Major Management Challenges and Program Risks: Departments of Defense, State, and Veterans Affairs

Published by the Government Accountability Office on 1999-02-25.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         United States General Accounting Office

GAO                      Testimony
                         Before the Subcommittee on National Security, Veterans
                         Affairs, and International Relations, Committee on
                         Government Reform, House of Representatives

For Release

Expected at              MAJOR MANAGEMENT
                         CHALLENGES AND
10:00 a.m., EST


February 25, 1999

                         PROGRAM RISKS

                         Departments of Defense,
                         State, and Veterans Affairs
                         Statement by Henry L. Hinton, Jr., Assistant Comptroller
                         General, National Security and International Affairs

                   Mr. Chairman and Members of the Subcommittee:

                   We are pleased to be here today to discuss major management challenges
                   and program risks confronting the Departments of Defense (DOD), State,
                   and Veterans Affairs (VA). Our testimony is derived from a special series of
                   reports we recently issued on this subject entitled Performance and
                   Accountability Series: Major Management Challenges and Program Risks.
                   The series contains separate reports on 20 agencies—one on each of the
                   cabinet departments and on most major independent agencies as well as
                   the U.S. Postal Service. As a companion volume to this series, we have also
                   issued an update to those government operations and programs that our
                   work has identified as “high risk” because of their greater vulnerabilities to
                   waste, fraud, abuse, and mismanagement.

                   As requested, our testimony today will focus on (1) the management
                   challenges DOD, State, and VA must address to improve the efficiency of
                   their support functions and (2) whether these departments are meeting
                   performance and accountability goals and measurements that are required
                   under the Government Performance and Results Act of 1993.

Results in Brief   For each of the three agencies—DOD, State, and VA—we have identified
                   and reported management challenges that have hampered the efficiency of
                   their support functions in carrying out their missions. To their credit, each
                   of the agencies has implemented a number of initiatives to improve their
                   operations, but more remains to be done. These challenges, many of which
                   have been long-standing in scope, also underscore the critical role that the
                   principles of performance-based management, as embraced in the Results
                   Act, can play in successfully providing the products, services, and results
                   that taxpayers expect.

                   For many years, we have reported significant problems at DOD that cut
                   across many of its program areas. These problems can be categorized into
                   systemic management challenges, which deal with issues such as financial
                   management, information management, weapon systems acquisition, and
                   contract management; and program management challenges, which deal
                   with issues related to infrastructure, inventory management, and
                   personnel. DOD has implemented a number of Departmentwide reform
                   initiatives that are intended to improve some of its processes along with
                   key business practices. Despite DOD’s military successes, many of DOD’s
                   programs and operations are still vulnerable to fraud, waste, abuse, and
                   mismanagement, and need improvement. Overcoming these challenges

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requires DOD to address the underlying causes, such as cultural barriers
and service parochialism, that limit opportunities for change. To address
these problems, DOD must have an effective overall strategic plan for the
agency and all levels of the organization that includes goals, performance
measures, and time frames for completing corrective actions. The Results
Act provides the framework for resolving high risk and other problems and
for providing greater accountability in DOD’s programs and operations.
However, DOD has not fully embraced the underlying principles in the
Results Act.

In our past and ongoing work at State, we have identified a number of
performance and management challenges State faces in carrying out its
mission, such as providing enhanced overseas security, upgrading its
information systems, strengthening financial accounting and controls,
enhancing controls over the issuance of visas, integrating other foreign
affairs agencies’ functions into the Department, and improving its strategic
and performance planning. State is making progress in addressing these
issues. For example, State is now devoting substantial resources to
developing a strategy to enhance its information management capacity and
security as well as its financial management systems. State has also
completed strategic and annual performance plans under the Results Act.
However, these plans had their strong points but often fell short on meeting
Results Act requirements. For example, State’s strategic plan addressed
neither the potential impact of the consolidation of the foreign affairs
agencies on its systems nor the potential for other agencies to have
functions duplicative of State’s. State’s performance plan revealed similar

For many years, we have reported significant management problems at VA.
These problems include obsolete infrastructure, poor monitoring of the
effects of health service delivery changes on patient outcomes, inadequate
data, and ineffective management of non-health-care benefits and
management information systems. VA has made progress in developing a
framework for managing and evaluating changes in health care service
delivery, as required by the Results Act; however, much more needs to be
done to achieve Results Act requirements. For example, VA must continue
to set results-oriented goals for compensating disabled veterans and
develop effective strategies for improving disability claims processing and
vocational rehabilitation. VA must also improve its management
information to help it ensure that veterans have equitable access to care
across the country, that it maintains its capacity to serve special
populations, and that it can meet enrolled veterans’ demand for care.

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Challenges Facing the          Managing and overseeing an estimated $1 trillion in assets and annual
                               budget of over $250 billion, or about one-half of the government's
Department of Defense          discretionary funding, is an enormous task. As the United States begins the
                               new millennium as the world's sole superpower, it continues to lead the
                               world with superior military forces. The effectiveness of U.S. forces is well
                               evidenced by experiences in the Persian Gulf and Bosnia. Also, the DOD
                               has implemented a number of Departmentwide reform initiatives that are
                               expected to improve its financial management, information management,
                               and defense weapon systems acquisition processes and other key business
                               practices. However, DOD still faces challenges with many of its key
                               performance and management processes. A number of these challenges
                               have been included on our high risk list for many years (see app. I).
                               Successfully addressing these challenges can yield fiscal dividends that the
                               Department could use to meet priorities such as readiness and
                               modernization needs. The challenges DOD faces can be grouped into two
                               categories: (1) systemic problems with management processes related to
                               plans, finances, information, acquisition, and contracts and (2) specific
                               problems related to infrastructure, inventory, and personnel programs.
                               Summaries of the challenges that need to be addressed follow.

Systemic Management

Serious Financial Management   DOD continues to struggle to overcome the many problems brought about
Weaknesses Persist             by decades of neglect and to fully institute sound financial management
                               practices. These problems range from being unable to properly account for
                               billions of dollars in assets to being unable to produce reliable and timely
                               information needed to make sound resource decisions. The most recent
                               audits of DOD’s financial statements—for fiscal year 1997—resulted in the
                               identification of serious deficiencies across the full spectrum of DOD’s
                               recordkeeping and controls systems. For example:

                               • DOD has not properly accounted for and reported billions of dollars of
                                 property, equipment, inventory, and supplies. Recorded information on
                                 the number and location of several military equipment items—such as
                                 F-4 engines and service craft—was not reliable, on-hand quantities of
                                 inventories differed by 23 percent from inventory records at selected
                                 major storage locations, and over $9 billion in known military operating
                                 materials and supplies were not reported.

