pandemic influenza or, in the case of the Office of Personnel Management (OPM), the U.S. Agency for International Development (USAID), and the National Science Foundation (NSF), determined that all of their essential or important government functions could be performed remotely. Of the remaining 5 agencies, DOJ reported identifying essential functions at the component level but noted that it was revising its department-level plan. At the time of our survey, the General Services Administration (GSA) reported not identifying its essential functions in the event of a pandemic while three agencies--DOD, SBA, and the Department of Housing and Urban Development (HUD)--were in the process of either identifying essential functions or determining which functions could be continued through telework. The pandemic coordinators in three agencies did not know whether the employees who performed essential functions in their agencies had been notified that they might be expected to continue operations during a pandemic. We also asked the pandemic coordinators from the 24 agencies whether they had planned or budgeted for any of seven potential measures to protect workers whose duties require their on-site presence during a pandemic. The measures included in our survey included procurement of personal protective equipment such as masks and gloves; supplemental cleaning programs for common areas; distribution of hygiene supplies (hand sanitizers, trash receptacles with hands-free lids, etc.); obtaining antiviral medications; arrangements to obtain pandemic vaccines to the extent available; prioritization of employees for vaccinations; and prioritization of employees for antiviral medications. Federal pandemic guidance recommends the measures according to risk assessments for employees, and therefore, based on the agencies' mission and activities, not all measures are equally appropriate for all agencies. The most frequently reported measure was procurement of personal protective equipment with 19 agencies reporting that they had planned or budgeted for this measure. For example, DHS reported that it had done fit testing of employees for N95 respirators and training on the proper use of other personal protective equipment and had pre-positioned stockpiles of the equipment for employees in 52 locations. Prioritization of employees for vaccinations was the measure least frequently reported with 11 agencies reporting that they had taken this measure. The survey showed that agencies' most frequently cited social distancing strategies involved using telework and flexible schedules for their workforces. Restrictions on meetings and gatherings and avoiding unnecessary travel were also part of 18 agencies' plans. Although many of the agencies' pandemic influenza plans rely on social distancing strategies, primarily telework, to carry out the functions of the federal government in the event of a pandemic outbreak, only one agency, NSF stated that it tested its IT infrastructure to a great extent. The agency reported assessing its telework system formally several times each year and each day through various means. On the other hand, five agencies reported testing their IT systems to little or not extent. Table 1 shows the survey responses. Given the potential severity of a pandemic, it is important that employees understand the policies and requirements of their agencies and the alternatives, such as telework, that may be available to them. Many employees and their supervisors will have questions about their rights, entitlements, alternative work arrangements, benefits, leave and pay flexibilities, and hiring flexibilities available during the turmoil created by a pandemic. Therefore, it is important that each agency implement a process to communicate its human capital guidance for emergencies to managers and make staff aware of that guidance. Twenty-one of the 24 pandemic coordinators surveyed reported making information available to their employees on how human capital policies and flexibilities will change in the event of a pandemic outbreak. Three agencies--DOC, GSA, and SSA--reported that they have not. Of the agencies that reported making information available, two had done so indirectly. HUD stated that it shared information with unions, and Treasury reported that it briefed its human capital officers on the human capital policies and flexibilities available to address pandemic issues. BOP, a component of DOJ, has the mission of protecting society by confining offenders in the controlled environments of prisons and community-based facilities that are safe, humane, cost-efficient, and appropriately secure and that provide work and other self-improvement opportunities to assist offenders in becoming law-abiding citizens. Approximately 35,000 federal employees ensure the security of federal prisons and provide inmates with programs and services. BOP's pandemic influenza plan was developed through its Office of Emergency Preparedness and was disseminated to its central office and six regional offices in May 2008. BOP's pandemic plan addresses the need for infection control measures to mitigate influenza transmission and calls for education of correctional workers and the inmate population. Accordingly, all facilities are instructed that they should have readily available and ample supplies of bar soap and liquid soap in the restrooms, alcohol-based wipes throughout the facility, and hand sanitizers if approved by the warden. Based on a historical review of the 1918 pandemic influenza and HHS' pandemic planning assumptions, BOP intends to supply antiviral medication to 15 percent of correctional workers and inmates in each facility if the influenza outbreak is geographically spread throughout the United States. BOP has some challenges in preparing for pandemic influenza. For example, social distancing measures to protect correctional workers are difficult to implement at the facility level. BOP officials said that there are many situations in which close contact is inevitable between correctional workers and inmates and where personal protective equipment, such as gloves and masks, would not be feasible. A unique pandemic planning challenge facing federal correctional workers is the maintenance of an effective custodial relationship between them and the inmates in federal prisons. According to BOP officials, this relationship depends on communication and mutual trust, as correctional workers in federal prisons do not carry weapons or batons inside the cellblocks. Rather, they use verbal methods of communication to keep order. BOP officials at United States Penitentiary Leavenworth said that they would not allow a situation where correctional workers wear N95 respirators or surgical masks but the inmates do not. Despite the challenges BOP faces with pandemic influenza planning, the bureau has advantages, which are unique to its facilities. Every correctional facility is a closed and self-contained system, and each facility is somewhat self-sufficient, maintaining a 30-day supply of food, water, and other necessities for any type of contingency. Correctional facilities also have well-tested experience in emergency and health hazard planning and management and infection control, which provides them with a solid foundation to build on for pandemic influenza preparedness. Additionally, correctional facilities generally have strong ties with their local communities, important because pandemic influenza will be largely addressed by the resources available to each community it affects. FMS, a component of Treasury, provides central payment services to federal agencies, operates the federal government's collections and deposit systems, provides governmentwide accounting and reporting services, and manages the collection of delinquent debt owed to the government. FMS has four regional financial centers that are production facilities that rely heavily on integrated computer and telecommunications systems to perform their mission. However, they also rely on light manufacturing operations to print and enclose checks for releasing at specific times of the month. Nearly 206 million of FMS's payments were disbursed by check in fiscal year 2008. A regional center Deputy Director said that the organization is aware that the basis of part of the U.S. economy rests on the regional financial centers and that they will need to issue payments even during a pandemic. For the most part, the regional financial centers are planning that in the event of a pandemic, the nature of their business will be unchanged, but there will be issues with sickness, absenteeism, communication, and hygiene that they must address. Employees whose positions require, on a daily basis, direct handling of materials or on-site activity that cannot be handled remotely or at an alternative worksite are not eligible for telework. According to an FMS official, even with a minimum crew on-site to produce paper checks, there will be instances when employees will need to be within 3 feet of other employees. As part of the regional center pandemic plans, officials researched the types of supplies they would need based on the risks faced in their facilities. For example, in the Kansas City regional financial center the janitorial staff now routinely wipes off door handles, tabletops, and other high-traffic areas. As another part of the Kansas City regional plan, the center stocks such items as N95 respirators, gloves, hand sanitizers, disinfectants, and fanny packs that include items such as ready to eat meals, hand-cranked flashlights, small first-aid kits, and emergency blankets. The FMS regional financial centers face some unique pandemic planning challenges. Since the centers are production facilities with large open spaces as well as enclosed office areas, pandemic planning requires different responses for different areas. An FMS official noted that employees' response and diligence in following disease containment measures in the different areas would be what determines the success of those measures. Scheduling of production personnel is also a challenge. Since the production of the checks must be done according to a deadline and internal controls must be maintained, schedules are not flexible. FMS officials had not made any arrangements for pandemic pharmaceutical interventions for the regional financial centers in part because the relatively small number of essential employees required to be on-site, as well as the large open spaces in the regional facilities, make social distancing measures more feasible. FAA, a component of DOT, expects the National Airspace System to function throughout an influenza pandemic, in accordance with the preparedness and response goal of sustaining infrastructure and mitigating impact to the economy and the functioning of society. Maintaining the functioning of the National Airspace System will require that FAA's air traffic controllers, who ensure that aircraft remain safely separated from other aircraft, vehicles, and terrain, continue to work on-site. While FAA expects the demand for air traffic control, which manages cargo as well as passenger travel, to be reduced in the event of a severe pandemic outbreak, its contingency plans assume full air traffic levels as a starting baseline. According to an FAA official, although passenger travel may be diminished, the shipping of cargo may increase. The Air Traffic Organization, FAA's line of business responsible for the air traffic management services that air traffic controllers provide, had not directed facilities, such as its air route traffic control centers, to develop pandemic-specific plans or incorporate these pandemic plans into their all- hazards contingency plans. FAA officials said that all-hazards contingency and continuity plans are adapted to the facility level and are regularly implemented during natural disasters such as hurricanes. Although these plans are not specific to a pandemic, FAA officials reported that the all- hazards plans allow the Air Traffic Organization to mitigate the impact of adverse events, including reduced staffing levels on National Airspace Systems operations. The Air Traffic Organization plans to direct its facilities to develop pandemic-specific plans or enhance their preexisting all-hazards contingency plans at the local field facility level after a number of actions, such as the development of an FAA workforce protection policy, are completed. Protecting air traffic controllers in the event of a pandemic outbreak is particularly challenging for several reasons. Air traffic controllers work in proximity to one another; the 6 feet of separation recommended for social distancing during a pandemic by the Centers for Disease Control and Prevention and the Occupational Safety and Health Administration is not possible for them. In addition, air traffic controllers cannot use personal protective equipment such as N95 respirators or surgical masks, as these impede the clear verbal communication necessary to maintain aviation safety. FAA recently completed a study examining the feasibility of air traffic controllers using powered air purifying respirators. Because of a number of concerns with using the respirators, such as noise, visibility, and comfort, FAA officials concluded that their long-term use during a pandemic appears to be impractical. Moreover, cross-certification of air traffic controllers is problematic. Attaining full performance levels for the controllers takes up to 3 years, and air traffic controllers proficient in one area of airspace cannot replace controllers proficient in another airspace without training and certification. Finally, FAA regulations on medication for air traffic controllers are strict because certain medications may impair an air traffic controller's performance. The Office of Aviation Medicine's policy on the use of antiviral medication for prophylactic use by on-duty controllers was still in draft as of early 2009. The survey results from the 24 CFO Act agency pandemic coordinators, as well as information from the case study agencies, indicate that a wide range of pandemic planning activities are under way and that all of the agencies are taking steps to some degree to protect their workers in the event of a pandemic. However, agencies' progress is uneven, and while we recognize that the pandemic planning process is evolving and is characterized by uncertainty and constrained resources, some agencies are clearly in the earlier stages of developing their pandemic plans and being able to provide the health protection related to the risk of exposure their essential employees may experience. Under the HSC's Implementation Plan, DHS was charged with, among other things, monitoring and reporting to the Executive Office of the President on the readiness of departments and agencies to continue their operations while protecting their workers during an influenza pandemic. DHS officials reported that in late 2006 or early 2007 they asked HSC representatives with direct responsibility for the Implementation Plan for clarification on the issue of reporting agencies' ability to continue their operations while protecting their workers during a pandemic. DHS officials said they were informed that they did not have to prepare a report. Instead, according to White House counsel representatives, the HSC planned to take on the monitoring role through its agency pandemic plan certification process. In November 2006, the HSC issued Key Elements of Departmental Pandemic Influenza Operational Plan (Key Elements), which covered areas such as dealing with the safety and health of department employees and essential functions and services and how agencies will maintain them in the event of significant and sustained absenteeism during a pandemic. The Key Elements document stated that to ensure uniform preparedness across the U.S. government, the HSC was including a request that by December 2006 the agencies certify in writing to the HSC that they were addressing applicable elements of the checklist. Subsequently, in August 2008, the HSC revised the Key Elements to reflect current federal government guidance on pandemic planning and included a request for recertification. However, the HSC's certification process, as implemented, did not provide for monitoring and reporting as envisioned in the Implementation Plan regarding agencies' abilities to continue operations in the event of a pandemic while protecting their employees. In addition, as originally envisioned in the Implementation Plan, the report was to be directed to the Executive Office of the President, with no provision in the plan for the report to be made available to the Congress. The spring 2009 outbreak of H1N1 influenza accentuates the responsibility of agencies to have pandemic plans that ensure their ability to continue operations while protecting their workers who serve the American public. As evidenced by our survey results and case studies, some agencies are not close to having operational pandemic plans, particularly at the facility level. In addition, there is no real monitoring mechanism in place to ensure that agencies' workforce pandemic plans are complete. A monitoring process should be in place that would ensure that federal agencies are making progress in developing their plans to protect their workforce in the event of a pandemic and that agencies have the information and guidance they need to develop operational pandemic plans. To address this issue, our report recommended that the HSC request that the Secretary of Homeland Security monitor and report to the Executive Office of the President on the readiness of agencies to continue their operations while protecting their workers during an influenza pandemic. The reporting should include an assessment of the agencies' progress in developing their plans including any key challenges and gaps in the plans. The request should also establish a specific time frame for reporting on these efforts. We also suggested that to help support its oversight responsibilities, the Congress may want to consider requiring DHS to report to it on agencies' progress in developing and implementing their pandemic plans, including any key challenges and gaps in the plans. The HSC commented that the report makes useful points regarding opportunities for enhanced monitoring and reporting within the executive branch concerning agencies' progress in developing plans to protect their workforce. DHS commented that our recommendations would contribute to its future efforts to ensure that government entities are well prepared for what may come next. Mr. Chairman and Members of the Subcommittee, this completes my statement. I would be pleased to respond to any questions that you might have. For further information on this testimony, please contact Bernice Steinhardt, Director, Strategic Issues, at (202) 512-6543 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Individuals making key contributions to this testimony include William J. Doherty, Assistant Director, Judith C. Kordahl, Senior Analyst, and Karin Fangman, Deputy Assistant General Counsel. 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.	As evidenced by the spring 2009 outbreak of the H1N1 virus, an influenza pandemic remains a real threat to the nation and the world and has the potential to shut down work critical to the smooth functioning of society. This testimony addresses (1) the extent to which federal agencies have made pandemic plans to protect workers who cannot work remotely and are not first responders; (2) the pandemic plans selected agencies have for certain occupations performing essential functions other than first response; and (3) the opportunities to improve agencies' workforce pandemic plans. The issues discussed in the testimony are based on the GAO report, Influenza Pandemic: Increased Agency Accountability Could Help Protect Federal Employees Serving the Public in the Event of a Pandemic ( GAO-09-404 , June 12, 2009). In this report, GAO recommended that the Homeland Security Council (HSC) request that the Department of Homeland Security (DHS) monitor and report to the Executive Office of the President on the readiness of agencies to continue operations while protecting their employees in the event of a pandemic. To help carry out its oversight role, the Congress may want to consider requiring a similar report from DHS. The HSC noted that it will give serious consideration to the findings and recommendations in the report, and DHS said the report will contribute to its efforts to ensure government entities are well prepared for what may come next. GAO surveyed the 24 agencies employing nearly all federal workers to gain an overview of governmentwide pandemic influenza preparedness efforts and found that a wide range of pandemic planning activities are under way. However, as of early 2009, several agencies reported that they were still developing their pandemic plans and their measures to protect their workforce. For example, several agencies had yet to identify essential functions during a pandemic that cannot be performed remotely. In addition, although many of the agencies' pandemic plans rely on telework to carry out their functions, five agencies reported testing their information technology capability to little or no extent. To get a more in-depth picture of agency planning, GAO selected three case study agencies that represent essential occupations other than first response that cannot be performed remotely. The three case study occupations--correctional workers, production staff disbursing federal checks, and air traffic controllers--showed differences in the degree to which their individual facilities had operational pandemic plans. For example, the Bureau of Prisons' correctional workers had only recently been required to develop pandemic plans for their correctional facilities. Nevertheless, the Bureau of Prisons has considerable experience limiting the spread of infectious disease within its correctional facilities and had also made arrangements for antiviral medications for a portion of its workers and inmates. The Department of the Treasury's Financial Management Service, which has production staff involved in disbursing federal payments such as Social Security checks, had pandemic plans for its four regional centers and had stockpiled personal protective equipment such as respirators, gloves, and hand sanitizers at the centers. Air traffic control management facilities, where air traffic controllers work, had not yet developed facility pandemic plans or incorporated pandemic plans into their all-hazards contingency plans. The Federal Aviation Administration had recently completed a study to determine the feasibility of the use of respirators by air traffic controllers and concluded that their long-term use during a pandemic appears to be impractical. There is no mechanism in place to monitor and report on agencies' progress in developing workforce pandemic plans. Under the National Strategy for Pandemic Influenza Implementation Plan, DHS was required to monitor and report on the readiness of departments and agencies to continue operations while protecting their employees during an influenza pandemic. The HSC, however, informed DHS in late 2006 or early 2007 that no specific reports on this were required to be submitted. Rather, the HSC requested that agencies certify to the council that they were addressing in their plans the applicable elements of a pandemic checklist in 2006 and again in 2008. This process did not include any assessment or reporting on the status of agency plans. Given agencies' uneven progress in developing their pandemic plans, monitoring and reporting would enhance agencies' accountability for protecting their employees in the event of a pandemic.	4,537	919
At the end of fiscal year 2007, the number of civilian and military personnel in DOD's acquisition workforce totaled over 126,000--of which civilian personnel comprised 89 percent. According to DOD, these in- house personnel represent more than 70 percent of the total federal acquisition workforce. DOD defines its acquisition workforce to include 13 career fields, based on the Defense Acquisition Workforce Improvement Act of 1990. From fiscal years 2001 to 2007, the number of civilian and military acquisition personnel in these 13 fields declined overall by 2.5 percent; however, some career fields have increased substantially, while others have shown dramatic declines. Table 1 shows the 13 fields, the number of military and civilian personnel in each of these fields in 2001 and 2007, and the percentage change between those 2 years. During this same time period, the number of contracting actions valued at over $100,000 increased by 62 percent and dollars obligated on contracts increased by 116 percent, according to DOD. Moreover, DOD has reported that the number of major defense acquisition programs has increased from 70 to 95. To augment its declining in-house acquisition workforce, DOD has relied more heavily on contractor personnel. In addition to the overall decline in its in-house acquisition workforce and an increased workload, DOD faces shifting workforce demographics and a changing strategic environment. The U.S. workforce as a whole is aging and experiencing a shift in the labor pool away from persons with science and technical degrees. According to DOD, advances in technology, such as the ability to do jobs from almost anywhere in the world, are also driving workforce changes and increasing global competition for the most highly educated and skilled personnel. To address these and other challenges-- including wars in Afghanistan and Iraq, an evolving mission to combat threats around the world, and an increased need to collaborate with both domestic and international partners--DOD has begun to establish a more centralized management framework for forecasting, recruiting, developing, and sustaining the talent pool needed to meet its national security mission. Several components in the Office of the Secretary of Defense (OSD) share policy and guidance responsibility for the workforce. The Under Secretary of Defense for Personnel and Readiness serves as the Chief Human Capital Officer for DOD--both for military and civilian personnel--and has overall responsibility for the development of the department's competency-based workforce planning and its civilian human capital strategic plan. Within the Office of Personnel and Readiness, the Office of Civilian Personnel Policy has overall responsibility for managing DOD's civilian workforce and has the lead role in developing and overseeing implementation of the plan. For example, the Implementation Report for the DOD Civilian Human Capital Strategic Plan 2006-2010 lists enterprisewide skills and competencies for 25 mission-critical occupations, which the department has begun to assess in terms of future needs, budget-based projections, and anticipated gaps. Another OSD component, AT&L, is responsible for managing DOD's acquisition workforce, including tailoring policies and guidance specific to the acquisition workforce and managing the training and certification of that workforce. As required by the National Defense Authorization Act for Fiscal Year 2008 (2008 NDAA), AT&L has drafted an addendum for the implementation report for the civilian human capital strategic plan to specifically address management and oversight of the acquisition workforce. Each military service has its own corresponding personnel and acquisition offices that develop additional service-specific guidance, and provide management and oversight of its workforce. The services have generally delegated the determination of workforce needs to the command levels and their corresponding program offices. Although each service uses a different management structure, the commands typically make overall organizational budgetary and personnel allocations, whereas the program offices identify acquisition workforce needs; make decisions regarding the civilian, military, and contractor makeup of the workforce; and provide the day-to-day management of the workforce. In addition, each service designates organizations aligned by one or more career fields to monitor and manage career paths and training, and to identify gaps in current skill sets. DOD lacks critical departmentwide information in several areas necessary to assess, manage, and oversee the acquisition workforce and help ensure it has a sufficient acquisition workforce to meet DOD's national security mission. Specifically, AT&L does not have key pieces of information regarding its in-house acquisition workforce, such as complete data on skill sets, which are needed to accurately identify its workforce gaps. In addition, it lacks information on the use and skill sets of contractor personnel performing acquisition-related functions. Omitting these data from DOD's assessments not only skews analyses of workforce gaps, but also limits DOD's ability to make informed workforce allocation decisions. Critical success factors for human capital management include collecting data on workforce competencies and skills mix, and evaluating human capital approaches--including those for acquiring and retaining talent-- for how well they support efforts to achieve program results. Such efforts, linked to strategic goals and objectives, can enable an agency to recognize, prepare, and obtain the knowledge, skills, abilities, and size for the workforce it needs to pursue its current and future missions. DOD has increasingly relied on contractors to perform core missions, but has yet to develop a workforce strategy for determining the appropriate mix of contractor and government personnel. Our prior work has noted the importance of effective human capital management to better ensure that agencies have the right staff who are doing the right jobs in the right place at the right time by making flexible use of its internal workforce and appropriate use of contractors. We have also reported that decisions regarding the use of contractors should be based on strategic planning regarding what types of work are best done by the agency or contracted out. While DOD planning documents state that the workforce should be managed from a "total force" perspective--which calls for contractor personnel to be managed along with civilian and military personnel -- DOD does not collect departmentwide data on contractor personnel. Program offices, however, do have information about contractor personnel. Data we obtained from 66 program offices show that contractor personnel comprised more than a third of those programs' acquisition- related positions (see table 2). According to MDA officials, the agency collects and uses such data in its agency-level workforce allocation processes, which in turn has helped