oversight

High Risk: Letter to Congressional Committees Identifying GAO's Original High Risk Areas

Published by the Government Accountability Office on 1990-01-23.

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

GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States



      January 23, 1990



      The Honorable John Glenn
      Chairman, Committee on Governmental   ~ffairs
      United States Senate

      The Honorable John Conyers, Jr.
      Chairman, Committee on Government Operations
      House of Representatives

      This letter responds to your requests expressing your
      concern about the magnitude and type of problems at the
      Department of Housing and Urban Development (HUD) and
      whether those problems, with their corresponding costs to
      the taxpayer, could exist at other departments and
      agencies.  I have been concerned about the possibility of
      other HUD-type problems for some time and, unfortunately, I
      am convinced that they do indeed exist. G~O has been
      developing a program to help deal with this matter which
      may address your concerns.

      As you know, we completed our review of the agencies'
      reporting under the Financial Integrity Act (FIA) and
      issued our report on November 29, 1989. We concluded that
      since passage of the act 7 years ago, it is evident that
      the government continues to be plagued by serious
      breakdowns in its internal control and financial management
      systems. Unless something more is done to correct the
      material deficiencies in management information and
      accounting systems, and material weaknesses in internal
      controls, major losses of federal funds and the collateral
      fraud and abuse incidents will continue.

      The basic deficiencies are known and, in many instances,
      have been known for many years, but they remain
      uncorrected.  It is not enough for agencies to identify
      problems; they must act effectively to correct them.
      Currently, no mechanism exists to ensure that agencies take
      corrective action.
Because of my concern about the potential for other HUDs or
programs with significant weaknesses, we are developing
plans to undertake a special audit effort. This effort
will help ensure that areas likely to result in material
losses have been identified and that appropriate
corrective actions are being taken to stem or minimize the
losses. In our discussions with your staff and in our
testimony on November 29, we indicated that we were in the
process of compiling a list of areas we intend to target.
We have now completed our initial list, which I have
enclosed.
The administration is also aware that such problems exist
in the federal government, as was stated by the Director of
the Office of Management and Budget (OMB) in his testimony
before the Senate Committee on Governmental Affairs. "The
recently exposed HUD problems are not unique, not merely
peculiar to a particular agency under what some describe as
absentee management •.•• There are analogous problems in
other agencies." In October 1989, OMB issued to each
agency its critique of agency reporting under the Federal
Managers' Financial Integrity Act (FMFIA), a list of areas
they have considered to be "high risk," and a list of key
elements necessary to achieve early identification and
correction of problems.
OMB's list of "high risk areas" initially encompassed
16 agencies having 74 areas of vulnerability. OMB
subsequently issued an additional list of 14 of the smaller
agencies having 28 areas of vulnerability. We will, of
course, be alert to vulnerable areas in all of our work.
Recognizing our resource limitations, we have selected our
initial list based on our knowledge of the problem areas
from our previous work, and other criteria, including the
magnitude of the problem, the likelihood of achieving
savings, and what additional work may be required.
The active involvement of the Congress is critical to
achieving corrective action. Your committees have
demonstrated a strong interest in improving internal
controls and financial management systems throughout the
government and have exercised important leadership roles
for many years. I anticipate that your interest will
continue and that each of you will support our program and
the steps we recommended in the PIA report.
I appreciate your interest in this subject, and I hope to
meet with each of you to review our initial list of




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vulnerable areas and discuss our approach to this issue.
I look forward to working closely with your co~~ittees and
other interested committees in the Congress as we move
forward in this important area.
Sincerely yours,




Charles A. Bowsher
Comptroller General
of the United States
Enclosure




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                   INITIAL AREAS SEL~CTED
              FOR SPECIAL GAO AUDIT OR REVIEW
Resolution Trust Corporation - The management and disposal
of approximately $200 to $300 billion of thrift assets will
pose unprecedented management problems. A sale of this
magnitude is unparalleled in history. The desire and
potential to acquire these assets at bargain basement
prices will make this area highly susceptible to fraud,
waste, and abuse.
Internal Revenue Service Receivables - The existence of
accounts receivable in excess of $60 billion which have
grown about 300 percent since 1980 places this issue in the
significant potential loss area. In light of the budget
deficit, the potential for reducing or stabilizing the
growth rate offers major dollar savings and thus warrants
special review and oversight.
Management of Seized and Forfeited Assets - This issue has
been characterized by mismanagement which has been the
subject of considerable press attention. Responsibility
for managing the program rests with the Customs Service and
the U.S. Marshall's Service. Both organizations have been
identified by their respective departments as having
significant internal control weaknesses. Improvements in
the management and control of this program will lend
support to the war on drugs and increase public and
congressional confidence in the program.
Medicare Questionable Claims - The tens of billions of
program dollars coupled with consider.able potential for
fraud and abuse indicates a high potential for financial
savings from our efforts. Identified payments of $527
million by Medicare in 1985 that should have been paid by
private insurance carriers illustrate the magnitude of
potential savings.
BRISA/PBGe - The Department of Labor's and IRS's
enforcement of ERISA has a significant impact on ensuring
that employee benefit plans are free of mismanagement,
fraud and abuse that place plan assets at risk and threaten
the benefits of plan participants. The adequacy of their
oversight has a direct financial effect on the potential
for loss by the Pension Benefit Guaranty Corporation, an
organization that has been unauditable in the past. The
underfunding of approximately 20 percent of the plans
insured by PBGe is estimated at $20 to $30 billion but is
concentrated in particular industries where downturns could
have a significant impact. The potential $2.2 billion