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                               • DOD has not estimated and reported on material environmental and
                                 disposal liabilities. While DOD reported nearly $40 billion in estimated
                                 environmental cleanup and disposal liabilities for fiscal year 1997, its
                                 reports excluded costs associated with military weapon systems or
                                 training ranges—these undisclosed liabilities are likely to be an
                                 additional tens of billions of dollars.

                               To achieve the wide-ranging reforms necessary to address its long-standing
                               financial management deficiencies, we have made numerous
                               recommendations to DOD regarding its need to upgrade the skills of its
                               financial personnel and successfully overcome serious design flaws in its
                               financial systems. DOD has many well-intentioned planned and ongoing
                               financial management reform and improvement efforts, such as an action
                               plan to identify short-term initiatives to address DOD’s financial reporting
                               deficiencies. However, until DOD deals with these two key issues,
                               resolution of its financial management problems is unlikely.

                               Given the seriousness and long-standing nature of these weaknesses in
                               DOD’s financial management operations, we are continuing to monitor this
                               area as part of our high-risk program. Taken together, the material
                               deficiencies in DOD’s financial operations represent the single largest
                               obstacle that must be effectively addressed to obtain an unqualified
                               opinion on the entire U.S. government’s consolidated financial statements.
                               These weaknesses must be effectively addressed if DOD is to put into place
                               the disciplined financial practices needed to produce credible financial
                               information not only for financial statements but also for support of
                               operational and budgetary decisionmaking and maintaining effective
                               accountability over DOD’s vast resources.

Information Management and     Information management and technology issues are key DOD management
Technology Issues Pose Major   challenges. We are continuing to designate DOD’s information technology
Concerns                       project management efforts as high risk. A primary short-term concern
                               centers on the implementation of the Year 2000 conversions of
                               date-sensitive information on DOD's computer systems. In February 1997,
                               we designated the Year 2000 problems as a governmentwide high-risk area.
                               Another area of concern is information security for computer systems.
                               Malicious attacks on these systems are an increasing threat to our nation's

                               For an organization as large as DOD—with over 1.5 million computers,
                               28,000 systems, and 10,000 networks-—addressing the Year 2000 problem is
                               a formidable task and progress on the Year 2000 program is slow. In fact,

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                             the Office of Management and Budget, in its November 15, 1998, report on
                             federal agencies’ progress on Year 2000 conversion, has placed DOD on its
                             “Tier 1” list—those agencies “where there is insufficient evidence of
                             adequate progress.” DOD has an enormous effort underway to remediate
                             its mission-critical systems and ensure that its key operational missions
                             will continue to function after the century date change. However, that
                             effort is at risk. We have issued 10 reports and the DOD Inspector General
                             and audit agencies have issued 130 reports that continue to question the
                             Department's management of its Year 2000 program. For example:

                             • The Department lacks reliable, timely information on program status.
                             • Component reports on systems compliance are often inaccurate.
                             • Contingency plans (developed in the event of system failure) are
                               frequently not executable.
                             • Inconsistent guidance has led to false starts and uncoordinated efforts.

                             Another area of major concern is information security. Providing security
                             over DOD’s vast array of networked computers is a major challenge. DOD’s
                             computer systems are particularly susceptible to attack through
                             connections on the Internet, which Defense uses to enhance
                             communication and information sharing. The Defense Information
                             Systems Agency estimated that attacks numbered in the hundreds of
                             thousands per year and were successful 65 percent of the time and that the
                             number of attacks was doubling each year.

                             Reports to DOD have included numerous recommendations related to
                             specific control weaknesses as well as the need to establish a defined
                             systems architecture and a comprehensive program for improved
                             information security management. Based on our recommendations and
                             legislative requirements DOD is taking a variety of steps to (1) develop a
                             plan for evaluating, in an operational environment, Year 2000 compliance
                             and (2) establish the Departmentwide Information Assurance Program to
                             improve and better coordinate the information security-related activities of
                             the military services and other DOD components. A sustained effort will be
                             needed to ensure that these efforts are successful.

Weapon Systems Acquisition   Effectively managing the weapon systems acquisition process continues to
Problems Persist             be a concern for DOD. Although DOD has increased its procurement
                             budget, it consistently pays more and takes longer than planned to develop
                             systems that do not perform as anticipated. DOD spends about $85 billion
                             annually to research, develop, and acquire weapon systems. Although

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                           DOD has many acquisition reform initiatives in process, pervasive
                           problems persist regarding

                           • Questionable requirements and solutions that are not the most
                             cost-effective available. For example, DOD could have met its strategic
                             airlift requirements and achieved a significant life-cycle cost savings by
                             buying fewer C-17s than planned.

                           • Unrealistic cost, schedule, and performance estimates. For example, in
                             restructuring the F-22 program, it is doubtful that the Air Force can
                             offset the $13-billion projected increase in production costs because
                             many of the cost-cutting initiatives it identified were not well defined.

                           • Questionable program affordability. DOD tends to overestimate funding
                             that would be available in the future, and underestimate program costs,
                             resulting in the advent of more programs than could be executed as
                             planned. For example, in analyzing the 1998 Future Years Defense
                             Program, we found that funding for infrastructure activities was
                             projected to increase, while procurement funding was projected to be
                             lower than anticipated.

                           • The use of high-risk acquisition strategies. Acquisition strategies such
                             as the acquisition of weapons based on optimistic assumptions about
                             the maturity and availability of enabling technologies were being based
                             on the need to meet the threat and to reduce acquisition costs. For
                             example, DOD’s approval of the Joint Surveillance Target Attack Radar
                             System’s full-rate production was premature and risky because the
                             system’s operational effectiveness and suitability for combat were not
                             yet demonstrated and plans to address deficiencies and reduce program
                             costs were not completed.

                           Acquisition reforms under way by DOD have a sound basis and have the
                           potential for improving the outcomes of weapon systems. Acquisition
                           reforms and commercial practices can help produce better outcomes on
                           DOD acquisitions if they help a program succeed in its environment.

Improved Processes and     DOD spends over $100 billion a year contracting for goods and services.
Controls Key to Reducing   Since 1995, we have reported DOD contract management as a high-risk
Contract Risk              area. Over the last few years, DOD has made several broad-based changes
                           to its acquisition and contracting processes to improve DOD-contractor
                           relationships and rules. DOD has given attention to acquisition reform
                           initiatives, but we continue to identify risks in DOD's contracting activity,

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including areas such as erroneous, fraudulent, and improper payments to
contractors; payment of higher prices for commercial spare parts than
necessary; and the award and administration of DOD health care contracts.