inform staffing and resource decisions at the program office level. Because contractor personnel likely comprise a substantial part of all personnel supporting program offices, AT&L is missing information on a key segment of the department's total acquisition workforce (in-house and contractor personnel). DOD also lacks information on factors driving program offices' decisions to use contractor personnel rather than hire in-house personnel. DOD guidance for determining the workforce mix outlines the basis on which officials should make decisions regarding what type of personnel-- military, civilian, or contractor--should fill a given position. The guidance's primary emphasis is on whether the work is considered to be an inherently governmental function, not on whether it is a function that is needed to ensure institutional capacity. The guidance also states that using the least costly alternative should be an important factor when determining the workforce mix. However, of the 31 program offices that reported information about the reasons for using contractor personnel, only 1 indicated that reduced cost was a key factor in the decision to use contractor personnel rather than civilian personnel. Instead, 25 cited staffing limits, the speed of hiring, or both as main factors in their decisions to use contractor personnel. Additionally, 22 program offices cited a lack of in-house expertise as a reason for using contractor personnel, and 17 of those indicated that the particular expertise sought is generally not hired by the government. In addition, at 3 of the 4 program offices we visited, officials said that they often hire contractors because they may face limits on the number of civilian personnel they can hire, and because budgetary provisions may allow program offices to use program funds to pay for additional contractor personnel, but not for hiring civilian personnel. Program officials also cited the lengthy hiring process for civilian personnel as a reason for using contractor personnel. AT&L's lack of key pieces of information hinders its ability to determine gaps in the number and skill sets of acquisition personnel needed to meet DOD's current and future missions. At a fundamental level, workforce gaps are determined by comparing the number and skill sets of the personnel that an organization has with what it needs. However, AT&L lacks information on both what it has and what it needs. With regard to information on the personnel it has, AT&L not only lacks information on contractor personnel, but it also lacks complete information on the skill sets of the current acquisition workforce and whether these skill sets are sufficient to accomplish its missions. AT&L is currently conducting a competency assessment to identify the skill sets of its current acquisition workforce. While this assessment will provide useful information regarding the skill sets of the current in-house acquisition workforce, it is not designed to determine the size, composition, and skill sets of an acquisition workforce needed to meet the department's missions. AT&L also lacks complete information on the acquisition workforce needed to meet DOD's mission. The personnel numbers that AT&L uses to reflect needs are derived from the budget. Because these personnel numbers are constrained by the size of the budget, they likely do not reflect the full needs of acquisition programs. Of the 66 program offices that provided data to us, 13 reported that their authorized personnel levels are lower than those they requested. In a report on DOD's workforce management, RAND noted that the mismatch between needs and available resources means that managers have an incentive to focus on managing the budget process instead of identifying the resources needed to fulfill the mission and then allocating resources within the constraints of the budget. AT&L has begun to respond to recent legislative requirements aimed at improving DOD's management and oversight of its acquisition workforce, including developing data, tools, and processes to more fully assess and monitor its acquisition workforce. Each service has also recently initiated, to varying degrees, additional efforts to assess its own workforce at the service level. Some recent DOD efforts aimed at improving the broader workforce may also provide information to support AT&L's acquisition workforce efforts. While it is too early to determine the extent to which these efforts will improve the department's management and oversight, the lack of information on contractor personnel raises concerns about whether AT&L will have the information it needs to adequately assess, manage, and oversee the total acquisition workforce. As required by the 2008 NDAA, AT&L plans to issue an addendum to the Implementation Report for the DOD Civilian Human Capital Strategic Plan 2006-2010. According to DOD, this addendum will lay out AT&L's strategy for managing and overseeing the acquisition workforce. The addendum is to provide an analysis of the status of the civilian acquisition workforce and discuss AT&L's efforts for implementing the Acquisition Workforce Development Fund, which the 2008 NDAA required DOD to establish and fund. AT&L has focused its implementation efforts in three key areas: (1) recruiting and hiring, (2) training and development, and (3) retention and recognition. AT&L has established a steering board responsible for oversight on all aspects of the fund, including the approval of the use of funds for each proposed initiative. In addition to the addendum to the implementation report, AT&L created its own human capital plan in an effort to integrate competencies, training, processes, tools, policy, and structure for improving the acquisition workforce. AT&L has also developed some tools and begun initiatives designed to help with its management of the acquisition workforce, such as its competency assessment that is scheduled to be completed in March 2010. AT&L recently established the Defense Acquisition Workforce Joint Assessment Team tasked with assessing and making recommendations regarding component workforce size, total force mix, future funding levels, and other significant workforce issues. According to an AT&L official, the team will also develop an estimate of the acquisition workforce needed to meet the department's mission that is unconstrained by the budget. Table 3 provides a brief description of AT&L's recent efforts. Each service has also begun to take a more focused look at its acquisition workforce by developing service-specific acquisition workforce plans and designating leads tasked with monitoring career paths and training, and identifying gaps in current skill sets. For example, responsibility for different aspects of the Navy's acquisition workforce has recently been distributed among a number of corporate-level offices--such as Manpower and Reserve Affairs; Research, Development, and Acquisition; and Manpower, Personnel, Training, and Education. To illustrate, Research, Development, and Acquisition will develop and maintain acquisition strategic guidance and provide management oversight of the capabilities of the Navy's acquisition workforce. Table 4 provides examples of service-level workforce initiatives. In addition to the AT&L and service-level initiatives, some DOD efforts aimed at improving the broader workforce may provide information that can assist AT&L in assessing, managing, and overseeing the acquisition workforce. Some promising initiatives include the following: The Office of Civilian Personnel Policy recently established a Civilian Workforce Capability and Readiness Program, and in November 2008 officially established a corresponding program management office tasked with monitoring overall civilian workforce trends and conducting competency assessments and gap analyses. DOD, through its components, is developing an annual inventory of contracts for services performed in the preceding fiscal year. This inventory is required to include, among other things, information identifying the missions and functions performed by contractors, the number of full-time contractor personnel equivalents that were paid for performance of the activity, and the funding source for the contracted work. The Army issued its first inventory, which determined the equivalent number of contractor personnel it used in fiscal year 2007 based on the number of hours of work paid for under its service contracts. DOD has issued guidance directing programs to consider using DOD civilian personnel to perform new functions or functions currently performed by contractor personnel in cases where those functions could be performed by DOD civilian personnel. The guidance also requires that DOD civilian personnel be given special consideration to perform certain categories of functions, including functions performed by DOD civilian personnel at any time during the previous 10 years and those closely associated with the performance of an inherently governmental function. When the inventory of contracts for services is completed, DOD is mandated by the 2008 NDAA to use the inventory as a tool to identify functions currently performed by contractor personnel that could be performed by DOD civilian personnel. DOD is developing additional guidance and a tool to assist in developing cost comparisons for evaluating the use of in-house personnel rather than contractor personnel. These initiatives have the potential to enhance DOD's acquisition workforce management practices and oversight activities. However, these efforts may not provide the comprehensive information DOD needs to manage and oversee its acquisition workforce. For example, although the Army has issued its first inventory of its service contracts, inventories for all DOD components are not scheduled to be completed before June 2011. Further, as currently planned, the inventory will not include information on the skill sets and functions of contractor personnel. As DOD continues to develop and implement departmentwide initiatives aimed at providing better oversight of the acquisition workforce, some of the practices employed by leading organizations for managing their workforces could provide insights for DOD's efforts. These practices include: identifying gaps in the current workforce by assessing the overall competencies needed to achieve business objectives, compared to current competencies; establishing mechanisms to track and evaluate the effectiveness of initiatives to close workforce gaps; taking a strategic approach in deciding when and how to use contractor personnel to supplement the workforce; and tracking and analyzing data on contractor personnel. We have previously reported many of these practices as critical factors for providing good strategic human capital management. The leading organizations we reviewed develop gap analyses and workforce plans from estimates of the number and composition of personnel with specific workforce competencies needed to achieve the organization's objectives. For example, Lockheed Martin assesses the skill mix needed to fulfill future work orders and compares this with the firm's current skill mix to identify potential workforce gaps. An official at Lockheed Martin said one such assessment indicated that the company needed skill sets different from those needed in the past because it is receiving more proposals for logistics work associated with support and delivery contracts, rather than its traditional system development work. Table 5 provides examples of how companies we reviewed link workforce assessments to their organizational objectives. These leading organizations also assess their efforts to close workforce gaps by tracking data on specific recruiting and retention metrics. For example, Microsoft assesses the quality of its new hires based on the performance ratings and retention for their first 2 years with the company. According to a company official, this allows Microsoft to compare the results of using its different hiring sources, such as college recruiting and other entry-level hiring methods. Similarly, Deloitte uses performance ratings, retention data, and employee satisfaction surveys to help determine a return on investment from its college recruiting efforts and to identify schools that tend to supply high-quality talent that the company is able to retain. Table 6 provides examples of recruiting and retention metrics used by the companies we reviewed. In addition to tracking data on metrics, Deloitte uses quantitative models that analyze workforce demographics and other factors to predict actions of job candidates and employees. Data from such metrics and models can be used to inform other workforce decisions and focus limited resources for use where the greatest benefit is expected. Finally, the companies we reviewed take a strategic approach to determining when to use contractor support. Officials from Deloitte, General Electric, and Rolls Royce said they generally use contractors to facilitate flexibility and meet peak work demands without hiring additional, permanent, full-time employees. Some of the companies also place limits on their use of contractor employees. General Electric, for example, uses contractor personnel for temporary support and generally limits their use for a given operation to 1 year in order to prevent the use of temporary personnel to fill ongoing or permanent roles. Additionally, General Electric and Lockheed Martin limit the use of contractor personnel to noncore functions. An official from General Electric said that it rarely outsources essential, sophisticated, or strategic functions, or large components of its business. Likewise, Lockheed Martin does not outsource capabilities that are seen as discriminators that set the company apart from its market competitors. Deloitte, General Electric, Lockheed Martin, and Microsoft also maintain and analyze data on their contractor employees in order to mitigate risks, ensure compliance with in-house regulations and security requirements, or to ensure that reliance on contractor support creates value for the company. An official at Deloitte noted, for example, that if work involving contractor support continues for an extended period, the business unit might be advised to request additional full-time employee positions in its next planning cycle or streamline its process to eliminate the need for contractor support. At Rolls Royce, an official told us that one unit uses an algorithm to determine the percentage of work being outsourced by computing the number of full-time-equivalent personnel needed to complete the same level of work performed through outsourcing. This information is important because of the cost of outsourcing. According to the company official, outsourcing may be more costly--all other factors being equal--because of the profit consideration for the contractor. As a result, outsourcing decisions can become a trade-off between multiple factors, such as cost, quality, capacity, capability, and speed. Major shifts in workforce demographics and a changing strategic environment present significant challenges for DOD in assessing and overseeing an acquisition workforce that has the capacity to acquire needed goods and services, as well as monitor the work of contractors. While recent and planned actions of AT&L and other DOD components could help DOD address many of these challenges, the department has yet to determine the acquisition workforce that it needs to fulfill its mission or develop information about contractor personnel. While DOD has begun to estimate the number of full-time-equivalent contractor personnel through its inventory of contracts for services, this effort will not identify the skill sets and functions of contractor personnel performing acquisition-related work or the length of time for which they are used. At the same time, DOD lacks guidance on the appropriate circumstances under which contractor personnel may perform acquisition work. Without such guidance, DOD runs the risk of not maintaining sufficient institutional capacity to perform its missions. Until DOD maintains detailed departmentwide information on its contractor personnel performing acquisition-related work, it will continue to have insufficient information regarding the composition, range of skills, and the functions performed by this key component of the acquisition workforce. Without this information upon which to act, the department runs the risk of not having the right number and appropriate mix of civilian, military, and contractor personnel it needs to accomplish its missions. To better ensure that DOD's acquisition workforce is the right size with the right skills and that the department is making the best use of its resources, we recommend that the Secretary of Defense take the following four actions: Collect and track data on contractor personnel who supplement the acquisition workforce--including their functions performed, skill sets, and length of service--and conduct analyses using these data to inform acquisition workforce decisions regarding the appropriate number and mix of civilian, military, and contractor personnel the department needs. Identify and update on an ongoing basis the number and skill sets of the total acquisition workforce--including civilian, military, and contractor personnel--that the department needs to fulfill its mission. DOD should use this information to better inform its resource allocation decisions. Review and revise the criteria and guidance for using contractor personnel to clarify under what circumstances and the extent to which it is appropriate to use contractor personnel to perform acquisition- related functions. Develop a tracking mechanism to determine whether the guidance has been appropriately implemented across the department. The tracking mechanism should collect information on the reasons contractor personnel are being used, such as whether they were used because of civilian staffing limits, civilian hiring time frames, a lack of in-house expertise, budgetary provisions, cost, or other reasons. DOD provided written comments on a draft of this report. DOD concurred with three recommendations and partially concurred with one recommendation. DOD's comments appear in appendix I. DOD also provided technical comments on the draft report which we incorporated as appropriate. DOD partially concurred with the draft recommendation to collect and track data on contractor personnel to inform the department's acquisition workforce decisions. DOD stated that it agrees that information on contractor personnel supporting the acquisition mission is necessary for improved acquisition workforce planning, especially with regard to the number and the acquisition functions performed. The department also noted that establishing a contractual requirement to capture more detailed workforce information, such as skill sets and length of service of contractor personnel, needs to be carefully considered. We agree that the manner in which data on contractor personnel are to be collected should be carefully considered. We continue to believe that comprehensive data on contractor personnel are needed to accurately identify the department's acquisition workforce gaps and inform its decisions on the appropriate mix of in-house or contractor personnel. DOD concurred with our recommendation to identify and update on an ongoing basis the number and skill sets of the total acquisition workforce that it needs to fulfill its mission and stated that it has an ongoing effort to accomplish this. DOD states that its ongoing efforts will address this recommendation; however, the efforts cited in its response improve DOD's information only on its in-house acquisition workforce and do not identify the total acquisition workforce, including contractor personnel, the department needs to meet its missions. We revised the recommendation to clarify that DOD's acquisition workforce management and oversight should encompass contractor as well as civilian and military personnel. DOD also concurred with our recommendations to revise the criteria and guidance for using contractor personnel to perform acquisition-related functions, and to develop a tracking mechanism to determine whether the revised guidance is being appropriately implemented across the department. We are sending copies of this report to the Secretary of Defense. The report is also 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) 512-5274 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, Katherine V. Schinasi, Managing Director; Ann Calvaresi-Barr, Director; Carol Dawn Petersen, Assistant Director; Ruth "Eli" DeVan; Kristine Heuwinkel; Victoria Klepacz; John Krump; Teague Lyons; Andrew H. Redd; Ron Schwenn; Karen Sloan; Brian Smith; Angela D. Thomas; and Adam Yu made key contributions to this report. Human Capital: Opportunities Exist to Build on Recent Progress to Strengthen DOD's Civilian Human Capital Strategic Plan. GAO-09-235. Washington, D.C.: February 10, 2009. High Risk Series: An Update. GAO-09-271. Washington, D.C.: January 2009. Department of Homeland Security: A Strategic Approach Is Needed to Better Ensure the Acquisition Workforce Can Meet Mission Needs. GAO-09-30. Washington, D.C.: November 19, 2008. Human Capital: Transforming Federal Recruiting and Hiring Efforts. GAO-08-762T. Washington, D.C.: May 8, 2008. Defense Contracting: Army Case Study Delineates Concerns with Use of Contractors as Contract Specialists. GAO-08-360. Washington, D.C.: March 26, 2008. Defense Management: DOD Needs to Reexamine Its Extensive Reliance on Contractors and Continue to Improve Management and Oversight. GAO-08-572T. Washington, D.C.: March 11, 2008. Federal Acquisition: Oversight Plan Needed to Help Implement Acquisition Advisory Panel's Recommendations. GAO-08-515T. Washington, D.C.: February 27, 2008. The Department of Defense's Civilian Human Capital Strategic Plan Does Not Meet Most Statutory Requirements. GAO-08-439R. Washington, D.C.: February 6, 2008. Defense Acquisitions: DOD's Increased Reliance on Service Contractors Exacerbates Long-standing Challenges. GAO-08-621T. Washington, D.C.: January 23, 2008. Department of Homeland Security: Improved Assessment and Oversight Needed to Manage Risk of Contracting for Selected Services. GAO-07-990. Washington, D.C.: September 17, 2007. Federal Acquisitions and Contracting: Systemic Challenges Need Attention. GAO-07-1098T. Washington, D.C.: July 17, 2007. Defense Acquisitions: Improved Management and Oversight Needed to Better Control DOD's Acquisition of Services. GAO-07-832T. Washington, D.C.: May 10, 2007. Highlights of a GAO Forum: Federal Acquisition Challenges and Opportunities in the 21st Century. GAO-07-45SP. Washington, D.C.: October 2006. Framework for Assessing the Acquisition Function At Federal Agencies. GAO-05-218G. Washington, D.C.: September 2005. A Model of Strategic Human Capital Management. GAO-02-373SP. Washington, D.C.: March 15, 2002.	Since 2001, the Department of Defense's (DOD) spending on goods and services has more than doubled to $388 billion in 2008, while the number of civilian and military acquisition personnel has remained relatively stable. To augment its in-house workforce, DOD relies heavily on contractor personnel. If it does not maintain an adequate workforce, DOD places its billion-dollar acquisitions at an increased risk of poor outcomes and vulnerability to fraud, waste, and abuse. GAO was asked to (1) assess DOD's ability to determine whether it has a sufficient acquisition workforce, (2) assess DOD initiatives to improve the management and oversight of its acquisition workforce, and (3) discuss practices of leading organizations that could provide insights for DOD's acquisition workforce oversight. To do this, GAO analyzed key DOD studies, obtained data from 66 major weapon system program offices across DOD, and interviewed officials from 4 program offices. GAO also met with representatives from six companies recognized as leaders in workforce management. DOD lacks critical departmentwide information to ensure its acquisition workforce is sufficient to meet its national security mission. First, in its acquisition workforce assessments, DOD does not collect or track information on contractor personnel, despite their being a key segment of the total acquisition workforce. DOD also lacks information on why contractor personnel are used, which limits its ability to determine whether decisions to use contractors to augment the in-house acquisition workforce are appropriate. GAO found that program office decisions to use contractor personnel are often driven by factors such as quicker hiring time frames and civilian staffing limits, rather than by the skills needed or the nature or criticality of the work. Second, DOD's lack of key pieces of information limits its ability to determine gaps in the acquisition workforce it needs to meet current and future missions. For example, DOD lacks information on the use and skill sets of contractor personnel, and lacks complete information on the skill sets of its in-house personnel. Omitting data on contractor personnel and needed skills from DOD's workforce assessments not only skews analyses of workforce gaps, but also limits DOD's ability to make informed workforce allocation decisions and determine whether the total acquisition workforce--in-house and contractor personnel--is sufficient to accomplish its mission. DOD has initiated several recent actions aimed at improving the management and oversight of its acquisition workforce. For example, DOD is developing a plan for managing the civilian acquisition workforce and is establishing practices for overseeing additional hiring, recruiting, and retention activities. It has also taken actions to develop some of the data and tools necessary to monitor the acquisition workforce, such as a competency assessment scheduled to be completed in March 2010. Each military service and agency has also begun, to varying degrees, efforts to assess its workforce at the service level. In addition, some efforts aimed at improving DOD's overall workforce may also provide additional information to support acquisition workforce efforts. However, these initiatives may not provide the comprehensive information DOD needs to manage and oversee its acquisition workforce. To manage their workforces, the leading organizations GAO reviewed (1) identify gaps in their current workforces by assessing the overall competencies needed to achieve business objectives; (2) establish mechanisms to track and evaluate the effectiveness of their initiatives to close these gaps; (3) take a strategic approach in deciding when to use contractor personnel to supplement the workforce, such as limiting the use of contractor personnel to performing noncore-business functions and meeting surges in work demands; and (4) track and analyze data on contractor personnel. These practices could provide insights to DOD as it moves forward with its acquisition workforce initiatives.	5,820	752