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ENCLOSURE                                           ENCLOSURE



impact on the fund of one company's bankruptcy, LTV
Corporation, demonstrates the vulnerability of this
program, and thus the taxpayers' exposure to potential
losses.

Guaranteed Student Loans - The large number of banks, state
agencies, and schools participating in guaranteed student
loan programs coupled with poor systems to protect the
federal government's financial interest creates the
potential for significant abuses and losses. A high
proportion of defaults and publicized abuse by certain
proprietary schools suggest the need for improved program
controls.

State Department Real Property Management Overseas - There
is adequate evidence of waste, mismanagement, and poor
controls in this area as illustrated by the construction
fiasco at the U.S. Embassy in Moscow. There is high
potential for financial savings through better property
management. Corrective action over the years has been
minimal, but recently State has begun to show an interest
in addressing these issues.

DOD Inventory ~1anagement Systems - Department of Defense
inventories exceed $100 billion of which unneeded or excess
inventory exceeds $30 billion. The excess inventory along
with numerous other indicators (e.g., the failure to cancel
orders where excess stock is already on hand) reflect
financial management problems. Management incentives focus
on filling orders and obligating funds. There is no
corresponding focus on reducing costs or controlling or
securing stock, i.e., economy and efficiency. The current
pressure to reduce the DOD budget in response to recent
world events provides additional incentives to make major
improvements in the supply system.

 000 Major Systems Acquisition - The total estimated cost of
 major systems currently being developed or produced exceeds
 $900 billion.   Following established management controls to
 deliver capable and supportable weapons to the user when
 and where needed, and at reasonable cost, has been the
 exception rather than the rule.    r..s a result, 000
 continually buys higher cost systems which substantially
 exceed original esti~ates, are delivered much later than
'originally scheduled, and ~o not meet the capabilities
 advertised. ~r..0 will review the effectiveness of
 management initiatives to ad1ress these long-term problems
 and their means of achieving savings.



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ENCLOSURE                                         E~CLOSURE




NASA Contract Management - NASA will spend $11 billion in
1990 on contracts and has a very decentralized contract
administration process. In this environment, there is
considerable potential for mismanagement, fraud, and abuse.
The potential for large savings exists if better contract
controls and oversight can be achieved.
Farmers Home Administration Loan proSrams - FmHA has made
billions of dollars of credit availa Ie to the nation's
farmers. ryelinquent farm loan borrowers held
$11.1 billi0n, or 48 percent, of the agency's $23.3 billion
in outstanding loans as of September 30, 1989. FmHA is
responsible for protecting the government's interest, as
well as helping farmers who cannot get help elsewhere.
Recognizing congressional concern to reduce the deficit,
any potential for controlling loan losses warrants added
review and oversight.
Superfund Rnforcement and Contractor Oversight - The
Congress has authorized $10 billion for the Superfund
program but estimates of federal funds needed to complete
the cleanups are ~any times that amount. To avoid wasting
federal resources, the Environmental Protection Agency
(EPA) needs to (1) ensure that parties who contaminate
sites pay their fair share of the clean-up costs and
(2) effectively manage clean-up contractors who get over
75 percent of Superfund's outlays. GAO will explore cost
and conflict of. interest control and whether EPA uses its
full authority to compel private party cleanup.
Urban Mass Trans ortation Administration Grants - UMTA
currently manages actlve grants totallng   0 billion with
over $3 billion in new grants each year. The number of
staff available to UMTA for project oversight is limited.
Based on recent GAO survey work, increased oversight of the
grant application review process and adherence to grant
provisions is needed. The criteria for deciding what
projects get funded and in what amounts is limited, and, in
some cases, projects are funded at the sole discretion of
the Administrator.
Department of Energy Contractor Oversight - DOE relies on
contractors and consultants for most of the work needed to
fulfill its mission. For example, DOE obligated about
$15 billion for procurement in 1988. The Department has
had a history of inadequate contractor oversight and bonus
awards to contractors in situations that would appear to be
highly questionable. While this may be due in part to lack


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of expertise or inadequate staffing, it also may be due to
DOE's philosophy of "least interference" with its operating
contractors. GAO will examine DOE's potential for
improvements in control, accountability, and efficiency.