The need for DOD to achieve effective control over its payment process
remains an imperative. DOD receives about a billion dollars a year in
checks from defense contractors. While some of these are the results of
contract changes that result in reduced prices, others represent errors by
DOD’s payment center. DOD is considering the use of private contractors,
through a process known as recovery auditing, to identify overpayments.
In addition to erroneous payments, weak systems and internal controls can
leave DOD vulnerable to fraud and improper payments. Our September
1998 report discussed two cases of fraud that resulted from a weak internal
control environment.1 In one instance, the lack of segregation of duties and
other control weaknesses provided Defense Finance and Accounting
Service employees a level of access to the vendor payment system that
allowed them to enter contract and payment information and remittance
addresses needed to create payment vouchers. No one individual should
control all key aspects of a transaction or event without appropriate
compensating controls.

In recent years, DOD has significantly changed the way it acquires goods
and services by removing what were considered barriers to efficient and
effective use of the commercial marketplace. A major focus of these
changes is the adoption of commercial buying practices. We and the DOD
IG have found that DOD needs to strengthen the quality of its price
analyses. For example, the IG found that DOD had not formulated good
procurement and management strategies for commercial parts in the
acquisition reform environment. As a result, DOD was paying higher prices
for commercial spare parts than necessary.

DOD’s implementation of health care management programs, particularly
the TRICARE Program, further illustrates DOD’s difficulty in managing
contracts. TRICARE was established during a period of military
downsizing and budget concerns to contain costs and maintain access to
and the quality of health care for DOD’s 8.2 million beneficiaries. However,
TRICARE’s implementation, entailing the award of seven competitively bid,
5-year contracts, has been fraught with problems. All seven contracts,

  Financial Management: Improvement Needed in Air Force Vendor Payments Systems and Controls
(GAO/AIMD-98-274, Sept. 28, 1998).

Page 7                                                     GAO/T-NSIAD/HEHS/AIMD-99-104
                                totaling about $15 billion, were protested. As a result, DOD and the
                                competitors incurred added costs, and the program was significantly
                                delayed. Three of the protests were sustained, resulting in further delays.

                                While DOD is taking steps to improve its payment process and controls, it
                                will likely take an extended period of time to get its payment problems
                                under control. Similarly, DOD is taking steps to simplify its procurement
                                approach for health care contracts. Whether DOD can successfully
                                develop and launch the new method, and whether what it designs will
                                reduce the current volume of contract changes or control health care costs
                                remains to be seen.

Program Management

Defense Infrastructure Can Be   Although DOD has substantially downsized its force structure over the past
Better Streamlined              7 to 10 years, it has not reduced operations and support costs
                                commensurately because the services are reluctant to consolidate
                                activities that span service lines and reduce capacity as necessary. DOD
                                has found that infrastructure reductions are difficult and painful because
                                achieving significant cost savings requires up-front investments, the
                                closure of installations, and the elimination of military and civilian jobs.
                                Further, DOD’s ability to reduce infrastructure has been affected by service
                                parochialism, a cultural resistance to change, and congressional and public
                                concern about the effects and impartiality of decisions. For fiscal
                                year 1998, DOD estimated that about $147 billion, or 58 percent of its
                                budget, would still be needed for infrastructure requirements, which
                                included installation support, training, medical care, logistics, force
                                management, acquisition infrastructure, and personnel.

                                The Secretary of Defense’s November 1997 Defense Reform Initiative
                                Report emphasizes the need to reduce excess Cold War infrastructure to
                                free up resources for force modernization. Initiatives included privatizing
                                military housing and utility systems, emphasizing demolition of excess
                                buildings, and consolidating and regionalizing many defense support
                                agencies. The Secretary noted that DOD continued to be weighed down by
                                facilities that are too extensive for its needs, more expensive to maintain
                                than it can afford, and detrimental to the efficiency and effectiveness of the
                                nation’s armed forces. Likewise, he noted that DOD must do a better job of
                                managing facility assets on its remaining bases. The Defense Reform

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                                Initiatives are steps in the right direction, but collectively they do not
                                provide a comprehensive long-range plan for facilities infrastructure. We
                                have cited the need for such a plan but have noted that DOD’s past plans
                                were not focused on long-term comprehensive strategies for facilities
                                revitalization, replacement, and maintenance and were not tied to
                                measurable goals to be accomplished over specified time frames or linked
                                to funding. The Results Act underscores the need for improved planning
                                for facilities infrastructure. Improved infrastructure planning can help
                                agency components and programs to develop outcome-oriented goals and
                                performance measures that are linked to and support agencywide goals.

                                In February 1997, we identified defense infrastructure as a high-risk area,
                                and it remains on our high-risk list. We have identified numerous areas in
                                which infrastructure activities can be eliminated, streamlined or
                                reengineered to be made more efficient in the following areas: acquisition
                                infrastructure, central logistics, installation support, central training, force
                                management, and medical facilities and services.

Inventory Management Problems   DOD’s inventory management practices continue to be ineffective and
Persist in DOD                  inefficient. As a result, DOD spends more than necessary to procure
                                inventory, yet items are not available when needed. In 1990, we identified
                                DOD’s management of secondary inventories (spare and repair parts,
                                clothing, medical supplies, and other items to support the operating forces)
                                as a high-risk area because levels of inventory were too high and
                                management systems and procedures were ineffective.

                                DOD has had inventory management problems for decades. Some
                                examples of DOD’s problems follow:

                                • Adequate inventory oversight has yet to be achieved. In 1995, we
                                  reported that DOD’s strategic plans for logistics called for improving
                                  asset visibility in such areas as in-transit assets, retail level stocks, and
                                  automated systems. DOD will not completely implement its current
                                  plan until 2004.
                                • DOD has not taken sufficient steps to ensure the accuracy of inventory
                                  requirements to preclude the acquisition of unneeded items. For
                                  example, the Navy could have eliminated about $13 million of planned
                                  program requirements for 68 of 200 items we reviewed because the
                                  requirements were also included in the reorder-level requirement.

                                Recently, the Congress enacted legislation requiring the Defense Logistics
                                Agency and the services to develop and submit schedules for implementing

                                Page 9                                            GAO/T-NSIAD/HEHS/AIMD-99-104
                                 best commercial practices in the acquisition and distribution of inventory
                                 items. DOD recognizes potential opportunities in adopting best practices.
                                 DOD seeks to reengineer its support activities and business practices by
                                 incorporating many business practices that the private sector companies
                                 have used to become leaner, more agile, and highly successful. Since 1991,
                                 we have issued 11 reports that identify significant opportunities for DOD to
                                 test and adopt, where feasible, best inventory management practices used
                                 in the private sector to improve logistics operations and lower costs.