The Tariff Act of 1930, as amended, generally requires imported articles--such as clothing, appliances, and canned and frozen goods--to be marked by country of origin. Under the statute, however, certain articles, including fresh produce, are not required to be marked individually. For these items, the container holding the article must be marked by the country of origin. U.S. Customs Service rulings provide that when fresh produce is taken out of its container and put into an open bin or display rack, there is no obligation to identify the items by the country of origin. Three states--Florida, Maine, and Texas--have enacted country-of-origin labeling laws for fresh produce. Florida requires all imported fresh produce to be identified by the country-of-origin by, for example, marking each produce item or placing a sign or label adjacent to the bin. Maine requires country-of-origin labeling for fresh produce at the retail level when it has been imported from countries identified as having specific pesticide violations. Texas requires country-of-origin labeling for fresh grapefruit. In addition, labeling laws for fresh produce have been proposed in at least five other states: California, Connecticut, Oregon, Rhode Island, and Virginia. Most large grocery stores carry over 200 produce items. Fresh produce is often imported to fill seasonal needs when U.S. production is not sufficient to cover demand or to satisfy the demand for tropical fruits not normally grown in the United States. Two-thirds of imported fresh produce arrives between December and April, when U.S. production is low and limited to the southern portions of the country. The majority of these imports are warm-season vegetables like peppers, squash, and cucumbers, although some imports, such as tomatoes, occur year round. Total U.S. consumption of fresh produce has increased 43 percent since 1980, from about 56 billion pounds to nearly 80 billion pounds in 1997, the latest year for which the U.S. Department of Agriculture (USDA) has compiled such data. During this same period, the amount of fresh produce the United States imported more than doubled--from 7.5 billion pounds to 16 billion pounds. The domestic share increased by one third--from about 48 billion to about 64 billion pounds. In 1997, most imported produce came from Mexico, Canada, and Chile, as shown in figure 1. The United States is also the world's largest exporter of fresh produce, valued at $2.9 billion in 1998. Three-fourths of exported U.S. produce goes to Canada, the European Union, Japan, Hong Kong, and Mexico. Complying with mandatory country-of-origin labeling for fresh produce could change the way retailers and others involved in the production and distribution of produce do business, thereby affecting their costs and consumers' choices. Furthermore, such a law could be difficult to enforce. The fresh produce industry and retailers will have to incur costs to comply with a mandatory country-of-origin labeling law. The additional efforts and associated costs for compliance would depend on the specific requirements of the law and the extent to which current practices would have to be changed. For example, some produce is already labeled with a brand sticker. In these cases, compliance would require adding the name of the country to the sticker. For unlabeled produce, the additional effort would be more significant. Associations we spoke with representing grocery retailers are particularly concerned that a labeling law would be unduly burdensome for a number of reasons. First, retailers would have to display the same produce items from different countries separately if each individual item is not marked, which in some cases would result in only partially filled bins. According to these retailers, consumers are less likely to buy from such bins because they are less appealing, causing the retailers to lose sales. Second, retailers report that they do not have sufficient display space to separate produce and still stock all the different varieties consumers want. Large grocery stores usually carry over 200 produce items. Third, because the country of origin of retailers' produce shipments may vary each week, retailers would incur costs to change store signs and labels to reflect the origins of the different shipments. According to the Food Marketing Institute, an association representing grocery retailers, it would take about 2 staff hours per store per week to ensure that imported produce is properly labeled. Costs would also be incurred if retailers were required to maintain paperwork at each store as evidence of the origin of these multiple shipments. Florida does not require its retail stores to maintain paperwork documenting the country of origin. It is unclear who would bear the burden of compliance. A law requiring retailers to ensure that produce is properly labeled would initially place at least some of the compliance costs on retailers. However, retailers would not necessarily bear all these costs. Retailers could raise prices to pass their costs to consumers. However, if consumers reduce their purchases of fresh produce in response, retailers will absorb part of the cost through lower sales volume. For produce that does not have close substitutes, and for which consumer demand is relatively insensitive to price changes, retailers are likely to be more successful in passing costs on to consumers through price increases without experiencing significant declines in sales volume. Retailers may decide to require their suppliers to either package produce or label individual produce items. If retailers can impose this requirement without paying more for the same quantity and quality, they will have shifted the labeling costs to their suppliers. Consumer responses may also influence the eventual effect of a country-of-origin law. If consumers prefer domestic produce, they may buy more domestic and less imported produce, which would allow domestic producers to gain market share and/or raise their prices. However, if foreign countries respond by imposing their own labeling requirements, and if this resulted in foreign consumers' buying less U.S. produce, then U.S. exports could suffer. It is also possible that a country-of-origin labeling requirement would result in fewer choices for consumers. This would occur if retailers decide to stock more prepackaged produce, which would already be labeled, and fewer bulk items, which would have to be labeled. Furthermore, if a law required labeling for imported produce only, retailers could decide to stock fewer imported produce items in order to avoid the compliance burden. An additional cost would be borne by restaurants and other food service providers if the labeling law applies to them. They would have to let their customers know the country of origin of the produce they use, which could involve, for example, changing information on menus each time the source of the produce changed. According to the National Restaurant Association, the cost of changing menus would be "prohibitive." According to Food and Drug Administration (FDA) and USDA officials we spoke with, enforcing a labeling law would require significant additional resources. The agency enforcing such a law would have to implement a system to ensure that the identity of produce is maintained throughout the distribution chain. While inspectors could ensure that retailers have signs or labels in place and could review documentation--if it were available--they might not be able to determine from a visual inspection that produce in a particular bin was from the country designated on the sign or label. Such documentation is often unavailable at the retail store. It is also unclear who would be responsible for these inspections. Grocery store inspections for compliance with federal health and safety laws are now generally conducted by state and local officials, often under memorandums of understanding with the Food and Drug Administration. USDA officials pointed out that if state and local governments were to carry out the inspections required by a federal country-of-origin labeling law, such a law would have to specify the states' enforcement role and provide funding for enforcement activities. In commenting on a Senate amendment to the fiscal year 1999 appropriations bill regarding country-of-origin labeling, FDA expressed "reservations about its priority as a public health issue, its cost to administer, and [FDA's] ability to enforce it." FDA further noted that the cost of enforcement "would be significant," and "it is unclear that enforcement would even be possible." Among other enforcement problems, FDA cited the need for accompanying paperwork to verify country-of-origin labels and said this would place "an enormous burden" on industry. FDA estimated that the federal cost for 1-year's monitoring under this proposed amendment would be about $56 million. The three states that have labeling laws vary in their degree of enforcement. In Florida, which has a mandatory labeling law for all imported produce, enforcement occurs during the course of routine state health inspections that are conducted about twice each year in every store. During the routine inspections, officials check the shipping boxes and packages in the store against the display signs or labels--a task they estimate requires about 15 minutes per visit. However, they said they sometimes have no reliable means to verify the accuracy of these signs and labels. When violations are found, Florida officials said that it takes 5 minutes to process paperwork for new violations and 30 minutes for repeat violations. Figure 2 shows produce labeled in Florida grocery stores. According to the Inspection Manager for Maine's Department of Agriculture, Maine does not enforce its country-of-origin labeling requirements because the list of countries to be identified keeps changing and paperwork to verify the country of origin is often unavailable. In Texas, the labeling law applies only to grapefruit. According to a Texas Department of Agriculture official, grapefruit is rarely imported into Texas, and the labeling law is not currently being enforced. Depending on what it might require and how it might be implemented, a law mandating country-of-origin labeling for fresh produce could have adverse trade implications. U.S. trading partners might challenge the law's consistency with international trade obligations or take steps to increase their own country-of-origin labeling requirements. Moreover, according to USDA officials, enacting a labeling law could make it more difficult for the United States to oppose foreign countries' labeling requirements that it finds objectionable. Any labeling law would need to be consistent with U.S. international trade obligations in order to withstand potential challenges from U.S. trading partners. International trade rules that the United States has agreed to, such as those embodied in the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA), permit country-of-origin labeling. For example, WTO provisions recognize the need to protect consumers from inaccurate information while minimizing the difficulties and inconveniences labeling measures may cause to commerce. WTO rules require, among other things, that the labeling of imported products must not result in serious damage to the product, a material reduction in its value, or an unreasonable increase in its cost. Correspondence from the Office of the U.S. Trade Representative (USTR) stated that our trading partners could raise concerns that country-of-origin labeling requirements adversely affect their exports by raising costs. Similarly, NAFTA requires that any country-of-origin marking requirement must be applied in a manner that would minimize difficulties, costs, and inconveniences to a country's commerce. USTR and Department of State officials stated that Mexico requested consultations to discuss its concerns that one recently proposed U.S. country-of-origin labeling bill would violate certain NAFTA provisions on country-of-origin marking. USDA officials and food industry representatives expressed concern that mandatory country-of-origin labeling at the retail level could be viewed as a trade barrier and might lead to actions that could hurt U.S. exports. For example, a country currently exporting produce to the United States may be concerned about additional costs if its exporters are required to label loose produce. Such a country could respond by enacting or more strictly enforcing retail labeling laws that could hinder U.S. exports. The officials were also concerned that adopting mandatory country-of-origin labeling at the retail level could complicate U.S. efforts to address other countries' labeling laws that the United States found objectionable. According to USDA officials, the United States has opposed certain country-of-origin labeling in other countries for various reasons, including concerns about the potential of those laws to raise the costs of U.S. exports and discourage consumers from purchasing imported goods. While U.S. representatives have worked informally and cooperatively to oppose certain foreign country-of-origin labeling requirements, the United States has not formally challenged any such requirements within the WTO. WTO officials said they were unaware of any formal challenges to any country's country-of-origin labeling requirement. However, USDA and WTO officials agreed that the absence of any formal challenge does not necessarily indicate that existing country-of-origin labeling requirements are consistent with WTO rules. Moreover, the absence of formal challenges to existing laws does not preclude these laws from being challenged in the future. Finally, because the United States is such a large importer and exporter of fresh produce, officials with USDA and the Department of State pointed out that a U.S. labeling law is more likely to be formally challenged than are other countries' laws. In February and March 1999, we surveyed U.S. embassy agricultural attaches in 45 countries with which the United States exports and imports agricultural products to determine which countries have and enforce country-of-origin labeling requirements for fresh produce at the retail level. Our survey included 28 countries that account for most of the U.S. produce imports and exports and 17 countries that USDA identified as having produce labeling requirements. Of the 28 countries, 13 (46 percent) require country-of-origin labeling for bulk produce at the retail level, and 15 require such labeling for packaged produce. Attaches in these countries reported the countries with requirements generally have a high level of compliance and moderate to high levels of enforcement.Appendix I identifies the U.S. trading partners that require country-of-origin labeling for fresh produce and the scope of their requirements. Considerable time--several weeks or months--generally passes between the outbreak of a produce-related illness, the identification of the cause, and a warning to the public about the risks of eating a specific produce item, according to the Centers for Disease Control and Prevention (CDC) and FDA officials. By the time a warning is issued, country-of-origin labeling would benefit consumers only if they remembered the country of origin or still had the produce, or if the produce were still in the store. Consequently, country-of-origin labeling would be of limited value in helping consumers respond to a warning of an outbreak. Several factors contribute to the delays in identifying causes of foodborne illness, including how quickly consumers become ill after purchasing and eating the food and whether they seek medical attention. State and local agencies report known or suspected foodborne illnesses to CDC, which uses this information to identify patterns of related illnesses--outbreaks--and to work with state, local, and FDA officials to identify the source. Once the source is identified, state and local public health officials generally issue a warning to the public if the product is still available in the marketplace. In most cases of foodborne illness, however, officials are not able to identify the specific point at which the food associated with the outbreak became contaminated. Between 1990 and 1998, CDC identified 98 outbreaks of foodborne illnesses linked to fresh produce. In 86 of these cases, the point of contamination was never identified. The remaining 12 cases were traced to contamination in food handling and to seed that was contaminated. Appendix II provides information on outbreaks of illnesses related to contaminated fresh produce since 1990. Because of the time needed to identify the cause of an outbreak, country-of-origin labeling would not generally be useful in preventing more consumers from becoming ill. For example, when cyclospora-contaminated raspberries from Guatemala caused outbreaks of illnesses in 1996 and 1997, many individuals did not become ill until a week or more after they ate the fruit. CDC officials said that country-of-origin labeling might be a starting point in tracing the source of contamination if a person who had eaten a contaminated product remembered the source for that product. However, they said that more detailed information identifying every step from farm to table--for both domestically grown and imported produce--would be of greater use in tracing the source of an outbreak and identifying the practices that resulted in the contamination. Identifying such practices may enable officials to devise control measures that could be used throughout the industry to decrease the potential for additional illnesses. CDC officials also pointed out that a country-of-origin labeling law would be more useful to them if it required retailers to keep better records, including invoices and shipping documents. Such records would allow investigators to identify the source of produce that was in grocery stores at a particular time in the past. Finally, FDA and CDC officials observed that a law exempting food service establishments from country-of-origin labeling would be of limited value because many identified outbreaks have been traced to food served in restaurants or at catered meals. U.S. consumers are eating more meals, including more fresh produce, outside the home. Indeed, a significant portion of the illnesses that were traced to Guatemalan raspberries were contracted from meals eaten outside the home. Surveys representing households nationwide, sponsored by the produce industry between 1990 and 1998, showed that between 74 and 83 percent of consumers favor mandatory country-of-origin labeling for fresh produce at the retail level. However, when asked to rate the importance of several types of labeling information, households reported information on freshness as most important, followed by information on nutrition, storage and handling, and preparation tips. Information on country-of-origin was ranked fifth, as shown in figure 3. In addition, most consumers would prefer to buy U.S. produce if all other factors--price, taste and appearance--were equal. And, about half of all consumers would be willing to pay "a little more to get U.S. produce."However, the survey did not specify the additional amount that consumers would be willing to pay. Furthermore, according to a 1998 industry-sponsored nationwide survey, 70 percent of consumers believe that domestically grown produce is safer. In the same survey, about half of consumers reported having concerns about health and safety and growing conditions, and about one-third had concerns with cleanliness and handling when buying imported produce. Despite these concerns, officials with USDA, CDC, and FDA, told us that sufficient data are not available to compare the safety of domestic and imported produce. However, CDC officials told us that, in the absence of specific food production controls, the potential for contaminated produce increases where poor sanitary conditions and polluted water are more prevalent. In addition, Consumers Union--a nationally recognized consumer group--used data collected by USDA's Agricultural Marketing Service to compare the extent to which multiple pesticide residues were found in selected domestic and imported fresh produce. For its analysis, Consumers Union developed a toxicity index, which it used to compare the pesticide residues. According to this analysis, pesticide residues on imported peaches, winter squash, apples, and green beans had lower toxicity levels than those found on their domestically grown counterparts. In contrast, the pesticide residues on domestically grown tomatoes and grapes were less toxic than their imported counterparts. The study acknowledges that almost all of the pesticide residues on the samples were within the tolerance levels allowed by the Environmental Protection Agency (EPA). We did not independently determine the validity of the toxicity index developed by Consumers Union or verify its analysis or results. However, according to FDA officials, pesticide residues present a lower health risk than the disease-causing bacteria that can be found on food. We provided the departments of Agriculture and State, Office of the U.S. Trade Representative, CDC, U.S. Customs Service, EPA, and FDA with a draft of this report for their review and comment. These agencies generally agreed with the facts presented in the report and provided technical comments, which we incorporated as appropriate. Officials commenting on the report included the Deputy Administrator, Fruit and Vegetable Programs, Agricultural Marketing Service, USDA; the Economic/Commercial Officer in the Agricultural Trade Policy Division, Department of State; the Director of Agricultural Affairs and Technical Barriers to Trade, Office of the U.S. Trade Representative; the Director of Food Safety Initiative Activities, Division of Bacterial and Mycotic Diseases, National Center for Infectious Diseases, CDC; a Senior Attorney, Office of Regulations and Rulings, U.S. Customs Service; the Interim Associate Commissioner for Legislative Affairs, FDA. We performed our review from November 1998 through March 1999 in accordance with generally accepted government auditing standards. Our scope and methodology are discussed in appendix III. Copies of this report will be sent to Senator Richard Lugar, Chairman, and Senator Tom Harkin, Ranking Minority Member, Senate Committee on Agriculture, Nutrition, and Forestry; and Representative Larry Combest, Chairman, and Representative Charles Stenholm, Ranking Minority Member, House Committee on Agriculture. We are also sending copies to the Honorable Dan Glickman, Secretary of Agriculture; the Honorable Madeleine Korbel Albright, Secretary of State; the Honorable Jane Henney, M.D., Commissioner, Food and Drug Administration; the Honorable Jeffrey P. Koplan, M.D., Director, Centers for Disease Control and Prevention; the Honorable Raymond W. Kelly, Commissioner of the U.S. Customs Service; the Honorable Jacob J. Lew, Office of Management and Budget; and Ambassador Charlene Barshefsky, the U.S. Trade Representative. We will also make copies available to others upon request. If you would like more information on this report, please contact me at (202) 512-5138. Major contributors to this report are listed in appendix IV. This appendix identifies the U.S. trading partners that have country-of-origin labeling requirements for fresh produce at the retail level, the nature and scope of these requirements, and the record of U.S. challenges to those requirements. Table I.1 identifies U.S. trading partner countries, their requirements for loose or packaged fresh produce to be labeled at the retail level, and the degree of compliance and enforcement with those requirements. This information is based on our survey of U.S. agricultural attaches for 45 countries. Of the 45 countries, 28 account for most of U.S. trade in produce. We also surveyed the 17 countries that were not among the largest produce trading partners but were identified in the Foreign Agricultural Service's 1998 Foreign Country of Origin Labeling Survey as having produce labeling requirements. As the table indicates, 13 of the 28 major produce trading partners require country-of-origin labeling for loose produce at the retail level, and 15 require labeling for packaged produce. Attaches reported that these countries generally have a high level of compliance and a moderate to high level of enforcement. Officials of the World Trade Organization, the departments of Agriculture and State, the Office of the U.S. Trade Representative, and U.S. agricultural attaches were not able to identify any formal U.S. challenges to country-of-origin labeling requirements for fresh produce. Table I.1: Trading Partner Countries' Requirements for Country-Of-Origin Labeling of Fresh Produce at the Retail Level (continued) (Table notes on next page) Agricultural attaches were uncertain about this information. Table II.1 provides information on the 98 outbreaks of produce-related illnesses that were identified between 1990 and 1998 by the Centers for Disease Control and Prevention (CDC). Contamination may occur when fresh produce is grown, harvested, washed, sorted, packed, transported, or prepared. As the table shows, food safety officials could not identify the source of the contamination in 86 of these cases. Food safety experts believe that there is not sufficient information to assess the relative safety of fresh produce from the United States and foreign countries. Salmonella Senftenberg Contaminated seed. Salmonella Oranienberg Unknown. Unknown. Cabbage (cole slaw) Unknown; field contamination suspected. Unknown. United States or Canada Cabbage (cole slaw) Unknown; field contamination suspected. Contaminated seed. Contaminated seed. Unknown; wash water or ice for packing suspected. Unknown; cross contamination by food handlers suspected. United States (Idaho) Contaminated seed. United States (Kansas and Missouri) Contaminated seed. Cyclospora cayetanensis Unknown; nonpotable water may have been used in pesticide spray mix. Mesclun lettuce (baby lettuce) Cyclospora cayetanensis Unknown. Cyclospora cayetanensis Unknown. Unknown; food handler suspected. Cross contamination from turkey. (continued) Unavailable. Contaminated seed. Unknown. Cyclospora cayetanensis Unknown; nonpotable water may have been used in pesticide spray mix. E. coli O157:H7 (baby lettuce mix) Unknown; contamination in the field suspected. Unavailable. Unavailable. Unavailable. Unavailable. Unavailable. Imported (country-of-origin unknown) Contaminated seed. Unknown. Unknown; food handler suspected. Unknown (produce suspected) Cyclospora cayetanensis Unknown. Imported (country-of-origin unknown) Contaminated seed. United States (Idaho) Cross contamination with raw meat product during preparation. United States (Montana) Unknown; field contamination likely but unsanitary handling practices at the grocery store may have also occurred. Cross contamination from ground beef. Unavailable. Contaminated by asymptomatic food handler. Unavailable. (continued) Unknown. Unknown. Unknown; cross contamination with raw ground beef suspected. Unknown; food handler suspected. Unknown; contamination at harvest suspected. Unknown; cross contamination suspected. Unavailable. Unknown; food handler suspected. Unavailable. Unavailable. Greens (edible fern fronds) Unavailable. Unavailable. Unavailable. Unavailable. Unavailable. United States (South Carolina) Unknown; wash water suspected. Unavailable. Unknown; cross contamination suspected. Unknown. Unknown; cross contamination suspected. Salad (carrots) Enterotoxigenic E. coli (ETEC) Unknown; contaminated carrots suspected. Tabouleh salad (carrots) Enterotoxigenic E. coli (ETEC) Unknown; contaminated carrots suspected. Unavailable. Unknown; food handler suspected. Unknown; foodhandler or cross contamination suspected. (continued) Unavailable. Unavailable. Unavailable. Unknown; manure in home garden suspected. Unavailable. Unavailable. Unavailable. Unavailable. Unavailable. Unknown; contamination in field suspected. Unavailable. Unavailable. United States (Florida) Unknown; improper handling (temperature abuse) suspected. Unavailable. Unavailable. Unavailable. Unavailable. Unavailable. Unavailable. Unknown; possible contamination from ice used in shipping. Unknown. Unavailable. United States (South Carolina) Unknown; wash water suspected. Unavailable. Unavailable. Unknown. Unavailable. Unavailable. Unavailable. Unavailable. Unavailable. (continued) Unavailable. Unavailable. Unavailable. Unavailable. As requested by the Senate and House conferees for the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999, we reviewed a number of issues associated with the potential costs and benefits of a mandatory labeling requirement. Specifically, this report provides information on (1) the potential costs associated with compliance and enforcement of a mandatory country-of-origin labeling requirement at the retail level for fresh produce, (2) the potential trade issues associated with such a requirement, (3) the potential impact of such a requirement on the ability of the federal government and the public to respond to outbreaks of illness caused by contaminated fresh produce, and (4) consumers' views of country-of-origin labeling. Finally, appendix I identifies U.S. trading partners that have country-of-origin labeling requirements for fresh produce, the nature and scope of those requirements, and the record of U.S. challenges to those requirements. To determine the potential costs associated with compliance and enforcement, we interviewed officials and reviewed documents from USDA's Agricultural Marketing Service and the Foreign Agricultural Service; the U.S. Customs Service; the Food and Drug Administration; and the International Trade Commission. We also interviewed officials from the Food Marketing Institute and the Florida Retail Federation and visited several Florida groceries--both large chains and small independent stores--to examine how imported produce is labeled and how inspections are conducted. We interviewed officials from the United Fresh Fruit and Vegetable Association; the Food Industry Trade Coalition, which included representatives from the Food Distributors International, the National Grocers Association, ConAgra, Inc., the Chilean Fresh Fruit Association, the National Fisheries Institute, the Meat Importers Council of America Inc., the American Food Institute, and the National Food Processors Association; the Fresh Produce Association of the Americas; the Florida Fruit and Vegetable Association; the Northwest Horticultural Council; the Western Growers Association; and Chiquita Brands, Inc. To determine compliance and enforcement with state labeling laws, we interviewed officials from agricultural departments in Maine, Texas, and Florida. To determine the potential trade implications, we reviewed documents and interviewed officials from the Office of the U.S. Trade Representative, the Foreign Agricultural Service, the Department of State, and the World Trade Organization. We also examined international trade agreements. To identify U.S. trading partners that have country-of-origin labeling requirements for fresh produce, we reviewed the survey conducted by the Foreign Agricultural Service, 1998 Foreign Country of Origin Labeling Survey, February 4, 1998. In addition, we developed a questionnaire to determine the nature and scope of other countries' labeling requirements, which the Service sent electronically to the U.S. embassy agricultural attaches for 45 countries. Twenty-eight of the countries were selected because they are the countries with whom we import or export significant dollar volumes of fresh produce. The remaining 17 countries we surveyed were included because they were identified as requiring country-of-origin labeling in the Foreign Agricultural Service's 1998 survey. We received responses for 45 countries. The survey was conducted in February and March 1999. To determine the potential impact on the federal government's and consumers' ability to respond to outbreaks of illness from fresh produce, we interviewed officials and obtained documents from the CDC, FDA, the U.S. Department of Agriculture, and Florida's Department of Health. We also discussed these issues with consumer groups. To determine the potential impact of mandatory country-of-origin labeling on consumers, we reviewed the Tariff Act of 1930 and related regulations and rulings and discussed these issues with Customs officials. We also examined documents and interviewed officials with consumer groups, including the National Consumers League, the Center for Science in the Public Interest, and the Safe Food Coalition. We also analyzed the results of eight consumer surveys conducted from 1990 to 1998 to determine consumer opinions regarding mandatory country-of-origin labeling. The surveys were identified by industry experts and through literature searches. For the data we included in our report, we obtained frequency counts, survey instruments, and other documents, in order to review the wording of questions, sampling, mode of administration, research strategies, and the effects of sponsorship. We used only data that we judged to be reliable and valid. Five surveys, conducted between 1990 and 1998, represented households nationwide that have purchased fresh produce in the past year. These surveys were published by Vance Publishing Corporation for The Packer newspaper and were published in its annual supplement, Fresh Trends. Another nationwide survey was conducted by the Charlton Research Group in 1996 for the Desert Grape Growers League. Two surveys of Florida consumers were conducted by the University of South Florida's Agriculture Institute in 1997 and the University of Florida in 1998. We also spoke with officials and obtained documents from CDC, FDA, the U.S. Department of Agriculture's Agricultural Marketing Service, Florida's Department of Health, the Environmental Working Group, and Consumers Union about the relative safety of imported and U.S. produce. We conducted our review from November 1998 through March 1999 in accordance with generally accepted government auditing standards. Erin Lansburgh, Assistant Director Beverly A. Peterson, Evaluator-in-Charge Daniel F. Alspaugh Erin K. Barlow Shirley Brothwell Richard Burkard Daniel E. Coates Oliver Easterwood Fran Featherston Alice Feldesman Paul Pansini Carol Herrnstadt Shulman Janice M. Turner The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Pursuant to a legislative requirement, GAO provided information on the: (1) potential costs associated with the compliance and enforcement of a mandatory country-of-origin labeling requirement at the retail level for fresh produce; (2) potential trade issues associated with such a requirement; (3) potential impact of such a requirement on the ability of the federal government and the public to respond to outbreaks of illness caused by contaminated fresh produce; and (4) consumers' views of country-of-origin labeling. GAO noted that: (1) the magnitude of compliance and enforcement costs for a country-of-origin labeling requirement at the retail level would depend on several factors, including the extent to which labeling practices would have to be changed; (2) according to an association representing grocery retailers, changing store signs to ensure that produce is properly labeled would cost about 2 staff hours per store per week; (3) however, it is unclear who would bear the burden of any such additional labeling costs--retailers could absorb some or all of the costs or pass them to consumers or to their suppliers; (4) regarding enforcement, the Food and Drug Administration, in commenting on a recently proposed bill, estimated that federal monitoring would cost about $56 million annually and said that enforcement would be difficult; (5) inspectors would need documentary evidence to determine the country-of-origin of the many produce items on display, and this documentation is often not available at each retail store; (6) enforcement is carried out in only one of the three states with labeling laws; (7) Florida inspectors told GAO that they sometimes have no reliable means to verify the accuracy of labels; (8) according to Department of Agriculture officials and industry representatives, mandatory labeling at the retail level could be viewed by other countries as a trade barrier; (9) officials also noted that countries concerned with a labeling law could take actions that could adversely affect U.S. exports; (10) about half of the countries that account for most of the U.S. trade in produce require country-of-origin labeling for fresh produce at the retail level; (11) when outbreaks of foodborne illness occur, country-of-origin labeling for fresh produce would be of limited benefit to food safety agencies in tracing the source of contamination and to the public in responding to a warning of an outbreak; (12) it can take weeks or months for food safety agencies to identify an outbreak, determine the type of food involved, identify the source of the food contamination, and issue a warning; (13) retail labeling would help consumers only if they remembered the country of origin or still had the produce, or if the produce were still in the store; and (14) according to nationwide surveys sponsored by the fresh produce industry, between 74 and 83 percent of consumers favor mandatory country-of-origin labeling for fresh produce, although they rated information on freshness, nutrition, and handling and storage as more important.	7,512	632