Military Personnel Issues Need   DOD’s personnel programs to recruit, train, and retain a high-quality
Attention                        active-duty enlisted workforce have not received the management
                                 attention needed to ensure their successful operation. The military
                                 services recruit tens of thousands of new enlistees each year who fail to
                                 complete their contracts.

                                 Our body of work in this area indicates that DOD faces an especially
                                 significant challenge in retaining the hundreds of thousands of new recruits
                                 it enlists each year. While each new enlistee signs a contract ranging from
                                 2 to 6 years, most first-term contracts are for 4 years. Despite this
                                 contractual obligation, we found that between fiscal year 1982 and 1993,
                                 31.7 percent of all enlistees did not complete their first terms of service.
                                 First-term attrition is costly: DOD estimates that the services’ recruiting
                                 and training investment in each enlistee during the first term is an average
                                 of $35,532. For fiscal year 1993 we calculated that the services spent
                                 $1.3 billion on the 72,670 enlistees who entered the services in fiscal
                                 year 1993 and departed prematurely. Enlistees were separated because of
                                 inadequate screening prior to enlistment; ineffective service procedures for
                                 selecting the best candidates for recruiting duty; and enlistee misconduct,
                                 medical conditions, performance problems, drug use, pregnancy and

                                 We have made a number of recommendations to which DOD is now
                                 responding. It has formed a joint service working group and agreed to
                                 prepare a report by October 1999 documenting service initiatives to reduce
                                 attrition. Examining the roles of all persons involved in recruiting and
                                 retaining enlistees is in keeping with the intent of the Results Act, which
                                 requires agencies to clearly define their missions, to set goals, and to link
                                 activities and resources to those goals. Recruiting and retaining well-
                                 qualified military personnel are among the goals included in DOD’s
                                 strategic plan required under the Act.

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Addressing the Challenges   To address the management and performance problems we have cited,
in DOD                      DOD has taken actions in the high risk and other areas and has made
                            progress in improving some of them. DOD has had some success in
                            addressing its inventory management problems, is working to reform its
                            weapon systems acquisition process, has recognized the need for
                            infrastructure reductions, and has identified initiatives to reduce attrition
                            of military personnel. For example, in May 1997, the Secretary of Defense
                            issued the Report of the Quadrennial Defense Review, which examines
                            America’s defense needs from 1997 to 2015, including issuing a blueprint
                            for a strategy-based, balanced, and affordable defense program. In
                            addition, DOD’s latest efforts to reform operations and processes are
                            contained in the Secretary’s DRI Report, in which DOD proposed to
                            revolutionize its business and support operations by identifying and
                            adopting best business practices from the private sector.

                            Despite DOD’s military successes, many of its programs and operations are
                            still vulnerable to fraud, waste, and abuse, and mismanagement, and need
                            improvement. To meet these challenges, DOD must address their
                            underlying causes, such as cultural barriers and service parochialisms.
                            DOD must have an effective overall strategic plan that includes goals,
                            performance measures, and time frames for completing corrective actions.
                            In our view, the Results Act provides the framework for resolving high risk
                            and other problems and for providing greater accountability in DOD’s
                            programs and operations.

                            DOD, however, has not fully embraced the underlying principles in the
                            Results Act. The Secretary of Defense has stated that the May 1997
                            Quadrennial Defense Review will serve as DOD's overall strategic planning
                            document and is intended to fulfill the requirements of the Results Act.
                            Our review of DOD’s strategic plan and its February 1998 performance plan
                            disclosed many areas where improvements could be made. The principal
                            shortcomings in DOD’s plan center on weaknesses in (1) establishing
                            results-oriented performance goals with explicit strategies and time frames
                            for achieving them and (2) addressing what DOD has done or plans to do to
                            resolve its persistent management problems. In our opinion, DOD needs to
                            work closely with the Congress now to develop performance goals and
                            measures. Addressing these areas would provide congressional
                            decisionmakers and DOD the information necessary to ensure that DOD’s
                            plans are well thought out for resolving ongoing problems, achieving its
                            goals and objectives, and becoming more results oriented, as expected by
                            the Results Act.

                            Page 11                                          GAO/T-NSIAD/HEHS/AIMD-99-104
Challenges Facing the      As the lead agency for the conduct of foreign affairs, State has enormous
                           responsibilities as it works to shape a more secure, prosperous, and
Department of State        democratic world for the benefit of the American people. A substantial
                           amount of State's nearly $2.7 billion annual budget for the administration of
                           foreign affairs is spent on what could be called "business" functions that
                           support its broad mission. The Department has a worldwide network of
                           operations to maintain its headquarters and more than 250 overseas posts,
                           as well as about 35 other U.S. agencies that operate overseas. State
                           provides security for thousands of U.S. personnel and facilities abroad. In
                           addition, State operates a network of communications facilities around the
                           globe that are critical to its foreign affairs mission.

                           In carrying out its important mission, State faces a number of significant
                           management challenges that, if not met, could affect its ability to function
                           effectively in the 21st century. These challenges are not simple: they cover
                           a wide spectrum of State operations and responsibilities around the world.
                           Key among these challenges are issues State faces in enhancing overseas
                           security, improving its information and financial management systems,
                           integrating other foreign affairs agencies' functions into the Department,
                           enhancing the controls over the issuance of visas, and improving its
                           strategic and performance planning.

Enhancing the Management   The need to adequately protect employees and their families overseas may
of Security Programs for   very well be the single most important management issue currently facing
                           the State Department. The acts of terrorism in Kenya and Tanzania claimed
Overseas Personnel and     more than 260 lives and injured thousands in August 1998. Worldwide,
Property                   several embassies found themselves either shut down or unable to provide
                           normal services because of threatening situations. The monetary
                           requirements for undertaking security enhancements will be significant, as
                           will the management and technological challenges. State received $1.45
                           billion in emergency funding to rebuild the embassies in Kenya and
                           Tanzania, relocate other embassies, and improve security for other
                           facilities serving U.S. personnel worldwide. State reports that it has
                           completed security surveys of over 200 posts and formulated six internal
                           working groups to direct and track program implementation. One initiative
                           will require the accounting system to accumulate spending data on areas
                           such as equipment acquisition and construction.