The department is facing near-and long-term internal fiscal pressures as it attempts to balance competing demands to support ongoing operations, rebuild readiness following extended military operations, and manage increasing personnel and health care costs as well as significant cost growth in its weapon systems programs. For more than a decade, DOD has dominated GAO's list of federal programs and operations at high risk of being vulnerable to fraud, waste, abuse. In fact, all of the DOD programs on GAO's High-Risk List relate to business operations, including systems and processes related to management of contracts, finances, supply chain, and support infrastructure, as well as weapon systems acquisition. Long-standing and pervasive weaknesses in DOD's financial management and related business processes and systems have (1) resulted in a lack of reliable information needed to make sound decisions and report on the financial status and cost of DOD activities to Congress and DOD decision makers; (2) adversely impacted its operational efficiency and mission performance in areas of major weapons system support and logistics; and (3) left the department vulnerable to fraud, waste, and abuse. Because of the complexity and long-term nature of DOD's transformation efforts, GAO has reported the need for a chief management officer (CMO) position and a comprehensive, enterprisewide business transformation plan. In May 2007, DOD designated the Deputy Secretary of Defense as the CMO. In addition, the National Defense Authorization Acts for Fiscal Years 2008 and 2009 contained provisions that codified the CMO and Deputy CMO (DCMO) positions, required DOD to develop a strategic management plan, and required the Secretaries of the military departments to designate their Undersecretaries as CMOs and to develop business transformation plans. DOD financial managers are responsible for the functions of budgeting, financing, accounting for transactions and events, and reporting of financial and budgetary information. To maintain accountability over the use of public funds, DOD must carry out financial management functions such as recording, tracking, and reporting its budgeted spending, actual spending, and the value of its assets and liabilities. DOD relies on a complex network of organizations and personnel to execute these functions. Also, its financial managers must work closely with other departmental personnel to ensure that transactions and events with financial consequences, such as awarding and administering contracts, managing military and civilian personnel, and authorizing employee travel, are properly monitored, controlled, and reported, in part, to ensure that DOD does not violate spending limitations established in legislation or other legal provisions regarding the use of funds. Before fiscal year 1991, the military services and defense agencies independently managed their finance and accounting operations. According to DOD, these decentralized operations were highly inefficient and failed to produce reliable information. On November 26, 1990, DOD created the Defense Finance and Accounting Service (DFAS) as its accounting agency to consolidate, standardize, and integrate finance and accounting requirements, functions, procedures, operations, and systems. The military services and defense agencies pay for finance and accounting services provided by DFAS using their operations and maintenance appropriations. The military services continue to perform certain finance and accounting activities at each military installation. These activities vary by military service depending on what the services wanted to maintain in-house and the number of personnel they were willing to transfer to DFAS. As DOD's accounting agency, DFAS records these transactions in the accounting records, prepares thousands of reports used by managers throughout DOD and by the Congress, and prepares DOD-wide and service-specific financial statements. The military services play a vital role in that they authorize the expenditure of funds and are the source of most of the financial information that allows DFAS to make payroll and contractor payments. The military services also have responsibility for most of DOD assets and the related information needed by DFAS to prepare annual financial statements required under the Chief Financial Officers Act. DOD accounting personnel are responsible for accounting for funds received through congressional appropriations, the sale of goods and services by working capital fund businesses, revenue generated through nonappropriated fund activities, and the sales of military systems and equipment to foreign governments or international organizations. DOD's finance activities generally involve paying the salaries of its employees, paying retirees and annuitants, reimbursing its employees for travel- related expenses, paying contractors and vendors for goods and services, and collecting debts owed to DOD. DOD defines its accounting activities to include accumulating and recording operating and capital expenses as well as appropriations, revenues, and other receipts. According to DOD's fiscal year 2012 budget request, in fiscal year 2010 DFAS processed approximately 198 million payment-related transactions and disbursed over $578 billion; accounted for 1,129 active DOD appropriation accounts; and processed more that 11 million commercial invoices. DOD financial management was designated as a high-risk area by GAO in 1995. Pervasive deficiencies in financial management processes, systems, and controls, and the resulting lack of data reliability, continue to impair management's ability to assess the resources needed for DOD operations; track and control costs; ensure basic accountability; anticipate future costs; measure performance; maintain funds control; and reduce the risk of loss from fraud, waste, and abuse. Other business operations, including the high-risk areas of contract management, supply chain management, support infrastructure management, and weapon systems acquisition are directly impacted by the problems in financial management. We have reported that continuing weaknesses in these business operations result in billions of dollars of wasted resources, reduced efficiency, ineffective performance, and inadequate accountability. Examples of the pervasive weaknesses in the department's business operations are highlighted below. DOD invests billions of dollars to acquire weapon systems, but it lacks the financial management processes and capabilities it needs to track and report on the cost of weapon systems in a reliable manner. We reported on this issue over 20 years ago, but the problems continue to persist. In July 2010, we reported that although DOD and the military departments have efforts underway to begin addressing these financial management weaknesses, problems continue to exist and remediation and improvement efforts would require the support of other business areas beyond the financial community before they could be fully addressed. DOD also requests billions of dollars each year to maintain its weapon systems, but it has limited ability to identify, aggregate, and use financial management information for managing and controlling operating and support costs. Operating and support costs can account for a significant portion of a weapon system's total life-cycle costs, including costs for repair parts, maintenance, and contract services. In July 2010, we reported that the department lacked key information needed to manage and reduce operating and support costs for most of the weapon systems we reviewed--including cost estimates and historical data on actual operating and support costs. For acquiring and maintaining weapon systems, the lack of complete and reliable financial information hampers DOD officials in analyzing the rate of cost growth, identifying cost drivers, and developing plans for managing and controlling these costs. Without timely, reliable, and useful financial information on cost, DOD management lacks information needed to accurately report on acquisition costs, allocate resources to programs, or evaluate program performance. In June 2010, we reported that the Army Budget Office lacked an adequate funds control process to provide it with ongoing assurance that obligations and expenditures do not exceed funds available in the Military Personnel-Army (MPA) appropriation. We found that an obligation of $200 million in excess of available funds in the Army's military personnel account violated the Antideficiency Act. The overobligation likely stemmed, in part, from lack of communication between Army Budget and program managers so that Army Budget's accounting records reflected estimates instead of actual amounts until it was too late to control the incurrence of excessive obligations in violation of the act. Thus, at any given time in the fiscal year, Army Budget did not know the actual obligation and expenditure levels of the account. Army Budget explained that it relies on estimated obligations--despite the availability of actual data from program managers--because of inadequate financial management systems. The lack of adequate process and system controls to maintain effective funds control impacted the Army's ability to prevent, identify, correct, and report potential violations of the Antideficiency Act. In our February 2011 report on the Defense Centers of Excellence (DCOE), we found that DOD's TRICARE Management Activity (TMA) had misclassified $102.7 million of the nearly $112 million in DCOE advisory and assistance contract obligations. The proper classification and recording of costs are basic financial management functions that are also key in analyzing areas for potential future savings. Without adequate financial management processes, systems, and controls, DOD components are at risk of reporting inaccurate, inconsistent, and unreliable data for financial reporting and management decision making and potentially exceeding authorized spending limits. The lack of effective internal controls hinders management's ability to have reasonable assurance that their allocated resources are used effectively, properly, and in compliance with budget and appropriations law. Over the years, DOD has initiated several broad-based reform efforts to address its long-standing financial management weaknesses. However, as we have reported, those efforts did not achieve their intended purpose of improving the department's financial management operations. In 2005, the DOD Comptroller established the DOD FIAR Directorate to develop, manage, and implement a strategic approach for addressing the department's financial management weaknesses for achieving auditability, and for integrating these efforts with other improvement activities, such as the department's business system modernization efforts. In May 2009, we identified several concerns with the adequacy of the FIAR Plan as a strategic and management tool to resolve DOD's financial management difficulties and thereby position the department to be able to produce auditable financial statements. Overall, since the issuance of the first FIAR Plan in December 2005, improvement efforts have not resulted in the fundamental transformation of operations necessary to resolve the department's long-standing financial management deficiencies. However, DOD has made significant improvements to the FIAR Plan that, if implemented effectively, could result in significant improvement in DOD's financial management and progress toward auditability, but progress in taking corrective actions and resolving deficiencies remains slow. While none of the military services has obtained an unqualified (clean) audit opinion, some DOD organizations, such as the Army Corps of Engineers, DFAS, the Defense Contract Audit Agency, and the DOD Inspector General, have achieved this goal. Moreover, some DOD components that have not yet received clean audit opinions are beginning to reap the benefits of strengthened controls and processes gained through ongoing efforts to improve their financial management operations and reporting capabilities. Lessons learned from the Marine Corps' Statement of Budgetary Resources audit can provide a roadmap to help other components better stage their audit readiness efforts by strengthening their financial management processes to increase data reliability as they develop action plans to become audit ready. In August 2009, the DOD Comptroller sought to further focus efforts of the department and components, in order to achieve certain short- and long- term results, by giving priority to improving processes and controls that support the financial information most often used to manage the department. Accordingly, DOD revised its FIAR strategy and methodology to focus on the DOD Comptroller's two priorities--budgetary information and asset accountability. The first priority is to strengthen processes, controls, and systems that produce DOD's budgetary information and the department's Statements of Budgetary Resources. The second priority is to improve the accuracy and reliability of management information pertaining to the department's mission-critical assets, including military equipment, real property, and general equipment, and validating improvement through existence and completeness testing. The DOD Comptroller directed the DOD components participating in the FIAR Plan--the departments of the Army, Navy, Air Force and the Defense Logistics Agency--to use a standard process and aggressively modify their activities to support and emphasize achievement of the priorities. GAO supports DOD's current approach of focusing and prioritizing efforts in order to achieve incremental progress in addressing weaknesses and making progress toward audit readiness. Budgetary and asset information is widely used by DOD managers at all levels, so its reliability is vital to daily operations and management. DOD needs to provide accountability over the existence and completeness of its assets. Problems with asset accountability can further complicate critical functions, such as planning for the current troop withdrawals. In May 2010, DOD introduced a new phased approach that divides progress toward achieving financial statement auditability into five waves (or phases) of concerted improvement activities (see appendix I). According to DOD, the components' implementation of the methodology described in the 2010 FIAR Plan is essential to the success of the department's efforts to ultimately achieve full financial statement auditability. To assist the components in their efforts, the FIAR guidance, issued along with the revised plan, details the implementation of the methodology with an emphasis on internal controls and supporting documentation that recognizes both the challenge of resolving the many internal control weaknesses and the fundamental importance of establishing effective and efficient financial management. The FIAR Guidance provides the process for the components to follow, through their individual Financial Improvement Plans, in assessing processes, controls, and systems; identifying and correcting weaknesses; assessing, validating, and sustaining corrective actions; and achieving full auditability. The guidance directs the components to identify responsible organizations and personnel and resource requirements for improvement work. In developing their plans, components use a standard template that comprises data fields aligned to the methodology. The consistent application of a standard methodology for assessing the components' current financial management capabilities can help establish valid baselines against which to measure, sustain, and report progress. Improving the department's financial management operations and thereby providing DOD management and the Congress more accurate and reliable information on the results of its business operations will not be an easy task. It is critical that the current initiatives being led by the DOD Deputy Chief Management Officer and the DOD Comptroller be continued and provided with sufficient resources and ongoing monitoring in the future. Absent continued momentum and necessary future investments, the current initiatives may falter, similar to previous efforts. Below are some of the key challenges that the department must address in order for the financial management operations of the department to improve to the point where DOD may be able to produce auditable financial statements. Committed and sustained leadership. The FIAR Plan is in its sixth year and continues to evolve based on lessons learned, corrective actions, and policy changes that refine and build on the plan. The DOD Comptroller has expressed commitment to the FIAR goals, and established a focused approach that is intended to help DOD achieve successes in the near term. But the financial transformation needed at DOD, and its removal from GAO's high-risk list, is a long-term endeavor. Improving financial management will need to be a cross-functional endeavor. It requires the involvement of DOD operations performing other business functions that interact with financial management--including those in the high-risk areas of contract management, supply chain management, support infrastructure management, and weapon systems acquisition. As acknowledged by DOD officials, sustained and active involvement of the department's Chief Management Officer, the Deputy Chief Management Officer, the military departments' Chief Management Officers, the DOD Comptroller, and other senior leaders is critical. Within every administration, there are changes at the senior leadership; therefore, it is paramount that the current initiative be institutionalized throughout the department--at all working levels--in order for success to be achieved. Effective plan to correct internal control weaknesses. In May 2009, we reported that the FIAR Plan did not establish a baseline of the department's state of internal control and financial management weaknesses as its starting point. Such a baseline could be used to assess and plan for the necessary improvements and remediation to be used to measure incremental progress toward achieving estimated milestones for each DOD component and the department. DOD currently has efforts underway to address known internal control weaknesses through three interrelated programs: (1) Internal Controls over Financial Reporting (ICOFR) program, (2) ERP implementation, and (3) FIAR Plan. However, the effectiveness of these three interrelated efforts at establishing a baseline remains to be seen. Furthermore, DOD has yet to identify the specific control actions that need to be taken in Waves 4 and 5 of the FIAR Plan, which deal with asset accountability and other financial reporting matters. Because of the department's complexity and magnitude, developing and implementing a comprehensive plan that identifies DOD's internal control weaknesses will not be an easy task. But it is a task that is critical to resolving the long-standing weaknesses and will require consistent management oversight and monitoring for it to be successful. Competent financial management workforce. Effective financial management in DOD will require a knowledgeable and skilled workforce that includes individuals who are trained and certified in accounting, well versed in government accounting practices and standards, and experienced in information technology. Hiring and retaining such a skilled workforce is a challenge DOD must meet to succeed in its transformation to efficient, effective, and accountable business operations. The National Defense Authorization Act for Fiscal Year 2006 directed DOD to develop a strategic plan to shape and improve the department's civilian workforce. The plan was to, among other things, include assessments of (1) existing critical skills and competencies in DOD's civilian workforce, (2) future critical skills and competencies needed over the next decade, and (3) any gaps in the existing or future critical skills and competencies identified. In addition, DOD was to submit a plan of action for developing and reshaping the civilian employee workforce to address any identified gaps, as well as specific recruiting and retention goals and strategies on how to train, compensate, and motivate civilian employees. In developing the plan, the department identified financial management as one of its enterprisewide mission-critical occupations. In July 2011, we reported that DOD's 2009 overall civilian workforce plan had addressed some legislative requirements, including assessing the critical skills of its existing civilian workforce. Although some aspects of the legislative requirements were addressed, DOD still has significant work to do. For example, while the plan included gap analyses related to the number of personnel needed for some of the mission-critical occupations, the department had only discussed competency gap analyses for 3 mission-critical occupations--language, logistics management, and information technology management. A competency gap for financial management was not included in the department's analysis. Until DOD analyzes personnel needs and gaps in the financial management area, it will not be in a position to develop an effective financial management recruitment, retention, and investment strategy to successfully address its financial management challenges. Accountability and effective oversight. The department established a governance structure for the FIAR Plan, which includes review bodies for governance and oversight. The governance structure is intended to provide the vision and oversight necessary to align financial improvement and audit readiness efforts across the department. To monitor progress and hold individuals accountable for progress, DOD managers and oversight bodies need reliable, valid, meaningful metrics to measure performance and the results of corrective actions. In May 2009, we reported that the FIAR Plan did not have clear results-oriented metrics. To its credit, DOD has taken action to begin defining results-oriented FIAR metrics it intends to use to provide visibility of component-level progress in assessment; and testing and remediation activities, including progress in identifying and addressing supporting documentation issues. We have not yet had an opportunity to assess implementation of these metrics--including the components' control over the accuracy of supporting data--or their usefulness in monitoring and redirecting actions. Ensuring effective monitoring and oversight of progress--especially by the leadership in the components--will be key to bringing about effective implementation, through the components' Financial Improvement Plans, of the department's financial management and related business process reform. If the department's future FIAR Plan updates provide a comprehensive strategy for completing Waves 4 and 5, the plan can serve as an effective tool to help guide and direct the department's financial management reform efforts. Effective oversight holds individuals accountable for carrying out their responsibilities. DOD has introduced incentives such as including FIAR goals in Senior Executive Service Performance Plans, increased reprogramming thresholds granted to components that receive a positive audit opinion on their Statement of Budgetary Resources, audit costs funded by the Office of the Secretary of Defense after a successful audit, and publicizing and rewarding components for successful audits. The challenge now is to evaluate and validate these and other incentives to determine their effectiveness and whether the right mix of incentives has been established. Well-defined enterprise architecture. For decades, DOD has been challenged in modernizing its timeworn business systems. Since 1995, we have designated DOD's business systems modernization program as high risk. Between 2001 and 2005, we reported that the modernization program had spent hundreds of millions of dollars on an enterprise architecture and investment management structures that had limited value. Accordingly, we made explicit architecture and investment management-related recommendations. Congress included provisions in the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 that were consistent with our recommendations. In response, DOD continues to take steps to comply with the act's provisions and to satisfy relevant system modernization management guidance. Collectively, these steps address best practices in implementing the statutory provisions concerning the business enterprise architecture and review of systems costing in excess of $1 million. However, long-standing challenges that we previously identified remain to be addressed. Specifically, while DOD continues to release updates to its corporate enterprise architecture, the architecture has yet to be federated through development of aligned subordinate architectures for each of the military departments. In this regard, each of the military departments has made progress in managing its respective architecture program, but there are still limitations in the scope and completeness, as well as the maturity of the military departments' architecture programs. For example, while each department has established or is in the process of establishing an executive committee with responsibility and accountability for the enterprise architecture, none has fully developed an enterprise architecture methodology or a well-defined business enterprise architecture and transition plan to guide and constrain business transformation initiatives. In addition, while DOD continues to establish investment management processes, the DOD enterprise and the military departments' approaches to business systems investment management still lack the defined policies and procedures to be considered effective investment selection, control, and evaluation mechanisms. Until DOD fully implements these longstanding institutional modernization management controls, its business systems modernization will likely remain a high-risk program. Successful implementation of the ERPs. The department has invested billions of dollars and will invest billions more to implement the ERPs. DOD officials have said that successful implementation of ERPs is key to transforming the department's business operations, including financial management, and in improving the department's capability to provide DOD management and Congress with accurate and reliable information on the results of DOD's operations. DOD has stated that the ERPs will replace over 500 legacy systems. The successful implementation of the ERPs is not only critical for addressing long-standing weaknesses in financial management, but equally important for helping to resolve weaknesses in other high-risk areas such as business transformation, business system modernization, and supply chain management. Over the years we have reported that the department has not effectively employed acquisition management controls to help ensure the ERPs deliver the promised capabilities on time and within budget. Delays in the successful implementation of ERPs have extended the use of existing duplicative, stovepiped systems, and continued funding of the existing legacy systems longer than anticipated. Additionally, the continued implementation problems can erode savings that were estimated to accrue to DOD as a result of modernizing its business systems and thereby reduce funds that could be used for other DOD priorities. To help improve the department's management oversight of its ERPs, we have recommended that DOD define success for ERP implementation in the context of business operations and in a way that is measurable. Accepted practices in system development include testing the system in terms of the organization's mission and operations--whether the system performs as envisioned at expected levels of cost and risk when implemented within the organization's business operations. Developing and using specific performance measures to evaluate a system effort should help management understand whether the expected benefits are being realized. Without performance measures to evaluate how well these systems are accomplishing their desired goals, DOD decision makers, including program managers, do not have all the information they need to evaluate their investments to determine whether the individual programs are helping DOD achieve business transformation and thereby improve upon its primary mission of supporting the warfighter. Another key element in DOD efforts to modernize its business systems is investment management policies and procedures. We reported in June 2011 that DOD's oversight process does not provide sufficient visibility into the military department's investment management activities, including its reviews of systems that are in operations and maintenance made and smaller investments. As discussed in our information technology investment management framework and previous reports on DOD's investment management of its business systems, adequately documenting both policies and associated procedures that govern how an organization manages its information technology projects and investment portfolios is important because doing so provides the basis for rigor, discipline, and repeatability in how investments are selected and controlled across the entire organization. Until DOD fully defines missing policies and procedures, it is unlikely that the department's over 2,200 business systems will be managed in a consistent, repeatable, and effective manner that, among other things, maximizes mission performance while minimizing or eliminating system overlap and duplication. To this point, there is evidence showing that DOD is not managing its systems in this manner. For example, DOD reported that of its 79 major business and other IT investments, about a third are encountering cost, schedule, and performance shortfalls requiring immediate and sustained management attention. In addition, we have previously reported that DOD's business system environment has been characterized by (1) little standardization, (2) multiple systems performing the same tasks, (3) the same data stored in multiple systems, and (4) manual data entry into multiple systems. Because DOD spends billions of dollars annually on its business systems and related IT infrastructure, the potential for identifying and avoiding the costs associated with duplicative functionality across its business system investments is significant. In closing, I am encouraged by the recent efforts and commitment DOD's leaders have shown toward improving the department's financial management. Progress we have seen includes recently issued guidance to aid DOD components in their efforts to address their financial management weaknesses and achieve audit readiness; standardized component financial improvement plans to facilitate oversight and monitoring; and the sharing of lessons learned. In addition, the DCMO and the DOD Comptroller have shown commitment and leadership in moving DOD's financial management improvement efforts forward. The revised FIAR strategy is still in the early stages of implementation, and DOD has a long way and many long-standing challenges to overcome, particularly with regard to sustained commitment, leadership, and oversight, before the department and its military components are fully auditable, and DOD financial management is no longer considered high risk. However, the department is heading in the right direction and making progress. Some of the most difficult challenges ahead lie in the effective implementation of the department's strategy by the Army, Navy, Air Force, and DLA, including successful implementation of ERP systems and integration of financial management improvement efforts with other DOD initiatives. GAO will continue to monitor the progress of and provide feedback on the status of DOD's financial management improvement efforts. We currently have work in progress to assess implementation of the department's FIAR strategy and efforts toward auditability. As a final point, I want to emphasize the value of sustained congressional interest in the department's financial management improvement efforts, as demonstrated by this Subcommittee's leadership. Chairman McCaskill and Ranking Member Ayotte, 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 Asif A. Khan, (202) 512-9095 or [email protected]. Key contributors to this testimony include J. Christopher Martin, Senior-Level Technologist; F. Abe Dymond, Assistant Director; Gayle Fischer, Assistant Director; Greg Pugnetti, Assistant Director; Darby Smith, Assistant Director; Beatrice Alff; Steve Donahue; Keith McDaniel; Maxine Hattery; Hal Santarelli; and Sandy Silzer. The first three waves focus on achieving the DOD Comptroller's interim budgetary and asset accountability priorities, while the remaining two waves are intended to complete actions needed to achieve full financial statement auditability. However, the department has not yet fully defined its strategy for completing waves 4 and 5. Each wave focuses on assessing and strengthening internal controls and business systems related to the stage of auditability addressed in the wave. Wave 1--Appropriations Received Audit focuses on the appropriations receipt and distribution process, including funding appropriated by Congress for the current fiscal year and related apportionment/reapportionment activity by the OMB, as well as allotment and sub-allotment activity within the department. Wave 2--Statement of Budgetary Resources Audit focuses on supporting the budget-related data (e.g., status of funds received, obligated, and expended) used for management decision making and reporting, including the Statement of Budgetary Resources. In addition to fund balance with Treasury reporting and reconciliation, other significant end-to-end business processes in this wave include procure-to-pay, hire- to-retire, order-to-cash, and budget-to-report. Wave 3--Mission Critical Assets Existence and Completeness Audit focuses on ensuring that all assets (including military equipment, general equipment, real property, inventory, and operating materials and supplies) that are recorded in the department's accountable property systems of record exist; all of the reporting entities' assets are recorded in those systems of record; reporting entities have the right (ownership) to report these assets; and the assets are consistently categorized, summarized, and reported. Wave 4--Full Audit Except for Legacy Asset Valuation includes the valuation assertion over new asset acquisitions and validation of management's assertion regarding new asset acquisitions, and it depends on remediation of the existence and completeness assertions in Wave 3. Also, proper contract structure for cost accumulation and cost accounting data must be in place prior to completion of the valuation assertion for new acquisitions. It involves the budgetary transactions covered by the Statement of Budgetary Resources effort in Wave 2, including accounts receivable, revenue, accounts payable, expenses, environmental liabilities, and other liabilities. Wave 5--Full Financial Statement Audit focuses efforts on assessing and strengthening, as necessary, internal controls, processes, and business systems involved in supporting the valuations reported for legacy assets once efforts to ensure control over the valuation of new assets acquired and the existence and completeness of all mission assets are deemed effective on a go-forward basis. Given the lack of documentation to support the values of the department's legacy assets, federal accounting standards allow for the use of alternative methods to provide reasonable estimates for the cost of these assets. In the context of this phased approach, DOD's dual focus on budgetary and asset information offers the potential to obtain preliminary assessments regarding the effectiveness of current processes and controls and identify potential issues that may adversely impact subsequent waves. 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.	As one of the largest and most complex organizations in the world, the Department of Defense (DOD) faces many challenges in resolving serious problems in its financial management and related business operations and systems. DOD is required by various statutes to (1) improve its financial management processes, controls, and systems to ensure that complete, reliable, consistent, and timely information is prepared and responsive to the financial information needs of agency management and oversight bodies, and (2) produce audited financial statements. Over the years, DOD has initiated numerous efforts to improve the department's financial management operations and achieve an unqualified (clean) opinion on the reliability of its reported financial information. These efforts have fallen short of sustained improvement in financial management or financial statement auditability. The Subcommittee has asked GAO to provide its perspective on the status of DOD's financial management weaknesses and its efforts to resolve them; the challenges DOD continues to face in improving its financial management and operations; and the status of its efforts to implement automated business systems as a critical element of DOD's Financial Improvement and Audit Readiness strategy. DOD financial management has been on GAO's high-risk list since 1995 and, despite several reform initiatives, remains on the list today. Pervasive deficiencies in financial management processes, systems, and controls, and the resulting lack of data reliability, continue to impair management's ability to assess the resources needed for DOD operations; track and control costs; ensure basic accountability; anticipate future costs; measure performance; maintain funds control; and reduce the risk of loss from fraud, waste, and abuse. DOD spends billions of dollars each year to maintain key business operations intended to support the warfighter, including systems and processes related to the management of contracts, finances, supply chain, support infrastructure, and weapon systems acquisition. These operations are directly impacted by the problems in financial management. In addition, the long-standing financial management weaknesses have precluded DOD from being able to undergo the scrutiny of a financial statement audit. DOD's past strategies for improving financial management were ineffective, but recent initiatives are encouraging. In 2005, DOD issued its Financial Improvement and Audit Readiness (FIAR) Plan for improving financial management and reporting. In 2009, the DOD Comptroller directed that FIAR efforts focus on financial information in two priority areas: budget and mission-critical assets. The FIAR Plan also has a new phased approach that comprises five waves of concerted improvement activities. The first three waves focus on the two priority areas, and the last two on working toward full auditability. The plan is being implemented largely through the Army, Navy, and Air Force military departments and the Defense Logistics Agency, lending increased importance to the committed leadership in these components. Improving the department's financial management operations and thereby providing DOD management and Congress more accurate and reliable information on the results of its business operations will not be an easy task. It is critical that current initiatives related to improving the efficiency and effectiveness of financial management that have the support of the DOD's Deputy Chief Management Officer and Comptroller continue with sustained leadership and monitoring. Absent continued momentum and necessary future investments, current initiatives may falter. Below are some of the key challenges that DOD must address for its financial management to improve to the point where DOD is able to produce auditable financial statements: (1) committed and sustained leadership, (2) effective plan to correct internal control weaknesses, (3) competent financial management workforce, (4) accountability and effective oversight, (5) well-defined enterprise architecture, and (6) successful implementation of the enterprise resource planning systems.	6,828	762
In fiscal year 1996, students and their families used federal student loan programs to borrow approximately $30 billion to pay for postsecondary education. FDLP is one of two main approaches the federal government has taken to make loans available for college. Under this program, students or their parents borrow money directly from the government through the schools the students attend. The other major program, FFELP, provides loans through private lenders, and the federal government guarantees repayment if borrowers default. According to a Department official, FDLP accounted for about 32.1 percent of student loan volume in fiscal year 1996. Most FDLP borrowers can select one of four repayment options, as illustrated in figure 1. These four options differ by the amount of time allowed to repay loans and the flexibility of the payment schedule. The ICR option is the most flexible. It allows borrowers to pay relatively small or no monthly payments when their incomes are low and to pay more when their incomes rise. For example, a married borrower with a loan balance of $20,000 and an annual family income of $15,000 would initially pay about $77 a month. If the borrower's annual income were $45,000, the initial monthly payment would be about $225. Repayment term: maximum of 10 years $0 if the minimum payment does not cover monthly interest, the unpaid interest is added to the principal balance for later repayment. maximum of 25 years if the loan is not repaid after 25 years, the remaining balance is canceled (the unpaid amount is considered income for tax purposes) For our analysis,we classified FDLP loans into three main categories. Direct nonconsolidated loans: These are the basic FDLP loans with which students or their parents can help finance postsecondary education. There are three kinds: subsidized and unsubsidized direct Stafford loans and direct PLUS loans. Direct subsidized Stafford loans, available only to students with a demonstrated financial need, are subsidized in that the federal government does not charge interest while the student is in school at least half-time, during a 6-month grace period after the student graduates or otherwise leaves school, and during periods in which loan repayment is deferred (such as when the borrower is seeking but unable to find full-time employment). In contrast, direct unsubsidized Stafford loans, which are available to all students regardless of financial need, do not include an interest subsidy. If the borrower does not make interest payments while in school, the interest is added to the principal balance to be repaid as part of the total loan amount. Direct PLUS loans are available to parents of dependent students to help pay for their children's education; they are unsubsidized because parents are responsible for paying all interest charges. Direct consolidation loans: During the course of their education, students can obtain loans from more than one program. By obtaining a direct consolidation loan, borrowers can combine their loans and make only one monthly payment. Borrowers can consolidate their loans while they are in school or afterward, and the interest on their consolidation loans can be subsidized or unsubsidized, depending on the kind of original loans they consolidated. Borrowers in default on a student loan who have made satisfactory arrangements to repay the defaulted loan, or who agree to repay under the ICR plan, can also obtain direct consolidation loans. Parents with multiple PLUS loans can combine them into a single direct PLUS consolidation loan. Debt Collection Service (DCS) consolidation loans: These are direct consolidation loans to borrowers who previously defaulted on their FFELP loans and whose loans were assigned to the Department's DCS for collection. In fiscal year 1995, the Department began to increase collections on defaulted FFELP loans by offering direct consolidation loans to these borrowers so they could make more affordable payments through the ICR plan. As shown in table 1, the vast majority (83.6 percent) of FDLP borrowers in repayment had nonconsolidated loans as of March 31, 1997. These borrowers represented about 69 percent of the total direct loan volume in repayment. However, borrowers with direct consolidation loans had average loan amounts that were much higher than those of the two other kinds of borrowers--$21,807 compared with $6,611 and $5,453. Such borrowers had more than 26 percent of total loan volume, even though they were only about 10 percent of all borrowers. As of March 31, 1997, slightly more than 56,000 borrowers in repayment were using ICR--about 9 percent of the total (see fig. 2). Collectively, these borrowers accounted for about $831 million in outstanding loans, or about 16 percent of the $5.3 billion of FDLP loans in repayment. Borrowers using the standard plan were the largest in number and loan volume among the four plans. However, the average size of their loans (about $6,530) was considerably smaller. By comparison, loans held by ICR users averaged about $14,770. Borrowers using the extended plan had the highest average balance (about $17,000). Borrowers using ICR differed from most other FDLP loan borrowers in repayment in several important ways. More than half (51 percent) were borrowers with direct consolidation loans (see fig. 3). In contrast, only about 8.5 percent of all borrowers in FDLP had such loans. Borrowers with direct consolidation loans held nearly 80 percent of total dollar volume of loans being repaid under ICR. Another large portion (about 42 percent) of borrowers using the ICR plan were those with DCS consolidation loans. However, these borrowers had relatively small average loan amounts ($6,100 compared with $23,000 for direct consolidation loans) and held only 17 percent of the total loan volume being repaid under ICR. Only about 7 percent of borrowers using ICR held nonconsolidated loans. Information on the kinds of schools that ICR users attended is limited to borrowers who had nonconsolidated loans. According to a Department official, the Department does not track repayment plan data by school for direct and DCS consolidation loans. Because students whose previous loans were combined into either a direct or DCS consolidation loan sometimes have attended more than one school, classifying loans by kind of school is difficult and not very meaningful. Data on FDLP borrowers with nonconsolidated loans show little relationship between the type of school attended and a borrower's selection of ICR as a repayment plan. For the most part, there was little variation between the various repayment plans when compared by type of school, such as public and private or 2-year and 4-year. The data did show that borrowers from 2-year public schools were somewhat more inclined to select the ICR plan than were borrowers from other kinds of schools. However, since nonconsolidated loan recipients represented less than 10 percent of ICR users, it is unclear whether they represented ICR users as a whole. Across all four types of repayment plans, 14.4 percent of FDLP borrowers were delinquent and 1.7 percent were in default, according to the Department data in our analysis. (See table 2.) About 70 percent of borrowers were current on their loan payments, and another 13.7 percent were currently not paying because their payments had been postponed through statutorily provided deferment or forbearance procedures. The data we analyzed generated an understated percentage of loans in default because only defaulted loans in arrears for 181 to 270 days are included. According to a Department official, loans in arrears for longer than 270 days had been transferred to the Department's DCS and, therefore, data on these loans were not contained in the database we used for our analysis.This official said that, as of March 31, 1997, about $34.6 million in such defaulted loans had been transferred to DCS. Thus, when these defaulted loans are combined with the $71 million in loans that were in default for 181 to 270 days, the total of defaulted direct loans is about $105.6 million. It is important to note that the percentage of FDLP loans in default we computed in our analysis is different from the default rate the Department computes. There are two major differences. First, our computation of loans in default reflects only borrowers who have not made a payment for 181 to 270 days, but the Department's default rates include borrowers who have not made a payment for more than 270 days. Second, the percentage of borrowers in default that we computed for FDLP is a simple percentage (number of borrowers in default divided by the total number of borrowers in repayment at a single point in time). In contrast, the Department's default rates are computed for a cohort of borrowers over a period of time. (This is explained in app. I.) Compared with the three other payment plans, the overall percentage of loans that were delinquent or in default under ICR were higher (see fig. 4). The delinquency rate among ICR users was 16.1 percent, and the percentage of loans in default was 5.0. By comparison, the next highest delinquency rate was 14.8 percent (for borrowers using standard repayment), and the next highest percentage of loans in default was 1.4 (also for borrowers using standard repayment). There appear to be two possible explanations for why borrowers using ICR, as a group, have overall higher delinquencies and defaults than borrowers using the other repayment plans. First, a higher concentration of borrowers with DCS consolidation loans uses the ICR plan than the other repayment plans (53 percent, or 23,678, of 44,407 DCS consolidation loan borrowers are using ICR), and, as we discuss below, borrowers of these kinds of loans have the highest percentage of loans that are delinquent and in default. Second, the exclusion of PLUS loan borrowers, who according to Department officials tend to have lower delinquency and default rates than student borrowers, from the ICR plan could tend to make delinquencies and defaults of the other plans lower relative to the rates of the ICR plan. Among borrowers using ICR, there is considerable variance in delinquency rates, depending on the type of loan (see fig. 5). Of the three categories of loans in repayment (nonconsolidated, direct consolidation, and DCS consolidation), the highest delinquency rate was for borrowers with DCS consolidation loans (about 19 percent). ICR users with direct consolidation and nonconsolidated loans had significantly lower delinquency rates (14.6 percent and 9.6 percent, respectively). Given that the majority (53.3 percent) of borrowers with DCS consolidation loans are ICR users, the overall higher delinquency rate for ICR compared with the other repayment plans could be partly the result of considerably greater involvement of DCS consolidation loan borrowers (borrowers who previously defaulted on FFELP loans) in the ICR plan compared with the other repayment plans. (See app. II.) A comparison of individual types of loans shows that ICR users do not have higher delinquency rates than users of all other repayment plans (see fig. 6). For example, for nonconsolidated loans alone, the delinquency rate among ICR users was below that among users of the standard plan and about the same as that among users of extended and graduated plans. Even for DCS consolidation loans, ICR users had a lower delinquency rate compared with those in the three other plans. However, with over half of DCS consolidation loans under the ICR plan, the influence of these loans' high delinquency rate is felt primarily by ICR. FDLP loan default patterns are similar to those for delinquencies. Among borrowers using ICR, the percentage of loans in default is much higher for DCS consolidation loans than for nonconsolidated or direct consolidated loans (see fig. 7). ICR users who had DCS consolidation loans defaulted at a rate of 8.8 percent, compared with rates of 0.9 percent and 2.5 percent for ICR users with nonconsolidated and direct consolidation loans, respectively. Again, given the concentration of borrowers with DCS consolidation loans in the ICR plan, ICR's overall high percentage of loans in default is strongly affected by this one type of loan. As with delinquencies, a comparison of individual types of loans shows that ICR users did not have higher percentages of loans in default across the board than users of other repayment plans (see fig. 8). However, ICR users did have the highest percentage of loans in default for two of the three loan types. There is no single answer to whether a borrower will pay more or less under ICR compared with standard, extended, or graduated plans. Borrowers for whom ICR was primarily designed (that is, borrowers with a limited ability to pay) could face relatively higher total payments in the form of larger total interest costs and tax liability--on amounts they were not able to repay within the 25-year loan repayment limit. In contrast, ICR may be less costly than the extended or graduated plans for borrowers with considerably greater ability to repay their loans. To provide some indication of how the type of repayment plan affects a borrower's initial monthly payment amount and total loan payments, we compared the four plans with two different starting incomes--$15,000 and $45,000. This scenario assumes that (1) the borrower and spouse have an initial annual combined income at the beginning of the repayment period of $15,000 and receive annual income increases of 5 percent over the repayment period, (2) the borrower is married throughout with no children, and (3) the loan interest rate is 8.25 percent. Table 3 shows how the size of a loan affects the initial monthly payment amounts under the ICR plan compared with the other repayment plans. The initial monthly payments for a borrower using ICR are substantially less than the initial monthly payments for the other repayment plans for loans of $20,000 and higher. Although initial payment amounts under the other plans increase for larger loan amounts, the payments under ICR increase to a much lesser extent and stop increasing at loans above $20,000. Under ICR, borrowers' payment amounts are capped at 20 percent of their discretionary income. Thus, a borrower with an income of $15,000 and $100,000 in loans would pay no more per month under ICR than a borrower with the same income and an initial loan amount of $20,000. The size of a borrower's monthly payment has a direct effect on his or her total loan payments. Those payments include the amounts to repay principal and interest, and ICR users can also incur a cost for the potential tax liability on the loan balance that remains unpaid after 25 years. Unpaid loan balances are forgiven at the end of the 25-year period but must be treated as taxable income. Whether the lower income borrower under ICR actually pays more or less than borrowers using alternatives depends in part on the amount borrowed (see table 4). A borrower with an initial income of $15,000 and loans ranging from $5,000 to $10,000 would pay more under ICR than under the other plans. In contrast, a borrower with $40,000 or more in loans would repay far less under ICR than under the extended and graduated alternatives because under these two plans the borrower pays off the total loan; the borrower using ICR would not. However, a borrower using ICR has to contend with having to declare the unpaid balance of the loans as income--and possibly incur a tax liability. As loan amounts increase, the potential tax liability rises substantially for borrowers at this income level. This scenario makes the same assumptions as the first, except that calculations are based on a starting income of $45,000. ICR does not provide the same lower monthly payment advantages over the other plans as it does for lower income borrowers. Initially, as table 5 illustrates, ICR has consistently lower monthly payments than the standard plan but higher monthly payments than the extended and graduated plans, except for loans at the $100,000 level. Table 6 compares total loan payments that a borrower and spouse with a starting combined income of $45,000 would pay under each of the four repayment plans for loan amounts ranging from $5,000 to $100,000. As it shows, payments for principal and interest under ICR are always higher than under standard repayment but always lower than under the extended or graduated plans. Unlike the borrower who begins with a $15,000 income, the borrower with an initial income of $45,000 has no unpaid balance after 25 years for any of the loan amounts illustrated. Information on borrower income for computing monthly payment amounts for the ICR plan is obtained from either documentation provided by the borrower or information from IRS on the borrower's AGI as reported on his or her federal income tax return. The monthly payment amount for borrowers in their first year of repayment is based on documentation and other information submitted by borrowers to the Department's direct loan servicing center. This documentation, referred to as "alternative documentation of income," can be recent pay stubs, dividend statements, canceled checks, or a statement signed by the borrowers explaining their source of income. According to a Department official, the Department uses alternative documentation for borrowers in their first year of repayment because, in most cases, AGI information from IRS is zero or close to zero. AGI reflects prior-year income when borrowers were generally in school or not working full time and were reporting little or no taxable income. However, most borrowers have income, and the alternative documentation captures it. This kind of documentation is also used in other situations when borrowers' AGI does not reflect their current income, such as when a borrower becomes unemployed. According to Department officials, service center personnel do not conduct credit checks or contact employers to verify the accuracy of borrowers' information. However, when borrowers submit this documentation, they also certify that they are providing accurate and complete income information. After ICR users have been out of school for at least 1 year, their monthly payment amount is based on their AGI as reported on their federal income tax returns. To obtain this information, the service center sends computer tapes containing borrower identification information to IRS, which matches this information against