                           State is also assessing its longer term security enhancement needs, and
                           estimates that several billion dollars may be needed for additional embassy

                           Page 12                                         GAO/T-NSIAD/HEHS/AIMD-99-104
construction. A key issue facing State is whether it will have the capacity
to implement a major security construction program. In the early 1990s, we
reported that State encountered several management problems in using the
$1.47 billion in funds that were applied to the diplomatic security
construction program during fiscal years 1986-1995. These management
problems were related to inadequate staffing, poor program planning,
difficulties in site acquisition, changes in security requirements, and
inadequate contractor performance. All of these directly contributed to
significant delays and cost increases in the majority of State's construction
projects. For example, inadequate coordination within State in
determining building requirements contributed to millions of dollars in cost
increases in a project in Pretoria, South Africa. A lack of agreement within
State on potential building sites delayed projects in Bogota, Colombia, and
Tunis, Tunisia for several years and substantially increased costs. State has
since undertaken a number of efforts to improve construction programs.
Nevertheless, the scope of the problems encountered indicated that State
had systemic weaknesses in its program management.

In view of State's prior experiences and difficulties in implementing the
security construction program, several questions and issues need to be
addressed as part of today's efforts to formulate strategies for enhancing

• What would be the total costs to bring overseas posts into compliance
  with current security standards?
• What actions would State need to take to ensure it has the management
  capability to implement a large-scale construction program?
• Are there adequate control mechanisms to ensure efficient and effective
  use of emergency funds and any subsequent funding for overseas

One issue that should be considered in addressing future security
requirements is the sheer number of U.S. employees overseas. The security
burden is directly associated with the size of the overseas work force. In
our work on overseas staffing issues in the mid-1990s, we noted that the
U.S. government (excluding military operational commands) employed a
total of nearly 38,000 personnel overseas--split evenly between U.S. direct
hire employees and foreign national employees. An important trend has
been the increase in the number of overseas U.S. direct hires by the non-
foreign-affairs agencies. A broad examination of how the U.S. government
carries out its overseas role and related missions may now be needed in
view of the increased security threats. State needs to take the lead in

Page 13                                         GAO/T-NSIAD/HEHS/AIMD-99-104
                            working with other agencies operating overseas to examine their overseas
                            staffing requirements and explore alternatives to reducing the number of
                            U.S. employees overseas.

Improving Information and   State’s information resource management infrastructure has historically
Financial Management        been inadequate to support the Department’s core foreign policy and
                            administrative functions. We have reported that State relied on outdated
Systems                     and unsecured information and financial management systems that are
                            vulnerable to Year 2000 problems and security breaches. State estimated in
                            1997 that it would need $2.7 billion over 5 years to achieve a modernized
                            global infrastructure. However, this estimate was not prepared through the
                            rigorous analytical process called for in federal guidance designed to
                            control costs and improve efficiency. State has since taken steps to
                            improve its information security and adopted an improved approach to
                            addressing its Year 2000 problems. It has also begun to incorporate a
                            comprehensive capital planning and investment process into its
                            information technology investments. However, State needs to ensure that
                            it remediates on a timely basis its mission-critical systems. The Office of
                            Management and Budget has designated State as a Tier 1 agency in its
                            assessment of agencies’ Year 2000 progress, that is, State demonstrated
                            insufficient evidence of progress in dealing with this problem.

                            In the financial management area, State received, for the first time, an
                            unqualified opinion on its fiscal year 1997 financial statements. This
                            achievement provides State with a foundation from which it can move
                            toward being able to more routinely produce the timely and reliable
                            financial information that is critical to making sound decisions that
                            promote effective and efficient use of federal funds. To reach this goal,
                            State needs to continue to bring its systems into full compliance with
                            federal accounting and information management requirements. State also
                            must work on solving related material internal control weaknesses if it is to
                            adequately protect its assets and have timely, reliable data for cost-based
                            decision-making, reporting, and performance management.

Effectively Reorganizing    The long-planned reorganization of the government's foreign affairs
Foreign Affairs Agencies    agencies is under way. In April 1997, the White House announced a plan to
                            put matters of international arms control, U.S. Information Agency’s
                            (USIA) public diplomacy, and other functions within a "reinvented" State
                            Department. In October 1998, the Congress authorized the reorganization,
                            which abolished the USIA and the Arms Control and Disarmament Agency

                            Page 14                                         GAO/T-NSIAD/HEHS/AIMD-99-104
                           (ACDA) and consolidated and integrated those functions into State. The
                           reorganization is intended to reinvigorate the foreign affairs functions of
                           the United States within the State Department. About 3,000 employees of
                           ACDA and USIA will be integrated into State. Potential areas identified for
                           integration among the three agencies include legal affairs, congressional
                           liaison, press and public affairs, and management. Central management
                           functions that are to be integrated include IRM, overseas facilities and
                           operations, logistics, diplomatic security, financial management, and
                           human resources. In December 1998, State submitted a report to the
                           Congress describing its reorganization strategy.

                           State has indicated that during the transition, costs would likely increase
                           because of the need to implement system conversions and transfers; in the
                           longer term, overall staffing and costs may decrease. State faces several
                           challenges in achieving the objectives of this reorganization. One major
                           challenge is the technological difficulty of uniting the agencies, including
                           integrating separate electronic mail and computer systems. Overall issues
                           include whether the reorganization will actually produce identifiable
                           efficiencies and improved performance in foreign affairs programming. As
                           our prior work has indicated, many of the areas targeted for management
                           consolidation need substantial reform.

Effectively Managing the   The Immigration and Naturalization Service (INS) estimated that as of
Visa Process               October 1996, 5 million illegal aliens were residing in the United States.
                           While not the primary source of illegal immigration, visa fraud is a
                           significant matter of concern. State's consular officers at overseas posts
                           are responsible for providing expeditious visa processing for qualified
                           applicants. At the same time, they must prevent the entry of those who are
                           a danger to U.S. security interests or are likely to remain in the United
                           States illegally. In fiscal year 1997, over 7 million aliens applied for
                           nonimmigrant visas, and 640,000 foreigners immigrated to the United
                           States. Visa processing is a particular problem for some overseas locations
                           where volume and/or security concerns are high.

                           State has introduced new technologies, equipment, and controls designed
                           to improve visa processing and reduce the incidence of fraud. State notes
                           that progress has been made in several areas, including installation of
                           machine-readable visa systems at all visa-issuing posts, online connectivity
                           to Washington, D.C., data bases, and implementation of a first phase of a
                           State-INS data-share program. Many improvements were made possible
                           through State's temporary authority to retain fees charged foreigners

                           Page 15                                         GAO/T-NSIAD/HEHS/AIMD-99-104
                              applying for nonimmigrant visas. Those fees generated millions of dollars,
                              enabling the Department of State to invest in border security technology
                              and to pay the salaries of nearly 2,000 employees.

                              State will need to remain vigilant in a number of areas to further reduce the
                              vulnerability of the visa system to fraud and abuse. These issues include
                              (1) critical staffing gaps in overseas consular positions; (2) limitations in
                              consular automated systems; (3) restrictions in the exchange of
                              intelligence information with INS and other law enforcement agencies; and
                              (4) weaknesses in the integrity of immigrant and nonimmigrant
                              documentation, including the computerized systems used to produce them.
                              The Department must also continue its efforts to encourage consular
                              sections to implement best practices designed to streamline and rationalize
                              the visa workload. Potential best practices include using travel agents for
                              initial processing, establishing appointment systems to control workload,
                              and allowing the payment of visa fees at a bank or other financial
                              institution. In view of the increased international terrorist threats,
                              continued attention to State's progress in addressing these issues will be

Strengthening Strategic and   State needs to strengthen its strategic and performance planning as part of
Performance Planning at       its overall efforts to improve management. In its first strategic plan for
                              foreign affairs, State formulated 16 foreign policy goals that cover a wide
                              spectrum of U.S. national interests--national security, economic prosperity,
                              American citizens and U.S. borders, law enforcement, democracy,
                              humanitarian response, and global issues. Our review of that plan and the
                              Department's annual performance plan for 1999 indicated that State's plans
                              had their strong points but often fell short of meeting the requirements of
                              the Results Act.

                              One area of concern was that State's strategic plan addressed neither the
                              potential impact of the consolidation of the foreign affairs agencies on its
                              systems nor the potential for other agencies to have functions duplicative
                              of State's. We have found that State's functional bureaus share
                              responsibility with multiple U.S. agencies on various overlapping issues,
                              including trade and export policy and international security functions. The
                              strategic plan also did not address the serious deficiencies in State's
                              financial accounting and information systems, noting only in general terms
                              that several years will be required to develop performance measures and
                              related data bases to provide sufficient information on the achievement of

                              Page 16                                         GAO/T-NSIAD/HEHS/AIMD-99-104
                        Our review of State's performance plan revealed similar deficiencies but
                        also some encouraging points as well. For example, State's performance
                        plan generally provided clear and reasonable strategies and goals in the
                        areas of improving U.S. citizens' services and border security, and
                        promoting democracy. In contrast, State's plan did not present a clear
                        picture of its methods to meet strategic and performance goals in the areas
                        of furthering economic prosperity, preventing international crime, and
                        enhancing humanitarian assistance. Overall, the performance plan did not
                        clearly indicate the Department's intended performance and was vague
                        about how State will coordinate with other agencies. Further, State's
                        performance plan did not provide sufficient confidence that the
                        Department's performance information will be credible. It did not address
                        how the known deficiencies in State's financial and accounting and
                        information systems will affect performance measurement. In response to
                        our work, State is attempting to improve its planning by developing clearer
                        and more objective performance measures linked to performance goals
                        and identifying partnerships with other agencies or governments to address
                        crosscutting issues.

                        State’s initiatives have also received top-level management support in
                        recent months as evidenced by the appointment of a permanent Chief
                        Information Officer (CIO), and a deputy CIO for architecture and planning,
                        the creation of a Deputy CIO position for the Year 2000 issue, and the
                        assignment of information system security issues to the Deputy CIO for

Challenges Facing the   The Department of Veterans Affairs (VA) is responsible for administering
                        benefits and services that affect the lives of more than 25 million veterans
Department of           and approximately 44 million members of their families. Through its
Veterans Affairs        budget--approximately $43 billion in fiscal year 1999--VA provides an array
                        of health care benefits; non-health-care benefits, such as compensation and
                        pension; and other supporting programs. Over 200,000 VA employees
                        deliver these services from more than 1,000 facilities.

                        As required by the Results Act, VA submitted a strategic plan for fiscal
                        years 1998 to 2003. In this plan, VA developed strategic goals covering all
                        its major programs and included objectives, strategies, and performance
                        goals to support its strategic goals. VA has made significant progress in
                        developing a framework for managing and evaluating changes in service
                        delivery. However, there are several management challenges VA must

                        Page 17                                         GAO/T-NSIAD/HEHS/AIMD-99-104
                          overcome to meet its strategic goals of efficiently and effectively delivering
                          services to veterans and their families. These challenges include:

                          • an infrastructure that does not meet current and future needs,
                          • inability to ensure that veterans have access to needed health care
                          • lack of outcome measures to assess the effects of managed care
                          • ineffective management of non-health-care benefits programs, and
                          • ineffective management of information systems.

VA Health Care            Because of their age and recent changes in the way VA delivers health care,
Infrastructure Does Not   many of VA's facilities are no longer adequate for the way VA delivers
                          health care services today and plans to deliver services in the future. For
Meet Current and Future
                          example, most VA facilities were constructed as hospitals with an array of
Needs                     bed sections, treatment rooms, surgical suites, and other accommodations
                          and equipment for treating an inpatient population and are often poorly
                          suited for delivering care to an ambulatory population on an outpatient
                          basis. Although changing care practices and efficiency initiatives, such as
                          emphasizing outpatient care and facility integration, have allowed VA to
                          eliminate approximately half of its 52,000 acute-care hospital beds since
                          1994, excess capacity remains. Furthermore, the veteran population is
                          declining: VA projects that the number of veterans in the country will drop
                          about 21 percent from 1997 to 2010. We have reported that if past
                          efficiency trends and demographic projections are realized, VA will need
                          only about 10,000 of its current 26,000 acute-care beds to meet veterans'
                          health care needs in 2010. VA will likely need to close some facilities, but it
                          also must plan for the needs of the increasingly older veteran population.
                          As the nation's World War II and Korean War veteran populations age, their
                          health care needs are shifting from acute hospital care to nursing home and
                          other long-term care services. For example, the number of veterans aged
                          85 and older is projected to increase to about 1.3 million in 2010, a fourfold
                          increase from 1995.

                          The continued need for some VA facilities may be affected by the expanded
                          authority to contract for health care services that the Congress provided VA
                          in 1996. Under this authority, VA can contract with public or private
                          providers, who can provide care at lower cost or care that VA does not
                          offer in a particular geographic location. To the extent that VA uses this
                          authority, it may create additional excess capacity in existing facilities.

                          Page 18                                          GAO/T-NSIAD/HEHS/AIMD-99-104
                              Integrating various clinical and support operations across some of its
                              facilities is an important tool VA is using to meet current and future needs.
                              Integrations are also intended to enhance the efficiency and effectiveness
                              of VA's health care delivery system by reducing unnecessary duplication of
                              services. We have reported that the 23 facility integrations involving 48
                              health care facilities that have been completed or are under way will
                              produce millions of dollars in savings that can be used to enhance veterans'
                              health care. However, VA could do more. We have reported that
                              consolidating services from four to three locations in the Chicago area
                              could save $6 million to $27 million in future renovation costs. Although
                              VA has recently developed a guidebook for planners to use in developing,
                              implementing, and evaluating potential facility integrations, VA needs to
                              apply this framework and evaluate its effectiveness in saving resources for
                              both the short and the long term.