its records. IRS then sends computer tapes containing borrower AGI information directly to the service center. After receiving the IRS tapes, service center personnel run edit checks for quality assurance. According to Department officials, the Department does not verify the accuracy of the information the borrowers provide IRS on their tax returns. Rather, it relies on the IRS' own audits, edits, and verifications to make sure borrowers' AGI is accurate. However, other measures are taken in certain circumstances to ensure the accuracy and reasonableness of borrowers' income information. For example, if a borrower is required to provide alternative documentation of income because his or her AGI would reflect an in-school period, the servicer still obtains AGI information from IRS to see how accurately borrower-reported information from the previous year reflected IRS-reported information for that year. According to Department officials, borrowers falsifying their income to reduce their monthly payments lengthen the time required to pay off their loans, which ultimately costs them more money. The officials also said that borrowers who do not cooperate in providing accurate income information are automatically removed from the ICR plan and placed into the standard repayment plan. The Department of Education reviewed a draft of this report and had no written comments, although it provided technical suggestions that we incorporated as appropriate. Copies of this report are being sent to the Chairman of the Senate Committee on Labor and Human Resources, the Secretary of Education, appropriate congressional committees and Members, and others who are interested. If you have any questions about this report, please call me or Joseph J. Eglin, Jr., Assistant Director, at (202) 512-7014. Major contributors to this report include Joan A. Denomme, Charles M. Novak, and Charles H. Shervey. To determine the extent to which borrowers are using the income contingent repayment (ICR) plan compared with other repayment plans, we obtained and analyzed data from the Department of Education on Federal Direct Loan Programs (FDLP) loans being repaid as of March 31, 1997. To determine the extent to which borrowers at the various kinds of schools used the different types of repayment plans, we obtained and analyzed data on nonconsolidated loans. Data on consolidation and DCS consolidation loans categorized by kind of school were not available. A Department official said that such data are not captured in the Department databases we used for our analysis. To determine the extent to which loans being repaid under ICR and other repayment plans were delinquent or in default, we computed simple percentages that reflect the proportion of total borrowers or dollar amounts of loans in repayment classified as delinquent or in default on March 31, 1997. The percentages we computed are not comparable to the annual cohort default rates the Department computes in accordance with the Higher Education Act of 1965, as amended, and its Default Reduction Initiative. The cohort default rate is computed to determine whether to allow schools to participate in federal student loan programs--schools with cohort default rates above certain statutory thresholds can be dropped or prevented from participating in these programs. In general, cohort default rates reflect the percentage of a school's borrowers who enter repayment in one fiscal year and default by the end of the next fiscal year. To compare borrowers' total payments under ICR and other repayment plans, we used information from selected hypothetical examples contained in the Department's 1996 Repayment Book. Data on unpaid loan balances remaining at the end of the repayment period for loans being repaid under the ICR plan--for the various hypothetical scenarios we used--were not contained in the Repayment Book. Therefore, we asked the Department to compute these figures, and we used them in our analyses. To determine the extent to which the Department or its FDLP service center verifies the accuracy of borrowers' income information, we reviewed Department regulations and guidelines. We also interviewed Department officials to obtain additional information on these procedures. Our work was conducted from February to June 1997 in accordance with generally accepted government auditing standards. Table II.1: Repayment Plans Selected by Borrowers of All Kinds of FDLP Loans, as of March 31, 1997 Amount (in millions) Table II.2: Repayment Plans Selected by Borrowers With Nonconsolidated Loans, as of March 31, 1997 Amount (in millions) Table II.3: Repayment Plans Selected by Borrowers With Direct Consolidation Loans, as of March 31, 1997 Amount (in millions) Table II.4: Repayment Plans Selected by Borrowers With DCS Consolidation Loans, as of March 31, 1997 Amount (in millions) 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.	Pursuant to a congressional request, GAO reviewed borrowers' use of the William D. Ford Federal Direct Loan Program's (FDLP) income contingent repayment (ICR) plan, focusing on: (1) the extent to which borrowers are using ICR compared with other repayment plans available under FDLP; (2) how loan delinquencies and defaults under ICR compare with delinquencies and defaults under other FDLP repayment plans; (3) how loan payments under ICR compare with payments under other FDLP repayment plans; and (4) how the Department of Education, which administers the program, verifies the accuracy of income reported by borrowers using ICR. GAO noted that: (1) as of March 31, 1997, about 663,000 borrowers owing about $5.3 billion in FDLP loans were repaying loans; (2) about 9 percent of these borrowers were using ICR; (3) GAO found that 80 percent of borrowers using ICR either were current in their monthly payments or had their payments suspended because they were in school or for other reasons; (4) borrowers using ICR tended to be delinquent or in default at higher percentages than borrowers using other repayment plans; (5) borrowers who have been placed into the ICR plan because they have defaulted on an Federal Family Education Loan Program (FFELP) loan are a major factor in the higher percentage of defaults for ICR users; (6) of the 2,832 borrowers using ICR and in default, 2,083, or 73.6 percent, had defaulted on an FFELP loan; (7) comparing estimated total loan payments for ICR users and borrowers who use the three other repayment plans is complicated; (8) compared with borrowers who use the standard repayment plan, ICR users and those using extended and graduated plans generally face higher total payments; (9) compared with borrowers who use the extended or graduated repayment plans, ICR users face comparatively higher total payments if their incomes are low but comparatively lower total payments if their incomes are high; (10) the Department of Education checks the reported income of borrowers using ICR in one of two ways; (11) for borrowers who are in their first year of repayment or who may have recently lost their jobs, the Department relies primarily on documentation submited by the borrower, such as pay stubs, dividend statements, or cancelled checks; (12) the Department does not verify the accuracy of this documentation when it is submitted; rather it relies on a signed certification from the borrower that the information is complete and accurate; (13) for borrowers who have been out of school for a year or more, the Department obtains income information directly from the Internal Revenue Service (IRS); (14) the Department does not verify the accuracy of information borrowers provide IRS but relies on IRS' verification process; (15) however, during the transition from using borrower documentation to using IRS information, the Department compares the income amounts from the two sources for discrepancies; and (16) if there are significant discrepancies or if borrowers do not cooperate in providing correct income information, they are removed from the ICR plan and placed into another repayment plan.	5,160	692
The basic purpose of prepositioning is to allow DOD to field combat-ready forces in days rather than in the weeks it would take if the forces and all necessary equipment and supplies had to be brought from the United States. However, the stocks must be (1) available in sufficient quantities to meet the needs of deploying forces and (2) in good condition. For prepositioning programs, these factors define "readiness." If on-hand stocks are not what is needed--or are in poor condition--the purpose of prepositioning may be defeated because the unit will lose valuable time obtaining or repairing equipment and supplies. U.S forces had months to build up for OIF, so speed was not imperative. Prepositioning sites became reception and staging areas during the months leading up to the war, and afforded the military the necessary time and access in Kuwait to build up its forces for the later offensive operations of OIF. Prepositioning programs grew in importance to U.S. military strategy after the end of the Cold War, particularly for the Army. Recognizing that it would have fewer forward-stationed ground forces--and to support the two-war strategy of the day--the Army used equipment made available from its drawdown to field new sets of combat equipment ashore in the Persian Gulf and in Korea. It also began an afloat program in the 1990s, using large ships to keep equipment and supplies available to support operations around the world. The Marine Corps has had a prepositioned capability since the 1980s. Its three Marine Expeditionary Forces are each assigned a squadron of ships packed with equipment and supplies--the Marines view this equipment as their "go-to-war" gear. Both the services also have retained some stocks in Europe, although the Army stocks have steadily declined since the end of the Cold War. Today, the Army has sites in the Netherlands, Luxembourg, and Italy, while the Marine Corps retains stocks in Norway. Figure 1 shows the location of Army and Marine Corps prepositioned equipment prior to OIF. Prepositioning is an important part of DOD's overall strategic mobility calculus. The U.S. military can deliver equipment and supplies in three ways: by air, by sea, or by prepositioning. Each part of this triad has its own advantages and disadvantages. Airlift is fast, but it is expensive to use and impractical for moving all of the material needed for a large-scale deployment. Although ships can carry large loads, they are relatively slow. Prepositioning lessens the strain on expensive airlift and reduces the reliance on relatively slow sealift deliveries. However, prepositioning requires the military to maintain equipment that essentially duplicates what the unit has at home station. Moreover, if the prepositioned equipment stocks are incomplete, the unit may have to bring along so much additional equipment that using it could still strain lift, especially scarce airlift in the early days of a conflict. The Army and Marine Corps reported that their prepositioned equipment performed well during OIF but that some problems emerged. We reviewed lessons-learned reports and talked to Army and Marine Corps officials who managed or used the equipment. We heard general consensus that major combat equipment was generally in good condition when drawn and that it performed well during the conflict. However, Army officials said that some equipment was out-of-date and some critical items like trucks were in short supply and parts and other supplies were sometimes not available. The officials agreed that, overall, OIF demonstrated that prepositioned stocks could successfully support major combat operations. Most of the issues we heard were with the Army's program. Marine Corps officials reported few shortfalls in their prepositioned stocks or mismatches with unit equipment. This is likely due to two key differences between the services. First, the Marines view prepositioned stocks as their "go-to-war" gear and give the stocks a very high priority for fill and modernization. Second, the units that will use the prepositioned stocks are assigned in advance and the Marine Corps told us that the combat units feel a sense of "ownership" in the equipment. This manifests itself in important ways. For example, the Marines have periodic conferences with all involved parties to work out exactly what their ships will carry and what the units will need to bring with them to the fight. Such an effort to tailor the prepositioned equipment increases familiarity, allows for prewar planning, and thus minimizes surprises or last-minute adjustments. The Marines also train with their gear periodically. By contrast, the Army does not designate the sets for any particular unit and provides little training with the equipment, especially with the afloat stocks. Personnel who used and managed the equipment agreed that the tanks, infantry fighting vehicles, and howitzers were in good condition when they were drawn from the prepositioned stocks; moreover, the equipment generally stayed operational throughout the fight. For example, the Third Infantry Division after-action report said that new systems and older systems proved to be very valuable and the tanks and Bradleys were both lethal and survivable. Additionally, according to Army Materiel Command documents, combat personnel reported that their equipment, in many cases, worked better than what they had at home station. Moreover, operational readiness data we reviewed showed that major combat equipment stayed operational, even in heavy combat across hundreds of miles. In fact, officials from both services agreed that OIF validated the prepositioning concept and showed that it can successfully support major combat operations. Moreover, the U.S. Central Command, in an internal lessons-learned effort, concluded that prepositioned stocks "proved their worth and were critical in successfully executing OIF." Some of the Army's prepositioned equipment was outdated or did not match what the units were used to at home station. At times, this required the units to "train down" to older and less-capable equipment or bring their own equipment from home. Examples include: Bradleys--The prepositioned stocks contained some older Bradley Fighting Vehicles that had not received upgrades installed since Operation Desert Storm. Such improvements included items like laser range finders, Global Positioning System navigation, thermal viewers, battlefield identification systems, and others. In addition, division personnel brought their own "Linebacker" Bradleys instead of using the outdated prepositioned stocks that would have required the crew to get out of the vehicle to fire. M113 Personnel Carriers--The prepositioned stocks contained many older model M113A2 vehicles. This model has difficulty keeping up with Abrams tanks and requires more repairs than the newer model M113A3, which the units had at home station. Trucks--The prepositioned stocks included 1960s-vintage model trucks that had manual transmissions and were more difficult to repair. Most units now use newer models that have automatic transmissions. The effect of this was that soldiers had to learn to drive stick shifts when they could have been performing other tasks needed to prepare for war; in addition, maintenance personnel were unfamiliar with fixing manual transmissions. Tank Recovery Vehicle--The prepositioned stocks contained M-88A1 recovery vehicles. These vehicles have long been known to lack sufficient power, speed, and reliability. We reported similar issues after Operation Desert Storm. According to data collected by the Army Materiel Command, these vehicles broke down frequently, generally could not keep up with the fast-paced operations, and did not have the needed capabilities even when they were in operation. None of these problems, however, were insurmountable. The U.S. forces had months to prepare for OIF, and plenty of time to adjust to the equipment they had available. Additionally, the U.S. forces faced an adversary whose military proved much less capable than U.S. forces. Our preliminary work also identified shortfalls in available spare parts and major problems with the theater distribution system, which were influenced by shortages of trucks and material handling equipment. Prior to OIF, the Army had significant shortages in its prepositioned stocks, especially in spare parts. This is a long-standing problem. We reported in 2001 that the status of the Army's prepositioned stocks and war reserves was of strategic concern because of shortages in spare parts. At that time the Army had on hand about 35 percent of its stated requirements of prepositioned spare parts and had about a $1-billion shortfall in required spare parts for war reserves. Table 1 shows the percentage of authorized parts that were available in March 2001 in the prepositioned stocks that were later used in OIF. These stocks represent a 15-day supply of spare and repair parts for brigade units (Prescribed Load List) and for the forward support battalion that backs up the brigade unit stocks (Authorized Stockage List). While the goal for these stocks was to be filled to 100 percent, according to Army officials the Army has not had sufficient funds to fill out the stocks. In March 2002, the Army staff directed that immediate measures be taken to fix the shortages and provided $25 million to support this effort. The requirements for needed spare and repair parts were to be filled to the extent possible by taking stocks from the peacetime inventory or, if unavailable there, from new procurement. By the time the war started in March of 2003, the fill rate had been substantially improved but significant shortages remained. The warfighter still lacked critical, high-value replacement parts like engines and transmissions. These items were not available in the supply system and could not be acquired in time. Shortages in spare and repair parts have been a systemic problem in the Army over the past few years. Our recent reports on Army spares discussed this issue and, as previously noted, our 2001 report highlighted problems specifically with prepositioned spares. According to Army officials, the fill rates for prepositioned spare parts-- especially high-value spares--were purposely kept down because of systemwide shortfalls. The Army's plan to mitigate this known risk was to have the units using the prepositioned sets to bring their own high-value spare parts in addition to obtaining spare parts from non-deploying units. Nonetheless, according to the Third Infantry Division OIF after-action report, spare parts shortages were a problem and there were also other shortfalls. In fact, basic loads of food and water, fuel, construction materials, and ammunition were also insufficient to meet the unit sustainment requirements. The combatant commander had built up the OIF force over a period of months, departing from doctrinal plans to have receiving units in theater to receive the stocks. When it came time to bring in the backup supplies, over 3,000 containers were download from the sustainment ships, which contained the required classes of supply--food, fuel, and spare parts, among others. The theater supply-and-distribution system became overwhelmed. The situation was worsened by the inability to track assets available in theater, which meant that the warfighter did not know what was available. The Third Infantry Division OIF after-action report noted that some items were flown in from Europe or Fort Stewart because they were not available on the local market. Taken together, all these factors contributed to a situation that one Army after-action report bluntly described as "chaos." Our recent report on logistics activities in OIF described a theater distribution capability that was insufficient and ineffective in managing and transporting the large amount of supplies and equipment during OIF. For example, the distribution of supplies to forward units was delayed because adequate transportation assets, such as cargo trucks and materiel handling equipment, were not available within the theater of operations. The distribution of supplies was also delayed because cargo arriving in shipping containers and pallets had to be separated and repackaged several times for delivery to multiple units in different locations. In addition, DOD's lack of an effective process for prioritizing cargo for delivery precluded the effective use of scarce theater transportation assets. Finally, one of the major causes of distribution problems during OIF was that most Army and Marine Corps logistics personnel and equipment did not deploy to the theater until after combat troops arrived, and in fact, most Army personnel did not arrive until after major combat operations were underway. Forces are being rotated to relieve personnel in theater. Instead of bringing their own equipment, these troops are continuing to use prepositioned stocks. Thus, it may be several years--depending on how long the Iraqi operations continue--before these stocks can be reconstituted. The Marine Corps used two of its three prepositioned squadrons (11 of 16 ships) to support OIF. As the Marines withdrew, they repaired some equipment in theater but sent much of it back to their maintenance facility in Blount Island, Florida. By late 2003, the Marine Corps had one of the two squadrons reconstituted through an abbreviated maintenance cycle, and sent back to sea. However, to support ongoing operations in Iraq, the Marine Corps sent equipment for one squadron back to Iraq, where it is expected to remain for all or most of 2004. The Marine Corps is currently performing maintenance on the second squadron of equipment that was used during OIF, and this work is scheduled to be completed in 2005. Most of the equipment that the Army used for OIF is still in use or is being held in theater in the event it may be needed in the future. The Army used nearly all of its prepositioned ship stocks and its ashore stocks in Kuwait and Qatar, as well as drawing some stocks from Europe. In total, this included more than 10,000 pieces of rolling stock, 670,000 repair parts, 3,000 containers, and thousands of additional pieces of other equipment. According to Army officials, the Army is repairing this equipment in theater and reissuing it piece-by-piece to support ongoing operations. Thus far, the Army has reissued more than 11,000 pieces of equipment, and it envisions that it will have to issue more of its remaining equipment to support future operations. Thus, it may be 2006 or later before this equipment becomes available to be reconstituted to refill the prepositioned stocks. Officials also told us that, after having been in use for years in harsh desert conditions, much of the equipment would likely require substantial maintenance and some will be worn out beyond repair. Figure 2 shows OIF trucks needing repair. Both the Army and the Marine Corps have retained prepositioned stocks in the Pacific to cover a possible contingency in that region. While the Marine Corps used two of its three squadrons in OIF, it left the other squadron afloat near Guam. The Army used most of its ship stocks for OIF, but it still has a brigade set available in Korea and one combat ship is on station to support a potential conflict in Korea, although it is only partially filled. Both the Army and the Marine Corps used stocks from Europe to support OIF. The current status of the services' prepositioned sets is discussed in table 2. Army and Marine Corps maintenance officials told us that it is difficult to reliably estimate the costs of reconstituting the equipment because so much of it is still in use. As a result, the reconstitution timeline is unclear. Based on past experience, it is reasonable to expect that the harsh desert environment in the Persian Gulf region will exact a heavy toll on the equipment. For example, we reported in 1993 that equipment returned from Operation Desert Storm was in much worse shape than expected because of exposure for lengthy periods to harsh desert conditions. The Army has estimated that the cost for reconstituting its prepositioned equipment assets is about $1.7 billion for depot maintenance, unit level maintenance, and procurement of required parts and supplies. A request for about $700 million was included in the fiscal year 2004 Global War on Terrorism supplemental budget, leaving a projected shortfall of about $1 billion. Army Materiel Command officials said they have thus far received only a small part of the amount funded in the 2004 supplemental for reconstitution of the prepositioned equipment, but they noted that not much equipment has been available. Additionally, continuing operations in Iraq have been consuming much of the Army's supplemental funding intended for reconstitution. Since much of the equipment is still in Southwest Asia, it is unclear how much reconstitution funding for its prepositioned equipment the Army can use in fiscal year 2005. But it is clear that there is a significant bill that will have to be paid for reconstitution of Army prepositioned stocks at some point in the future, if the Army intends to reconfigure the afloat and land-based prepositioned sets that have been used in OIF. The defense department faces many issues as it rebuilds its prepositioning program and makes plans for how such stocks fit into the transformed military. In the near term, the Army and the Marine Corps must focus on supporting current operations and reconstituting their prepositioning sets. Moreover, we believe that the Army may be able to take some actions to address the shortfalls and other problems it experienced during OIF. In the long term, however, DOD faces fundamental issues as it plans the future of its prepositioning programs. As it reconstitutes its program, the Army would likely benefit from addressing the issues brought to light during OIF, giving priority to actions that would address long-standing problems, mitigate near-term risk, and shore up readiness in key parts of its prepositioning program. These include ensuring that it has adequate equipment and spare parts and sustainment supplies in its prepositioning programs, giving priority to afloat and Korea stocks; selectively modernizing equipment so that it will match unit equipment and better meet operational needs; and planning and conducting training to practice drawing and using prepositioned stocks, especially afloat stocks. Based on some contrasts in the experiences between the Army and the Marine Corps with their prepositioned equipment and supplies in OIF, some officials we spoke to agree that establishing a closer relationship between operational units and the prepositioned stocks they would be expected to use in a contingency is critical to wartime success. The Marines practice with their stocks and the Army could benefit from training on how to unload, prepare, and support prepositioned stocks, particularly afloat stocks. While the Army has had some exercises using its land-based equipment in Kuwait and Korea, it has not recently conducted a training exercise to practice unloading its afloat assets. According to Army officials, such exercises have been scheduled over the past few years, but were cancelled due to lack of funding. The long-term issues transcend the Army and Marines, and demand a coordinated effort by the department. In our view, three main areas should guide the effort. Determine the role of prepositioning in light of the efforts to transform the military. Perhaps it is time for DOD to go back to the drawing board and ask: what is the military trying to achieve with these stocks and how do they fit into future operational plans? If, as indicated in Desert Storm and OIF, prepositioning is to continue to play an important part in meeting future military commitments, priority is needed for prepositioning as a part of transformation planning in the future. Establish sound prepositioning requirements that support joint expeditionary forces. If DOD decides that prepositioning is to continue to play an important role in supporting future combat operations, establishing sound requirements that are fully integrated is critical. The department is beginning to rethink what capabilities could be needed. For example, the Army and Marines are pursuing sea-basing ideas--where prepositioning ships could serve as offshore logistics bases. Such ideas seem to have merit, but are still in the conceptual phases, and it is not clear to what extent the concepts are being approached to maximize potential for joint operations. In our view, options will be needed to find ways to cost-effectively integrate prepositioning requirements into the transforming DOD force structure requirements. For example, Rand recently published a report suggesting that the military consider prepositioning support equipment to help the Stryker brigade meet deployment timelines. Such support equipment constitutes much of the weight and volume of the brigade, but a relatively small part of the costs compared to the combat systems. Such an option may be needed, since our recent report revealed that the Army would likely be unable to meet its deployment timelines for the Stryker brigade. Ensure that the program is resourced commensurate with its priority, and is affordable even as the force is transformed. In our view, DOD must consider affordability. In the past, the drawdown of Army forces made prepositioning a practical alternative because it made extra equipment available. However, as the services' equipment is transformed and recapitalized, it may not be practical to buy enough equipment for units at home station and for prepositioning. Prepositioned stocks are intended to reduce response times and enable forces to meet the demands of the full spectrum of military operations. Once the future role of prepositioning is determined, and program requirements are set, it will be important to give the program proper funding priority. Congress will have a key role in reviewing the department's assessment of the cost effectiveness of options to support DOD's overall mission, including prepositioning and other alternatives for projecting forces quickly to the far reaches of the globe. Mr. Chairman, I hope this information is useful to Congress as it considers DOD's plans and funding requests for reconstituting its prepositioned stocks as well as integrating prepositioning into the department's transformation of its military forces. This concludes my prepared statement. I would be happy to answer any questions that you or the Members of the Subcommittee may have. For questions about this statement, please contact William M. Solis at (202) 512-8365 (e-mail address: [email protected]), Julia Denman at (202) 512-4290 (e-mail address: [email protected]), or John Pendleton at (404) 679-1816 (e-mail address: [email protected]). Additional individuals making key contributions included Nancy Benco, Robert Malpass, Tinh Nguyen, and Tanisha Stewart. 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.	Since the Cold War, the Department of Defense (DOD) has increased its reliance on prepositioned stocks of military equipment and supplies, primarily because it can no longer plan on having a large forward troop presence. Prepositioned stocks are stored on ships and on land in the Persian Gulf and other regions around the world. Prepositioning allows the military to respond rapidly to conflicts. Ideally, units need only to bring troops and a small amount of materiel to the conflict area. Once there, troops can draw on prepositioned equipment and supplies, and then move quickly into combat. Today's testimony describes (1) the performance and availability of Army and Marine Corps prepositioned equipment and supplies to support Operation Iraqi Freedom (OIF); (2) current status of the stocks and plans to reconstitute them; and (3) key issues facing the military as it reshapes these programs to support DOD's force transformation efforts. The importance of prepositioned stocks was dramatically illustrated during OIF. While they faced some challenges, the Army and Marine Corps relied heavily on prepositioned combat equipment and supplies to decisively defeat the Iraqi military. They both reported that prepositioned stocks were a key factor in the success of OIF. Prepositioned stocks provided most of the combat equipment used and, for the most part, this equipment was in good condition and maintained high readiness rates. However, the Army's prepositioned equipment included some older models of equipment and shortfalls in support equipment such as trucks, spare parts, and other supplies. Moreover, the warfighter did not always know what prepositioned stocks were available in theater, apparently worsening an already overwhelmed supply-and-distribution system. The units were able to overcome these challenges; fortunately, the long time available to build up forces allowed units to fill many of the shortages and adjust to unfamiliar equipment. Much of the prepositioned equipment is still being used to support continuing operations in Iraq. It will be several years--depending on how long Iraqi Freedom operations continue--before these stocks will be available to return to prepositioning programs. And, even after they become available, much of the equipment will likely require substantial maintenance, or may be worn out beyond repair. The Army has estimated that it has an unfunded requirement of over $1 billion for reconstituting the prepositioned equipment used in OIF. However, since most prepositioned equipment is still in Southwest Asia and has not been turned back to the Army Materiel Command for reconstitution, most of the funding is not required at this time. When the prepositioned equipment is no longer needed in theater, decisions will have to be made about what equipment can be repaired by combat units, what equipment must go to depot, and what equipment must be replaced with existing or new equipment to enable the Army to reconstitute the prepositioned sets that were downloaded for OIF. DOD faces many issues as it rebuilds its prepositioning program and makes plans for how such stocks fit into its future. In the near term, the Army and Marines must necessarily focus on supporting ongoing OIF operations. While waiting to reconstitute its program, the Army also has an opportunity to address shortfalls and modernize remaining stocks. For the longer term, DOD may need to (1) determine the role of prepositioning in light of efforts to transform the military; (2) establish sound prepositioning requirements that support joint expeditionary forces; and (3) ensure that the program is resourced commensurate with its priority and is affordable even as the force is transformed. Congress will play a key role in reviewing DOD's assessment of the cost effectiveness of various options to support its overall mission, including prepositioning and other alternatives for projecting forces quickly.	4,804	783