                              VA's restructuring efforts, particularly integrating administrative and
                              clinical services across two or more medical centers, are complicated by
                              affiliation agreements that VA facilities have with medical schools. Since
                              VA's medical education program began in 1946, 130 VA medical centers
                              have affiliated with 105 medical schools to provide training opportunities
                              for medical students and residents. Transforming VA's health care delivery
                              system from an inpatient to an outpatient focus, increasing reliance on
                              primary care, and integrating services in fewer hospitals are all causing VA
                              and medical schools to rethink their affiliation arrangements.

                              Restructuring efforts will also affect VA's support of the nation's medical
                              needs during national emergencies. Since 1982, VA has served as the
                              primary medical system backup to DOD. VA also works with the Federal
                              Emergency Management Agency and the National Disaster Medical System
                              during national emergencies. The integration of facilities' administrative
                              functions, the consolidation of medical services in fewer VA locations, and
                              VA's reduced reliance on providing specialized care may alter the way VA is
                              able to support DOD and the federal emergency and disaster systems.
                              However, VA has not specified how it will maintain its emergency backup
                              functions in light of restructuring.

VA Is Unable to Ensure That   Because VA lacks accurate, reliable, and consistent information on how
Veterans Have Access to       resources are being allocated, it cannot ensure that veterans who have
                              similar economic status and eligibility priority have similar access to care
Needed Health Care            regardless of the region of the country in which they live, as required by
Services                      the Congress. In fiscal year 1997, VA introduced a new resource allocation

                              Page 19                                         GAO/T-NSIAD/HEHS/AIMD-99-104
                          system to begin to correct historical inequities in allocating resources, with
                          the intent of improving the equity of veterans' access to care. Instead of
                          allocating resources directly to medical centers on the basis of their budget
                          for the previous year, VA now allocates funds to its 22 Veterans Integrated
                          Service Networks (VISNs) based on the number of veterans each VISN has
                          served. VISNs, in turn, allocate resources to the facilities in their
                          geographic area. We have reported that while the new method has indeed
                          improved the equity of resource distribution among VISNs, VA does not
                          know if it is making progress in providing similar services to similarly
                          situated veterans. VA's strategic plan does not include a goal for achieving
                          equitable access, nor does VA monitor the extent to which equitable access
                          is being achieved among or within VISNs.

                          Furthermore, VA has not been able to provide the necessary data to assure
                          that it maintains its level of certain high-cost, specialized services, as
                          required by the Congress. We have reported that much more information
                          and analyses are needed to support VA's conclusion that it is maintaining
                          its national capacity to treat special disability groups, including the four the
                          Congress identified -- spinal cord dysfunction, blindness, amputation, and
                          mental illness -- in the face of the many initiatives to become a more
                          efficient provider of care.

                          VA has not developed information to help ensure that it meets the likely
                          increased demand for care generated by its new process for enrolling
                          veterans in its health care system. As a result, VA's success in enrolling
                          veterans may jeopardize the availability of care for some veterans. As part
                          of its 1996 eligibility reform legislation, the Congress required VA to
                          develop a priority-based enrollment system to allow VA to better manage
                          access while operating within its budgetary limits. VA has determined that
                          in fiscal year 1999 it will enroll all priorities and categories of veterans and
                          serve each veteran who enrolls. Because enrolled veterans are eligible for
                          all needed hospital and medical care from VA regardless of their priority
                          category, access to care for higher-priority veterans may be jeopardized as
                          medical centers provide care to all enrollees, including high income
                          veterans without service-connected conditions.

VA Lacks Outcome          Responsibility for monitoring quality assurance shifted several times in the
Measures to Assess the    last few years among headquarters and VISN offices, and VA's Inspector
                          General and veterans' service organizations raised concerns that VA had
Effects of Managed Care   weakened its quality assurance efforts with some of these shifts. In
Initiatives               response, in fiscal year 1998, VA realigned the Office of Performance and

                          Page 20                                           GAO/T-NSIAD/HEHS/AIMD-99-104
Quality to report directly to the Under Secretary for Health. The
realignment has the potential to improve VA's quality assurance efforts
because this office is situated to more readily identify emerging challenges
across the health care system, implement and oversee local and national
corrective actions when needed, and help create the single standard of care
required by accrediting agencies.

VA has made little progress in developing, implementing, and evaluating
results-oriented outcome measures to assess the health status of veterans.
Instead, VA's efforts to determine how well it delivers health care have
relied primarily on process-oriented performance measures. For example,
in its performance plan, VA identifies performance measures such as the
number of beds in use, the number of patients served, and the number of
patients receiving certain diagnostic tests. Although these measures can
provide useful information on progress toward meeting managed care
goals, they provide little information on the specific impact of changes on
the health status of veterans.

Moreover, VA has generally not performed the program evaluations
necessary to determine whether its performance measures are the most
appropriate or sensitive measures for assessing responses to treatment and
changes in health outcomes. The need for such measures is critical, given
the multitude of changes in delivering care that VA has introduced over the
last few years. Indeed, the need is exacerbated by the flexibility VISNs and
medical centers have in choosing how they deliver care in VA's
decentralized management structure. VA recognizes that it needs to ensure
that the changes made to improve its efficiency and effectiveness do not
unintentionally compromise the health status of veterans. VA is not alone
in its need to design, implement, and evaluate health outcome measures.
Other public and private providers have recognized the necessity--and the
difficulty--of creating such criteria and instruments.

VA's challenges in assessing outcomes are further complicated by poor
data. We and others have reported numerous concerns with VA's outcome
data. These concerns, which are similar to those with VA's access data,
include inconsistent, incompatible, and inaccurate databases; changes in
data definitions over time; and lack of timely and useful reporting of
information to medical center, VISN, and national program managers.

Page 21                                         GAO/T-NSIAD/HEHS/AIMD-99-104
VA Faces Major Challenges   The non-health-care benefits which VA provides include disability
in Managing                 payments, compensation, pension, housing credit assistance, and
                            vocational rehabilitation assistance programs. We have reported that VA's
Non-Health-Care Benefits    current disability rating schedule does not reflect the economic loss
Programs                    experienced by veterans today and may not be equitably distributing
                            disability compensation funds. In the late 1960s, VA conducted a study of
                            the 1945 version of its disability rating schedule which concluded that at
                            least some disability ratings in the schedule did not accurately reflect the
                            average impairment in earning capacity among disabled veterans and
                            needed to be adjusted. While VA has done little to ensure that the
                            schedule's assessments of the economic loss associated with
                            service-connected conditions are accurate, successful implementation of
                            the revised rating scale would likely require congressional action.