The MHSS consists of military medical facilities and private sector health care providers. The primary mission of the MHSS is to maintain the health of military personnel and to support the services during time of war. In addition, the MHSS provides health care to dependents of active duty members, retirees and their dependents, and survivors of service members. Active duty members receive their care almost entirely from military medical facilities. When space and resources are available, other beneficiaries may obtain their care from military medical facilities as well. Overseas, U.S. civilian government employees are also eligible to receive care in military medical facilities on a space-available basis. The collapse of the Warsaw Pact and the end of the Cold War have significantly changed the American military landscape in Europe. Because of the easing of East-West tensions, the United States has chosen to substantially reduce its military forces in Europe. Between July 1990 and April 1993, DOD initiated three major plans to reduce its military forces in Europe, each with successively lower personnel levels. The first plan, developed in July 1990, would have reduced military positions in Europe to 225,000; the second to 150,000; and the latest plan calls for about 100,000 Army, Air Force, and Navy personnel in Europe by the end of fiscal year 1996. The U.S. military medical system in Europe has also been reduced and reorganized. The number of military hospitals and clinics in Europe is being cut from 23 hospitals and 89 clinics in 1989 to 9 hospitals and 48 clinics in 1995. In Germany, for example, the Air Force is reducing its hospitals from three to one and its clinics from six to five. Army hospitals and clinics in Germany are being reduced from 9 to 3 and 55 to 25, respectively. In northern Italy, the Air Force has one clinic and the Army has one hospital and one clinic, the same as in 1989. The Army, however, plans to convert the hospital to a clinic in October 1995 because (1) very low utilization makes it difficult to maintain a high-quality hospital and (2) quality medical care is available from host nation providers. Appendix II lists those Air Force and Army medical facilities operating as of April 21, 1995. The number of dental clinics is also being significantly cut back. Prior to the downsizing, the Army had 94 dental clinics in Europe. The Army has completed its reduction and now has 35 dental clinics. The Air Force is reducing its dental clinics from 31 to 11. Beneficiaries have access to primary care at military facilities, including outlying clinics. Most of the outlying clinics are closed in the evenings and on weekends, however, necessitating that after-hours primary care and emergency services be obtained from German and Italian providers. In general, U.S. military specialty care is available to active duty personnel and is most accessible to beneficiaries living near U.S. military hospitals. Dental care is more readily available to active duty personnel than other beneficiaries. Military providers told us that primary care clinics are able to serve most beneficiaries. Since 1989, the ratio of primary care providers (general medical officers, family practice physicians, physician's assistants, and nurse clinicians) to beneficiaries has improved--from 1:1,222 to 1:868--and plans call for further improvement to 1:661 by November 1995. Generally, clinics are open Monday through Friday, and some have extended hours--one evening during the week or morning hours on the weekend. Two Army clinics in Germany are open 24 hours, 7 days a week. Beneficiaries in all categories expressed general satisfaction with their access to primary care in military facilities. They did, however, express frustration over difficulties in making appointments by telephone and delays in obtaining routine physical exams and well-woman exams. They also stated concerns about delays in obtaining test results. Although the overall ratio of primary care providers is improving, staff at many of the outlying clinics we visited mentioned that they need more physicians trained in family practice and pediatrics. Some of the clinics had no family practice, pediatric, or other primary care specialty physician except the clinic commander who also had administrative and supervisory responsibilities. Army clinics rely heavily on general medical officers to provide primary care. Army officials stated that they do not have enough family practice or other specialty-trained primary care physicians to assign to clinics. DOD was unable to provide us with data to compute how the ratios of specialists to beneficiaries have changed since 1989 or to measure how long it takes to get an appointment with a specialist. However, the military medical leadership, military physicians, and beneficiaries all commented that there has been a significant reduction in the amount and location of U.S. military specialty care available in Europe since the downsizing began. As a result, access to specialty care varies by specialty and among categories of beneficiaries. Some specialty areas have substantially fewer physicians than before the downsizing began. For example, the number of Army obstetricians/gynecologists has been reduced from 42 to 17; urologists from 6 to 2; otolaryngologists (ear, nose, and throat) from 8 to 4; general surgeons from 32 to 11; and orthopedic surgeons from 26 to 11. Only one specialty (nephrology), however, is no longer available in Europe. Active duty members are generally able to obtain the specialty care they need, although in some instances they must wait a month or longer. Service members needing inpatient psychiatric services are sometimes sent back to the United States for such care because of limited inpatient mental health resources in Europe. Non-active duty beneficiaries have less, and in some cases no, access to specialty care, particularly otolaryngology, orthopedics, and mental health--also because of limited resources. Beneficiaries and military medical officials commented that many people who need these services must either wait a substantial period of time to get the care from military facilities in Europe or return to the United States for it. Access to specialty care is also less convenient because of the reduction in U.S. military hospitals. In 1989 the Army had nine hospitals in Germany. Now U.S. military specialty care is provided almost entirely in the three remaining Army hospitals in Germany: Landstuhl, Wuerzburg, and Heidelberg. Beneficiaries in Augsburg, for example, must travel about 130 miles one way to obtain the specialty care that is available at the U.S. Army hospital in Wuerzburg or about 170 miles one way to Landstuhl to obtain specialty care that is not available in Wuerzburg. Beneficiaries in many communities throughout Germany find themselves in similar circumstances. Obtaining specialty care is also inconvenient for beneficiaries when repeat hospital visits are required. For example, most outlying clinics do not have physical therapists or mental health professionals on staff. Consequently, patients must travel to one of the military hospitals to obtain these recurring services. Each visit frequently requires patients to spend a full day traveling and receiving services. To help beneficiaries living in remote areas, specialists assigned to the three Army hospitals periodically visit clinics to provide care, but these visits are infrequent. Also, military communities provide shuttle bus service to the nearest U.S. military hospital. In most communities, the shuttle bus makes one trip daily between the military community and the hospital, leaving early in the morning and returning in the late afternoon of the same day. In some communities, however, the service is limited to only a few days each week. Regardless, making long trips for follow-up appointments created hardships on family members and active duty service members with family and work responsibilities. Also, we were told that soldiers' full-day absences from their assigned duties can adversely affect their units' wartime readiness. In northern Italy, the Army plans to convert its hospital in Vicenza to an outpatient clinic in October 1995. The clinic will maintain an after-hours acute care capacity to treat minor injuries and illnesses. Emergency and specialty care, now available at the Vicenza Army hospital, will be provided by the city hospital in Vicenza, by other Italian facilities, or by military facilities in Germany or the United States. (For some time now, life-threatening emergencies have been sent to Vicenza's city hospital.) For other military communities in northern Italy, such as Aviano and Livorno, specialty care will continue to be provided by host nation facilities, as it has since 1989. Relatively few military retirees and their dependents age 65 and older live overseas. Those that do are especially concerned about their access to specialty health care because Medicare coverage does not extend to beneficiaries living overseas. DOD estimates that fewer than 1,400 such beneficiaries reside in Europe. These beneficiaries, who have chosen to reside overseas, have been largely dependent on the military health care system to provide their medical care and, as a result, many have never purchased supplemental health insurance through U.S. or host nation health companies. Obtaining private insurance may not be an option for some elderly retirees and family members because it is costly. Access to dental care is limited for many beneficiaries living in Europe. Active duty personnel have better access to dental care than do their family members, who are generally able to obtain only emergency dental care, annual examinations, and cleanings. Many beneficiaries, except for active duty, have limited or no access to specialty dental care. The dental staff in some clinics dedicate most of their orthodontic care to patients whose treatment programs were initiated in the United States. New cases are seldom started. In Vicenza and Livorno, all beneficiaries have access to dental services. Many beneficiaries and U.S. military dentists do not consider host nation dental care a viable option. It is expensive, and beneficiaries do not like the differences in the practice patterns of host nation dentists. Numerous obstacles confront the MHSS in Europe. Some existed prior to the downsizing, including medical staffing shortages, long waits for laboratory results, and equipment problems. Many U.S. military physicians stated that these obstacles hinder their ability to provide quality medical care. Many clinic and hospital officials we met with stated that they have too few military and civilian personnel. Their facilities are staffed at less than 100 percent of authorized military levels in such positions as nurses, medics, X-ray technicians, and pharmacy technicians. In addition, medical staff frequently complained about shortages in civilian personnel, including receptionists, custodians, and patient liaisons. Medical staff are working long hours attempting to meet the demand for care. Two other factors have had a serious impact on the military's ability to meet the health care needs of all beneficiaries in Europe. First, medical and dental units have been under additional strain to meet the demand for care during the downsizing. The military had intended to keep medical resources in Europe at levels proportionally higher than nonmedical units so that access to health care would be improved during the downsizing. To the contrary, many of the health and dental clinics we visited were staffed at their so called "endstate" levels, while nonmedical units had not yet reached their final levels. Army officials were unable to provide documents showing how a coordinated withdrawal of medical and nonmedical personnel was planned to ensure improved access to health care. However, they did provide data indicating that the ratios of total medical personnel to beneficiaries have changed little since 1989--from 1:31 to 1:38. Over time, as more units withdraw from Europe, this tension should ease somewhat. Second, until recently, Army medical units have not received replacements when their medical personnel are temporarily reassigned to other units. Between October 1993 and December 1994 the Army in Europe sent 715 men and women from medical units to other areas of the world without providing replacement personnel for the affected medical units. These actions often resulted in immediate personnel shortages for the medical units in Europe and further hindered the delivery of health care to beneficiaries there. The Army has implemented a policy which calls for replacing medical personnel (not necessarily on a one-for-one basis) who are temporarily assigned to other units for more than 14 days. Since March 1995, the Army has provided temporary replacements to medical units in Europe. Medical staff experience daily problems with equipment failures and delays in obtaining laboratory test results. Generally, these problems are attributed to old and unreliable equipment. Staff repeatedly told us that X-ray, X-ray processor, and culture machines are frequently broken. They also mentioned that problems exist with the ambulance fleet, defibrillators, CT scanners, and pulse oximeters because they are old, outdated, or in short supply. Medical staff also experience problems in obtaining laboratory test results. Although data were unavailable on the specific or average times needed to get laboratory results, staff said that all test results require more time than they should to get back. Results of glucose, potassium, cholesterol, liver and thyroid function, and tissue exams are typically delayed, as are X rays. Health care providers at one clinic estimated that it took between 2 and 4 weeks to obtain the results for such tests. They cited delays as long as 2 months for Pap test results. DOD is currently implementing a medical information system that will allow providers to obtain test results via computer rather than mail. The new computer system, officials believe, should enable military providers to get laboratory results in a more timely manner. Beneficiaries under age 65 who either are unable or do not want to receive care from military medical facilities have the option of obtaining care from host nation providers. Although the beneficiaries we spoke with were generally satisfied with the outcome of the host nation health care they received, they expressed a great deal of frustration over their specific experiences in obtaining that care. They also expressed a strong preference to receive their health care from military facilities. Beneficiaries and military medical officials agree, however, that as less and less care is available from military medical facilities in Europe, beneficiaries will have to rely more on host nation providers. Beneficiaries are frustrated with host nation medical care for a variety of reasons. Some host nation providers, for example, require payment or a large deposit in advance of treating U.S. military beneficiaries. These upfront payments, we were told, amount to as much as the equivalent of about $6,000. Also, U.S. military officials provide beneficiaries little information or help in choosing German or Italian providers. Essentially, beneficiaries are given a list of English-speaking doctors and encouraged to ask other beneficiaries about their experiences with these doctors before selecting one. In addition, beneficiaries feel abandoned by military medical physicians when they use host nation providers. In general, military physicians are not required to actively monitor U.S. patients' care in host nation facilities. Although they may be aware of their patients' progress, the lack of direct contact gives beneficiaries the impression that they have been "dumped" on host nation providers and that the military is not concerned about their care. The Aviano community is an exception. Several patient assistance services have been in place for some time there. For example, the Air Force contracts with bilingual Italian physicians to help beneficiaries understand their diagnosis and treatment. Beneficiaries also mentioned that they need help obtaining services from host nation facilities, especially during evenings and weekends. They are concerned about such matters as knowing where to go, having someone available to translate their medical emergency, and getting assistance with paperwork. In addition, beneficiaries using host nation providers were required to pay deductibles and copayments for their care. When admitted, beneficiaries explained that they must contend with language barriers, cultural differences, and quality of care concerns such as differences in treatment. Military physicians told us that some differences in treatment do exist among the U.S., German, and Italian systems. Although the cultural and treatment differences are unsettling to U.S. patients, the military medical staff, for the most part, are confident about the quality of health care delivered in Germany and northern Italy. Once care is completed and patients are released from host nation providers, many patients are left with their medical information in a foreign language. This problem is most prevalent in Germany where, currently, treatment records are written in German, and often the only information translated is that done by bilingual physicians working for the U.S. military. In several communities, military physicians estimated that less than 10 percent of medical records are ever translated. Consequently, patients may not have an adequate record of their medical conditions and treatments. DOD and beneficiaries recognize that there must be a greater reliance on host nation care: Rebuilding U.S. military medical facilities overseas is not an option. Therefore, DOD has taken and is planning a number of steps to alleviate beneficiary concerns and improve access to host nation care. Although some of DOD's actions have been slow in coming, most are expected to be in place by October 1995. In our view, these actions are positive steps toward alleviating the concerns voiced by beneficiaries. However, the extent to which beneficiaries will be satisfied remains to be seen. To address beneficiaries' overall concern, DOD is developing an interservice health care plan for all beneficiaries in Europe that seeks to maximize the use of military medical facilities. This effort is being headed by a tri-service executive steering committee made up of senior medical officials in Europe and assisted by a military treatment facility commander's council--a group representing military hospital and clinic commanders in Europe. Instead of focusing on tangible outcomes, most efforts to date have focused on planning, coordinating, and determining how the military services can effectively work together to better serve their beneficiaries. These formative sessions represent a significant step because, in the past, the services have essentially operated independently rather than working in a collaborative way. Beginning in the summer of 1994, DOD also initiated efforts to establish a preferred provider network in Europe, Africa, and the Middle East. Once completed, this network will enable beneficiaries to choose among various host nation providers who (1) are interested in serving them, (2) are willing to accept payment under CHAMPUS, and (3) will not require advance payments from beneficiaries. At the outset approximately 20,000 host nation providers were identified as having billed CHAMPUS for services. DOD contacted these providers and asked if they were willing to treat U.S. beneficiaries, outlining the conditions. DOD is also working to ensure the quality of network participants by verifying their qualifications. As of February 1995, over 4,000 of these providers had indicated an interest in joining a CHAMPUS-preferred provider network. In April 1995, the Army established a toll-free telephone number for beneficiaries to obtain after-hours referrals to host nation facilities. The service is currently available at Army hospitals in Heidelberg and Wuerzburg and is planned for Landstuhl as well. To assist beneficiaries who are using host nation providers, DOD established a patient liaison coordinator program. As of June 5, 1995, 59 patient liaisons were assigned to Europe. These liaisons (1) coordinate consultations with host nation facilities and follow-up care, (2) help make appointments at host nation facilities, (3) educate beneficiaries on host nation medical services, (4) interpret information between host nation providers and beneficiaries, (5) assist with paperwork associated with hospitalization at host nation facilities, and (6) visit patients in hospitals. Beneficiaries generally agree that the patient liaisons reduce the anxiety involved in using host nation facilities. However, most communities have only one or two patient liaisons and whose services are generally available only on weekdays until 4 p.m. The patient liaison program is intended to be supplemented with a volunteer system to provide coverage after business hours. However, none of the communities we visited had yet established a volunteer system that provided evening and weekend coverage. Consequently, beneficiaries using host nation facilities after normal business hours often obtained that care without assistance. In response, DOD has agreed to increase the availability of liaisons to provide 24-hour coverage. Effective October 1, 1994, DOD expanded an existing CHAMPUS initiative to improve access to host nation facilities for active duty family members. DOD estimates this initiative will cost approximately $2.8 million annually. The expanded CHAMPUS initiative waives cost sharing for active duty family members who obtain outpatient and inpatient care at host nation facilities. Beneficiaries are pleased and indicated that the elimination of copayments and deductibles has enhanced their willingness to seek care at host nation facilities. DOD is also planning to use host nation physicians to act as liaisons and assist military doctors in monitoring beneficiaries admitted to host nation facilities for care. The direct involvement of a physician representing the military may ease beneficiaries' feelings of being "dumped" when they are referred to host nation facilities. To better inform beneficiaries and thereby reduce their anxieties about health care--military and host nation--available in their communities in Europe, DOD is creating an education program. DOD is also planning to have host nation medical records translated into English. This should help ensure that in the future patients will have an adequate record of previous medical conditions and treatments. To improve beneficiaries' access to dental care, DOD is taking a number of steps. First, DOD is striving to efficiently use its existing dental capabilities, including sharing resources among the three services. Second, DOD is increasing the number of dentists, orthodontists, pedodontists, and other dental support personnel assigned in Europe. The Air Force plans to assign an additional 23 general dentists, 2 orthodontists, 2 pedodontists, and 54 dental assistants to Europe during fiscal year 1995. As of May 26, 1995, all but four dentists had arrived overseas. The Army has contracted with civilians to fill 22 general dentist, 5 orthodontist, and 10 dental hygienist positions. Third, at remote locations or areas with small populations where military dental services may not be available, DOD plans to arrange for dental care through host nation providers. Fourth, family members will be allowed to remain enrolled in the Dependents Dental Plan while the service member is assigned overseas. This will permit family members to obtain dental care in the United States, for example, during stateside visits. Finally, over the past year, DOD has made an effort to educate beneficiaries on the forthcoming changes in Vicenza and to develop a plan to ensure the availability of quality medical care. For example, it has (1) prepared a new detailed handbook to inform patients about host nation obstetrical services; (2) developed a questionnaire to obtain beneficiary feedback about host nation medical care; (3) held meetings with beneficiaries to educate them on the changes; (4) hired a host nation physician to perform oversight and liaison services among the host nation facility, the patient, and the military medical providers; and (5) made arrangements for translators to assist when Italian ambulance service is needed. Several other significant steps are described in detail in a plan DOD prepared and sent to the Congress in March 1995. In February 1995, an Italian newspaper reported that the hospital in Vicenza--the primary host nation referral facility--was alleged to have engaged in poor health care practices. These practices included improper disposal of contaminated waste in the emergency room, operating rooms, and the pathologic anatomy and metabolic disease sections. Expired or spoiled medicines were also reportedly discovered throughout the hospital. Army medical officials in Vicenza followed up with hospital administrators and were assured that U.S. beneficiaries did not receive expired medicines or have resultant bad medical outcomes. Army officials believe the situation is resolved and that beneficiaries are not at any risk. They believe the hospital provides superb care overall. This incident does, however, provide sufficient reason for military medical providers to remain actively involved in their patients' care when they are referred to host nation facilities. Army officials recognize this need and have pledged to actively monitor all patient care in host nation facilities. Military health and dental care professionals are working long hours attempting to meet beneficiary demands that are greater than military facilities are staffed to provide. Even though some of the strain placed on medical and dental resources may decrease slightly as the beneficiary population in Europe continues to shrink, the military medical facilities in Europe will not have the capacity to handle all care to eligible beneficiaries. Nor does it appear practical to staff and maintain enough military medical facilities to meet the peace-time health care needs of all eligible beneficiaries. Troops are widely dispersed and, in some places, too few in number to provide the workload necessary to justify a full service medical facility and enable medical staff to maintain their skills. Therefore, beneficiaries' use of host nation medical care will continue and may increase. Given these circumstances, the U.S. military medical leadership needs to continue to take an active role in attending to and managing the health care needs of beneficiaries--particularly those who must rely on host nation care. An active military role not only will ensure that beneficiaries receive appropriate care but should also improve the perceptions that beneficiaries have about host nation health care. DOD has been slow to address the problems confronting military beneficiaries. In our view, though, the steps that have been taken are directed toward alleviating the major concerns of most beneficiaries. Because of these actions, we are not making any recommendations. In a letter dated June 20, 1995, the Assistant Secretary of Defense (Health Affairs) generally concurred with this report. (See app. III.) The letter acknowledged that we accurately described the problems and the corrective actions under way and planned. In addition, DOD officials provided updated information on some of the actions they are taking, and this has been added to the report. We are sending copies of this report to the Chairman and Ranking Minority Member, Senate Committee on Armed Services; the Chairman and Ranking Minority Member, Subcommittee on Military Personnel, House Committee on National Security; the Secretary of Defense; and other interested parties. This work was performed under the direction of Stephen Backhus, Assistant Director. Other major contributors were Timothy Hall and Barry DeWeese. Please contact me on (202) 512-7101 if you have any questions about this report. To assess how DOD is meeting the needs of beneficiaries overseas as the number of military personnel and facilities are reduced, we visited the following 15 military communities: Augsburg, Darmstadt, Frankfurt, Grafenwoehr, Hanau, Heidelberg, Kaiserslautern, Katterbach, Nuremberg, Spangdahlem, Stuttgart, Wiesbaden, and Wuerzburg, Germany; and Aviano and Vicenza, Italy. During these visits we met with numerous military health officials, including the commanders of the of the five remaining U.S. military hospitals in Germany and northern Italy (four Army and one Air Force). In addition, we interviewed 29 physicians representing obstetrics/gynecology, family practice, pediatrics, orthopedics, allergy/immunology, psychiatry, ambulatory patient care, internal medicine, radiology, otolaryngologists, and general surgery. We also met with 11 Army and Air Force commanders and staff of outlying health clinics. Because beneficiaries indicated concerns over a lack of access to U.S. dental facilities overseas, we interviewed six Army dental commanders, including three Army dental clinic commanders assigned to outlying military communities. We conducted "round-table" panel discussions to obtain input from beneficiaries as to changes in the availability of health care. We convened 20 panels with a total of 102 beneficiaries in the military communities we visited in Europe. Most of the beneficiaries were active duty members and their dependents. The beneficiaries were not randomly selected but were identified by representatives of the National Military Family Association, Army Community Services, and Air Force Family Support Centers. These meetings with (1) military medical and dental staff and (2) beneficiaries provided the basis for much of the information contained in this report. Both before and after our visit to Europe, we met with officials of the Office of the Assistant Secretary of Defense (Health Affairs) and Offices of the Surgeons General to discuss the status of their actions and plans to meet the health care needs of beneficiaries overseas. In addition, we met with representatives of the National Military Family Association--an advocacy group for military families--to discuss their concerns about military and host nation health care in Europe. We reviewed documents obtained from military medical officials in the Office of the Assistant Secretary of Defense (Health Affairs), Offices of the Surgeons General, and various medical activities in Europe. These documents included legislation, policy memorandums, medical drawdown information, data on beneficiary access to care, data on military medical staffing in Europe, analyses of beneficiary complaints, and beneficiary handbooks about military and host nation medical care. We did our work between March 1994 and March 1995 in accordance with generally accepted government auditing standards. The following is a list of all U.S. Air Force and U.S. Army medical facilities operating in Germany and northern Italy as of April 21, 1995. Air Force facilities are noted with an asterisk. 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.	Pursuant to a congressional request, GAO reviewed beneficiary access to military health care in Europe, focusing on the: (1) availability of health care in military facilities; (2) obstacles in providing military health care; (3) experiences of beneficiaries that have used host nation providers instead of military health care providers; and (4) Department of Defense's (DOD) handling of service delivery problems and beneficiary concerns. GAO found that: (1) since the downsizing of U.S. military personnel in Europe, beneficiaries have found it difficult to obtain health services at overseas military facilities; (2) although beneficiaries have access to primary health care services, their access to specialty and dental care services is limited; (3) the reduced military health care system has resulted in DOD relying on the German and Italian medical systems to provide health services to beneficiaries; and (4) beneficiaries must contend with language barriers, cultural differences, unfamiliar doctors, and the general lack of information about how to obtain host nation health care. In addition, GAO found that DOD: (1) is developing an interservice health care plan for all beneficiaries in Europe; (2) has hired liason personnel to help beneficiaries obtain health care from German and Italian health care providers; and (3) plans to contract for services to monitor the care that beneficiaries receive from host nation providers, an education program that explains beneficiary health care options in Europe, and the translation of host nation medical records.	6,364	291
ASD(HD&ASA), within the Office of the Under Secretary of Defense for Policy, serves as the principal civilian advisor and the Chairman of the Joint Chiefs of Staff serves as the principal military advisor to the Secretary of Defense on critical infrastructure protection. ASD(HD&ASA) has issued guidance to help assure the availability of critical infrastructure. A component of this guidance outlines the roles and responsibilities of the organizations involved in DCIP. Table 1 summarizes the training and exercise roles and responsibilities of each DCIP organization. TRANSCOM and the installations we visited that have critical transportation assets have incorporated DCIP-like elements into their existing exercises. Although installation personnel we met with often were unaware of DCIP, we found that many conducted routine antiterrorism, emergency management, information assurance, and continuity of operations planning exercises that often include critical transportation assets located on the installation. As part of their regularly scheduled antiterrorism and continuity of operations programs, installation officials at all 19 installations we visited that have critical transportation assets conducted exercises encompassing critical assets located on their installations. However, unlike DCIP, some of these programs do not emphasize an all-threats, all-hazards approach to assuring critical infrastructure. DOD guidance requires the testing of antiterrorism and continuity of operations plans annually through various exercises. DOD's antiterrorism guidance requires that commanders maintain antiterrorism exercise documentation for no less than 2 years to ensure incorporation of lessons learned. These antiterrorism exercises often contain aspects of DCIP, such as (1) developing adaptive plans and procedures to mitigate risk, (2) restoring capability in the event of a loss or degradation of assets, (3) supporting incident management, and (4) protecting critical infrastructure-related sensitive information. For example, even though installation personnel are often unaware of DCIP, we found that exercises testing antiterrorism and continuity of operations plans typically include critical installation infrastructure, and exercises for emergency management plans sometimes include assuring the availability of critical transportation assets in the event of natural disasters. Several installations in Japan that we visited conducted exercises that assure the availability of critical transportation assets located on those installations. Also, several installation officials responsible for critical transportation assets in PACOM's area of responsibility with whom we met told us that they conduct exercises that examine the impact of natural disasters, such as earthquakes and typhoons, on critical infrastructure. Installation officials responsible for critical transportation assets in CENTCOM's area of responsibility told us that they incorporate lessons learned into future exercises. For instance, an installation in the Middle East used exercises to prepare for its response to and recovery from major accidents, natural disasters, attacks, or terrorist use of chemical, biological, radiological, nuclear, or high-yield explosives, and has incorporated its findings into planning for future exercises. Although several of the combatant commands and military services we visited have variously developed headquarters-level DCIP training programs, DOD has not developed DCIP training standards departmentwide. Further, many of the installation personnel responsible for the assurance of critical infrastructure remain unaware of the DCIP program and the DCIP expertise available at the combatant command and military service levels. DOD's DCIP instruction requires ASD(HD&ASA) to provide policy and guidance for DCIP and oversee the implementation of DCIP education, training, and awareness of goals and objectives. ASD(HD&ASA) recognized the need for DCIP training in its March 2008 Strategy for Defense Critical Infrastructure. Specifically, the strategy states that ASD(HD&ASA) will establish baseline critical infrastructure education requirements. Given that this strategy is relatively new, DCIP training standards have not yet been established departmentwide nor has DOD established a time frame for implementing the training standards. However, in the absence of DCIP training standards departmentwide, we determined through our work examining the five defense sectors that several combatant commands and military services have independently developed their own training programs or modules. For example, PACOM officials stated that they have conducted internal PACOM training and education on critical infrastructure assurance. U.S. Strategic Command has conducted internal training and continuous education for its staff. Further, TRANSCOM and CENTCOM officials told us that they have developed critical infrastructure training for their headquarters-level personnel. Additionally, CENTCOM officials told us that the development of their internal critical infrastructure training was still in its initial stages. Conversely, U.S. European Command officials told us that they are currently focused almost exclusively on identifying critical infrastructure and threats to those assets. Moreover, the Department of the Navy has developed a DCIP training module that it has incorporated into its information assurance training. The module provides an overview of critical infrastructure protection and the vulnerabilities created by increased interdependencies. The U.S. Marine Corps has begun familiarizing its installation antiterrorism officers with DCIP through required training for its Critical Asset Management System, used by the U.S. Marine Corps to track critical infrastructure. Air Force officials told us that they have a mission assurance training module that includes critical infrastructure protection, and like the U.S. Marine Corps, they conduct training for major Air Force commands on their version of the Critical Asset Management System. Further, officials we spoke with at the Air Mobility Command--an Air Force major command and subcomponent command to TRANSCOM--told us that they provide annual DCIP training to their air mobility wings. Army officials we met with did not identify Army-specific DCIP training but stated that training needs to be comprehensive and not defense sector specific. However, because there are no DCIP training standards departmentwide and combatant command- and military service-level training has not reached installation personnel responsible for assuring the availability of defense critical infrastructure, installation personnel rely on other, more established programs, such as the Antiterrorism Program. However, unlike DCIP, some of these programs do not emphasize consideration of the full spectrum of threats and hazards that can compromise the availability of critical infrastructure. For example, the Antiterrorism Program focuses on terrorist threats to assets and personnel. While some DCIP training exists, the combatant commands' and military services' development of disparate training programs, without benefit of DCIP training standards departmentwide, may result in programs that contain potentially conflicting information. As a result, training may be less effective, and resources may be used inefficiently. With few exceptions, installation personnel we met with who are responsible for assuring the availability of critical transportation infrastructure were not familiar with DCIP and were not aware that the combatant commands or military services possessed DCIP expertise that they could leverage for two reasons. First, as we previously reported, the military services have not yet developed specific guidance for how installations are to implement DCIP. Second, DCIP efforts to date have focused primarily on the identification and assessment of critical infrastructure. At 13 of the 19 installations we visited that have critical transportation assets, installation personnel we spoke with stated that prior to our visit, they had not heard of DCIP. Furthermore, DOD has not developed an effective way to communicate that DCIP expertise is available to installation personnel at the combatant command and military service levels. Until DOD develops a way to effectively communicate the existence of DCIP expertise to installation personnel, such personnel may not be able to fully leverage DCIP knowledge, which will affect how they assure the availability of critical infrastructure from an all-hazards approach, which they currently may not be doing. Because the network of DOD- and non-DOD-owned critical infrastructure represents an attractive target to adversaries and also is potentially vulnerable to a variety of natural disasters or accidents, it is crucial for DOD to conduct DCIP exercises and develop and implement DCIP training. With few exceptions, at the sites we visited, installation officials responsible for the assurance of critical assets were not aware of DCIP. However, they conducted complementary exercises that while in some cases not emphasizing the full spectrum of threats and hazards, often involved some aspects of critical infrastructure assurance and provided a measure of protection for critical assets located on the installation. In the absence of DCIP training standards departmentwide, the combatant commands and military services are developing and implementing disparate training programs, which may result in duplicative programs or programs that potentially may contain inconsistent information. As a result, training may be less effective and resources may be used inefficiently. Furthermore, lacking a process for communicating existing DCIP expertise across the department, installation personnel will be unable to take full advantage of existing knowledge in assuring the availability of critical infrastructure. We are making two recommendations to help assure the availability of critical infrastructure by improving training and awareness. We recommend that the Secretary of Defense direct ASD(HD&ASA) to: Develop departmentwide DCIP training standards and an implementation time frame to enable the combatant commands and military services to develop consistent and cost-effective training programs. Coordinate with the combatant commands and military services to develop an effective means to communicate to installation personnel the existence and availability of DCIP expertise at the combatant command and military service levels. In written comments on a draft of this report, DOD concurred with both of our recommendations. Also, TRANSCOM provided us with technical comments, which we incorporated in the report where appropriate. DOD's comments are reprinted in appendix II. DOD concurred with our recommendation to develop departmentwide DCIP training standards and an implementation time frame to enable the combatant commands and military services to develop consistent and cost-effective training programs. In its comments, DOD stated that ASD(HD&ASA) intends to designate U.S. Joint Forces Command as the executive agent for the development of critical infrastructure protection education and training standards, and upon completion of the development of training standards, ASD(HD&ASA) will set a 180-day time frame for full implementation by the combatant commands and military services to enable consistent and cost-effective training. DOD also concurred with our recommendation to coordinate with the combatant commands and military services to develop an effective means to communicate to installation personnel the existence and availability of DCIP expertise at the combatant command and military service levels. DOD noted that ASD(HD&ASA) intends to take steps to make critical infrastructure protection materials available to installation personnel and will continue to work with the Joint Staff, U.S. Joint Forces Command, and the Defense Threat Reduction Agency to develop an effective means to improve communication regarding the availability of critical infrastructure protection expertise. We are sending copies of this report to the Chairmen and Ranking Members of the Senate and House Committees on Appropriations, Senate and House Committees on Armed Services, and other interested congressional parties. We also are sending copies of this report to the Secretary of Defense; the Chairman of the Joint Chiefs of Staff; the Secretaries of the Army, the Navy, and the Air Force; the Commandant of the U.S. Marine Corps; the combatant commanders of the functional and geographic combatant commands; the Commander, U.S. Army Corps of Engineers; the Director, Defense Intelligence Agency; the Director, Defense Information Systems Agency; and the Director, Office of Management and Budget. We will also make copies available to others upon request. This report will also be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have questions concerning this report, please contact me at (202) 512-5431 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. To determine the extent to which the Department of Defense (DOD) has (1) incorporated aspects of the Defense Critical Infrastructure Program (DCIP) into its exercises in the Transportation Defense Sector and (2) developed DCIP training standards departmentwide and made installation personnel aware of existing DCIP expertise, we obtained relevant documentation and interviewed officials from the following DOD organizations: Office of the Secretary of Defense (OSD) Office of the Assistant Secretary of Defense for Homeland Defense and Joint Staff, Directorate for Operations, Antiterrorism and Homeland Defense Threat Reduction Agency, Combat Support Assessments Division Military services Department of the Army, Asymmetric Warfare Office, Critical Office of the Chief Information Officer Mission Assurance Division, Naval Surface Warfare Center, Dahlgren Division, Dahlgren, Virginia Department of the Air Force, Air, Space and Information Operations, Plans, and Requirements, Homeland Defense Division Headquarters, U.S. Marine Corps, Security Division, Critical Headquarters, U.S. Central Command, Critical Infrastructure Program Office, MacDill Air Force Base (AFB), Florida Headquarters, U.S. European Command, Critical Infrastructure Protection Program Office, Patch Barracks, Vaihingen, Germany Headquarters, U.S. Pacific Command, Antiterrorism and Critical Infrastructure Division, Camp H.M. Smith, Hawaii U.S. Forces Japan Headquarters, U.S. Transportation Command (TRANSCOM), Critical Infrastructure Program, Scott AFB, Illinois Headquarters, Air Mobility Command, Homeland Defense Branch, Headquarters, U.S. Strategic Command, Mission Assurance Division, Offutt AFB, Nebraska Defense infrastructure sector lead agents Headquarters, Defense Intelligence Agency, Critical Infrastructure Headquarters, Defense Information Systems Agency, Office for Critical Infrastructure Protection and Homeland Security/Defense Headquarters, TRANSCOM, Critical Infrastructure Program, Scott AFB, Headquarters, U.S. Strategic Command, Mission Assurance Division, Headquarters, U.S. Army Corps of Engineers, Directorate of Military Selected critical assets in the continental United States, Hawaii, the U.S. Territory of Guam, Germany, Greece, Kuwait and another country in U.S. Central Command's area of responsibility, and Japan We drew a nonprobability sample of critical assets in the United States and abroad, using draft critical asset lists developed by the Joint Staff, each of the four military services, TRANSCOM, the Defense Intelligence Agency, and the Defense Information Systems Agency. We selected assets for our review based on the following criteria: (1) overlap among the various critical asset lists; (2) geographic dispersion among geographic combatant commands' areas of responsibility; (3) representation from each military service; and (4) with respect to transportation assets, representation in TRANSCOM's three asset categories: air bases, seaports, and commercial airports. Using this methodology, we selected 46 total critical assets for review--22 transportation assets and 24 Tri-Sector assets--in the United States and in Europe, the Middle East, and the Pacific region. Further, we reviewed relevant DOD guidance pertaining to DCIP training and exercise requirements and interviewed officials from OSD, the Joint Staff, defense agencies, the military services, the combatant commands, and the defense infrastructure sector lead agents responsible for DCIP. (Throughout this unclassified report, we do not identify the 46 specific critical assets, their locations or installations, or combatant command or others' missions that the assets support because that information is classified.) This report's first objective, examining the extent to which DOD has incorporated aspects of DCIP into its exercises in the Transportation Defense Sector, focused on DCIP-related exercises conducted by TRANSCOM and on exercises conducted at individual installations we visited that have critical transportation assets. To address this objective, we reviewed and analyzed policies, assurance plans, strategies, handbooks, directives, and instructions. Further, we spoke with installation personnel about their efforts to incorporate aspects of DCIP into installation exercises and reviewed and analyzed installation emergency management plans, information assurance plans, and continuity of operations plans to determine how, if at all, critical assets were incorporated into exercises. In addition, to determine how critical assets are included and how lessons learned are incorporated into future exercises, we interviewed combatant command, subcomponent, and installation personnel responsible for planning and conducting exercises involving critical assets. For our second objective, the scope of our work on the extent to which DOD has developed DCIP training standards departmentwide and made installation personnel aware of existing DCIP expertise focused on efforts at OSD; at the four military services; within five combatant commands-- U.S. Central Command, U.S. European Command, U.S. Pacific Command, U.S. Strategic Command, and TRANSCOM; and at installations that have critical assets representing each of the five defense sectors that we visited. Regarding DCIP awareness, the scope of our work focused exclusively on installation personnel who are responsible for critical transportation assets. To address this objective, we reviewed existing combatant command and military service DCIP training programs and interviewed program officials at the OSD, combatant command, and military service headquarters levels. Further, we interviewed installation personnel responsible for assuring the critical infrastructure we selected as part of our nonprobability sample to determine their awareness of DCIP and the existence of DCIP expertise and their ability to leverage these resources. We conducted this performance audit from May 2007 through September 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Mark A. Pross, Assistant Director; Gina M. Flacco; James P. Krustapentus; Kate S. Lenane; Terry L. Richardson; Marc J. Schwartz; John S. Townes; Cheryl A. Weissman; and Alex M. Winograd made key contributions to this report. Defense Critical Infrastructure: DOD's Evolving Assurance Program Has Made Progress but Leaves Critical Space, Intelligence, and Global Communications Assets at Risk. GAO-08-828NI. Washington, D.C.: August 22, 2008 (For Official Use Only). Defense Critical Infrastructure: Adherence to Guidance Would Improve DOD's Approach to Identifying and Assuring the Availability of Critical Transportation Assets. GAO-08-851. Washington, D.C.: August 15, 2008. Defense Critical Infrastructure: Additional Air Force Actions Needed at Creech Air Force Base to Ensure Protection and Continuity of UAS Operations. GAO-08-469RNI. Washington, D.C.: April 23, 2008 (For Official Use Only). Defense Critical Infrastructure: DOD's Risk Analysis of Its Critical Infrastructure Omits Highly Sensitive Assets. GAO-08-373R. Washington, D.C.: April 2, 2008. Defense Infrastructure: Management Actions Needed to Ensure Effectiveness of DOD's Risk Management Approach for the Defense Industrial Base. GAO-07-1077. Washington, D.C.: August 31, 2007. Defense Infrastructure: Actions Needed to Guide DOD's Efforts to Identify, Prioritize, and Assess Its Critical Infrastructure. GAO-07-461. Washington, D.C.: May 24, 2007.	The Department of Defense (DOD) relies on a global network of DOD and non-DOD infrastructure so critical that its unavailability could have a debilitating effect on DOD's ability to project, support, and sustain its forces and operations worldwide. DOD established the Defense Critical Infrastructure Program (DCIP) to assure the availability of mission-critical infrastructure. GAO was asked to evaluate the extent to which DOD has (1) incorporated aspects of DCIP into its exercises in the Transportation Defense Sector and (2) developed DCIP training standards departmentwide and made installation personnel aware of existing DCIP expertise. GAO examined a nonprojectable sample of 46 critical assets representing the four military services, five combatant commands, and selected installations within five defense sectors. GAO reviewed relevant DOD DCIP guidance and documents and interviewed cognizant officials regarding DCIP exercises, training, and awareness. U.S. Transportation Command (TRANSCOM) and the installations GAO visited that have critical transportation assets have incorporated aspects of critical infrastructure assurance into their exercises. DOD's DCIP guidance requires the combatant commands and the military services to conduct annual DCIP exercises, either separately or in conjunction with existing exercises. DCIP guidance also requires commanders to ensure submission of lessons learned from these exercises. For example, TRANSCOM has included aspects of critical infrastructure assurance in its two major biennial exercises. Although military personnel at 13 of the 19 installations GAO visited that have critical transportation assets generally were not aware of DCIP, GAO found that all 19 of these installations conduct routine exercises that often involve aspects of critical infrastructure assurance, and they incorporate lessons learned from past exercises into future exercises. For example, personnel at these installations conduct antiterrorism, emergency management, and continuity of operations planning exercises that often include critical assets located on the installation. While several of the combatant commands and military services included in GAO's review of the five defense sectors have independently developed DCIP training at the headquarters level, DOD has not yet developed DCIP training standards departmentwide, and installation personnel remained largely unaware of existing DCIP expertise. DOD's DCIP instruction requires the Office of the Assistant Secretary of Defense for Homeland Defense and Americas' Security Affairs (ASD[HD&ASA]) to provide policy and guidance for DCIP and oversee the implementation of DCIP education, training, and awareness of goals and objectives. ASD(HD&ASA) recognizes the need for DCIP training and program awareness, as noted in its March 2008 critical infrastructure strategy. However, given the newness of the strategy, ASD(HD&ASA) has not yet established departmentwide DCIP training standards for assuring the availability of critical infrastructure or a time frame for implementing the training standards. In the absence of established DCIP training standards, the combatant commands and military services are variously developing and implementing their own DCIP training programs. For example, the Navy has established an information assurance training program that includes a DCIP module. Furthermore, installation personnel GAO spoke with, with few exceptions, were not familiar with DCIP or aware of DCIP expertise at the combatant command and military service headquarters levels. In addition, DOD has not developed an effective way to communicate to installation personnel the existence of DCIP expertise. Consequently, they rely on other, more established programs that in some cases do not emphasize the consideration of the full spectrum of threats and hazards. Without DCIP training standards departmentwide and a means of communicating them to installation personnel, the combatant commands and military services potentially may develop mutually redundant or inconsistent training programs, and installation personnel will continue to be unaware of existing DCIP expertise.	4,032	768

Subsets and Splits