                            In addition, a 1996 Congressional Budget Office report, found that VA was
                            paying about 230,000 veterans about $1.1 billion in disability compensation
                            payments annually for diseases or injuries neither caused nor aggravated
                            by military service. VA regulations provide that a disease or injury resulting
                            in disability is considered service-connected if it was incurred during a
                            veteran's military tour of duty or, if incurred before the veteran entered
                            service, was aggravated by service. No causal connection is required
                            between the circumstances of the disability and official military duty. As a
                            result, veterans can receive compensation for diseases related to heredity
                            or life style, such as heart disease and diabetes, rather than military service,
                            thus calling into question the fairness of VA's treatment of veterans who
                            were disabled because of their service.

                            In another area of concern, the National Academy of Public Administration
                            reported, in 1997, that the timeliness and quality of adjudication decisions
                            and slow appellate decisions continued to be a major challenge in VA's
                            compensation and pension program. VA reported in fiscal year 1997 that it
                            took an average of 133 days to complete the processing of a veteran's
                            original disability compensation claim. While this is substantially faster
                            than the average of 213 days required in fiscal year 1994, VA's goal is to
                            reduce the average to 53 days in fiscal year 2002. In September 1998, VA's
                            OIG reported on its audit of three key compensation and pension claims
                            processing performance measures. The OIG found that the performance
                            measures lacked integrity because the compensation and pension
                            program's automated information system was vulnerable both to reporting
                            errors and to manipulation of data by regional offices to show better
                            performance than was actually achieved.

                            Page 22                                           GAO/T-NSIAD/HEHS/AIMD-99-104
                           Other areas of concern are VA's Housing Credit Assistance and Vocational
                           Rehabilitation programs. VA's Annual Accountability Report, Fiscal
                           Year 1997, described several deficiencies that contributed to VA's receiving
                           a qualified opinion. Among the areas of concern was the level of control
                           and accountability over the direct loan and loan sale activities. The
                           auditors were unable to conclude that the $3 billion loans receivable
                           account balance was accurate because of inadequate controls and
                           incomplete records. In addition, the auditors identified a number of errors,
                           including inaccurate recording of loan sales transactions and improper
                           accounting for loan guarantees.

                           VA's vocational rehabilitation program continues to place few disabled
                           veterans in jobs. Our 1996 review of records of about 74,000 applicants for
                           vocational rehabilitation between October 1991 and September 1995, who
                           were classified by VA as eligible for assistance, showed that only 8 percent
                           had completed the vocational rehabilitation process by finding a suitable
                           job and holding it for at least 60 days. VA is implementing a number of
                           initiatives to address its compensation and pension claims processing and
                           vocational rehabilitation performance weaknesses, including establishing
                           performance measures for processing times and unit costs, initiating
                           quality assurance efforts, and reassessing its business process

VA Needs to Manage Its     VA has made progress in addressing its Year 2000 challenges but still has a
Information Systems More   number of associated issues to address. For example, VA faces significant
                           information systems challenges. It does not know the full extent of its
                           Year 2000 challenges and could face widespread computer system failures
                           at the turn of the century if its systems cannot adequately distinguish the
                           year 2000 from the year 1900. Thus, veterans who are due to receive
                           benefits and medical care could appear ineligible.

                           In addition, VA has not established effective controls to prevent individuals,
                           both internal and external, from gaining unauthorized access to VA
                           systems. VA's access control weaknesses are compounded by ineffective
                           procedures for monitoring and overseeing systems designed to call
                           attention to unusual or suspicious access activities. VA also does not have
                           a comprehensive computer security planning and management program. If
                           these control weaknesses are not corrected, VA operations, such as
                           financial management, health care delivery, benefit payments, life
                           insurance services, and home mortgage loan guarantees--and the assets
                           associated with these operations--are at risk of misuse and disruption.

                           Page 23                                          GAO/T-NSIAD/HEHS/AIMD-99-104
          Furthermore, VA has not yet institutionalized a disciplined process for
          selecting, controlling, and evaluating information technology investments,
          as required by the Clinger-Cohen Act. Information technology accounted
          for approximately $1 billion of VA's fiscal year 1999 budget request of
          $43 billion. At the time of the budget request, VA decisionmakers did not
          have current and complete information, such as cost, benefit, schedule,
          risk, and performance data at the project level, which is essential to making
          sound investment decisions. In addition, VA's process for controlling and
          evaluating its investment portfolio has deficiencies in in-process and
          post-implementation reviews. Consequently, VA does not know whether it
          is making the right investments, how to control these investments
          effectively, or whether these investments have provided mission-related
          benefits in excess of their costs. VA has concurred with most of the
          recommendations we have made to address information systems
          management issues, and has taken actions to implement many of them.

Summary   To address the management and performance problems we have cited,
          DOD, State, and VA have taken actions in the high risk and other areas and
          have made progress improving some of them. For example, DOD has had
          some success in addressing inventory management problems, is working to
          reform its weapon systems acquisition process, and has recognized the
          need for infrastructure reductions. Although past and current efforts have
          resulted in progress in improving their operations, long-standing problems
          still exist. To address these problems, these agencies must have an
          effective overall strategic plan and performance plans that, among other
          things, include goals, performance measures, and time frames for
          completing the corrective actions. The Results Act provides the
          framework for resolving high risk and other programs and for providing
          greater accountability in agencies’ programs and operations. In our
          opinion, agencies such as DOD, State, and VA need to work closely with the
          Congress now to develop performance goals and measures. Addressing
          these areas would provide congressional decisionmakers and individual
          agencies the information necessary to ensure that plans are well thought
          out for resolving ongoing problems, achieving its goals and objectives, and
          becoming more results oriented, as expected by the Results Act.

          Mr. Chairman, this concludes our statement. We would be happy to answer
          any questions you or the members of the Subcommittee may have.

          Page 24                                         GAO/T-NSIAD/HEHS/AIMD-99-104
Page 25   GAO/T-NSIAD/HEHS/AIMD-99-104
Page 26   GAO/T-NSIAD/HEHS/AIMD-99-104
Appendix I

Department of Defense High-Risk
Designations                                                                                     ApeInxdi

                     High-Risk Area                                   Year Designated as High Risk
                     Inventory Management                                                    1990
                     Weapon Systems Acquisition                                              1990
                     Contract Management                                                     1992
                     Systems Development and Modernization Efforts                           1995
                     Financial Management                                                    1995
                     Infrastructure Management                                               1997

(709394)     eL
              rtet   Page 27                                         GAO/T-NSIAD/HEHS/AIMD-99-104
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