oversight

Background Investigations: Office of Personnel Management Needs to Improve Transparency of Its Pricing and Seek Cost Savings

Published by the Government Accountability Office on 2012-02-28.

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

                United States Government Accountability Office

GAO             Report to the Chairman, Subcommittee on
                Oversight of Government Management, the
                Federal Workforce, and the District of
                Columbia, Committee on Homeland Security
                and Governmental Affairs, U.S. Senate
February 2012
                BACKGROUND
                INVESTIGATIONS
                Office of Personnel
                Management Needs to
                Improve Transparency
                of Its Pricing and Seek
                Cost Savings




GAO-12-197
                                                 February 2012

                                                 BACKGROUND INVESTIGATIONS
                                                 Office of Personnel Management Needs to Improve
                                                 Transparency of Its Pricing and Seek Cost Savings
Highlights of GAO-12-197, a report to the
Chairman, Subcommittee on Oversight of
Government Management, the Federal
Workforce, and the District of Columbia,
Committee on Homeland Security and
Governmental Affairs, U.S. Senate

Why GAO Did This Study                           What GAO Found
In fiscal year 2011, the Office of               OPM’s reported costs to conduct background investigations increased by almost
Personnel Management (OPM), as the               79 percent, from about $602 million in fiscal year 2005 to almost $1.1 billion in fiscal
investigative service provider for most of       year 2011 (in fiscal year 2011 dollars). However, the extent to which OPM’s cost data
the federal government, received over            are reliable is unknown because an audit of OPM’s revolving fund, which finances
$1 billion to conduct more than 2 million        business-type operations, has not been conducted. Independent audits of OPM’s
background investigations (suitability           overall financial management system, where revolving fund transactions are
determinations and personnel security            recorded, identified material weaknesses in internal controls, which could affect the
clearances) for government employees.
                                                 reliability of these cost data. OPM’s background investigation program has three
The 2004 Intelligence Reform and
                                                 principal cost drivers. The first cost driver is investigation fieldwork and support
Terrorism Prevention Act and the
resulting governmentwide reform (led by
                                                 contracts, which represent nearly half of OPM’s fiscal year 2011 reported costs—
the Performance Accountability Council)          about $532 million. These contracts allow OPM to assign an investigation to a
helped to improve the timeliness and             contractor and buy clerical support for case-management. The second cost driver is
quality of investigations. GAO was asked         personnel compensation and benefits for OPM’s background investigation federal
to (1) identify the cost trends related to       workforce, which represents about 25 percent of OPM’s fiscal year 2011 reported
OPM’s background investigations since            costs—about $265 million. The third cost driver is OPM’s information technology
fiscal year 2005 and the principal factors       investments. While these investments represent less than 10 percent of fiscal year
driving OPM’s costs, (2) assess how              2011 reported costs, they have increased more than 682 percent over 6 years (in
OPM develops the background                      fiscal year 2011 dollars), from about $12 million in fiscal year 2005 to over $91 million
investigation prices it charges to               in fiscal year 2011. OPM attributed cost increases to more comprehensive subject
agencies and the extent to which the             interviews, increased FBI fees, and compliance with investigation timeliness
basis of these prices is transparent, and        requirements.
(3) assess the extent to which
governmentwide reform efforts have               OPM develops prices for background investigations using aggregated operating costs
focused on reducing costs. For this              and does not provide customer agencies with transparent information underlying its
review, GAO analyzed OPM’s reported              prices and price increases. Customer agency officials expressed dissatisfaction that
background investigation cost, workload          OPM does not provide more transparent information about how it derived its prices.
and pricing data from fiscal years 2005 to       According to previous GAO work on the management of revolving funds and user
2011; examined key background                    fees, agencies should provide their program information to customer agencies,
investigation reform effort documents;           stakeholders, and Congress, to help ensure transparency of costs. Given the lack of
and conducted interviews with executive          transparency underlying the prices and price increases, some agencies believe they
branch agencies’ officials.                      may be overcharged and are looking into alternative means for carrying out their
                                                 investigations, which could lead to duplication that is contrary to the goals of the
What GAO Recommends                              governmentwide suitability and personnel security clearance reform effort. OPM has
GAO recommends that OPM provide                  information regarding its aggregated operating costs, including federal personnel
customer agencies better information on          costs and information technology investments, that could improve customers’
the costs of background investigations           understanding of how OPM determines its prices if shared.
and identify and address efficiencies that
could lead to cost savings. GAO also             Governmentwide suitability and personnel security clearance reform efforts have not
recommends that the Office of                    yet focused on cost savings. The stated mission of these efforts includes improving
Management and Budget (OMB), through             cost savings, timeliness, and quality, among others. While the Performance
the Performance Accountability Council,          Accountability Council has focused on improving timeliness and quality, it has not
expand its reform focus to identify              provided the executive branch with guidance on cost savings. However, GAO
opportunities for cost savings. OPM and          identified opportunities for achieving cost savings or cost avoidance. Specifically,
OMB concurred; however, OPM raised               agencies have made duplicative investments in case-management and adjudication
issues with the basis of some of GAO’s           systems without considering opportunities for leveraging existing technologies.
findings. GAO disagrees and addresses            Further, OPM’s investigation process has not been studied for process efficiencies
these issues in this report.                     that could lead to cost savings. In addition, OPM invested in an electronic case-
                                                 management program yet continues to convert submitted electronic files to paper.
View GAO-12-197. For more information,           Given the pressure government agencies are under to reduce costs, the Performance
contact Brenda S. Farrell at (202) 512-3604 or   Accountability Council, including OPM, is well-positioned to identify opportunities for
farrellb@gao.gov.
                                                 cost savings within the process.
                                                                                            United States Government Accountability Office
Contents


Letter                                                                                                         1
                   Background                                                                                  6
                   OPM Reported Costs Have Continually Increased While Workload Has Declined in
                   Recent Years                                                                              11
                   OPM Focuses on Recovering Full Operating Costs When Determining Prices, and
                   Does Not Provide Its Customer Agencies Transparent Information on Price
                   Increases                                                                                 17
                   The Governmentwide Suitability and Personnel Security Clearance Reform Efforts
                   Have Not Yet Focused on Cost Savings                                                      28
                   Conclusions                                                                               35
                   Recommendations for Executive Action                                                      36
                   Agency Comments and Our Evaluation                                                        36

Appendix I         Scope and Methodology                                                                     42



Appendix II        Federal Investigative Services Reported Nominal Costs for Fiscal Years 2005 through
                   2011                                                                                      46



Appendix III       OPM’s Weighted Annual Percentage Change in Prices Is More Than Consumer Price
                   Index and Employment Cost Index for Fiscal Years 2005 through 2012                        47



Appendix IV        Comments from the Office of Personnel Management                                          51



Appendix V         Comments from the Department of Defense                                                   60



Appendix VI        GAO Contact and Staff Acknowledgments                                                     64



Related GAO Products
                                                                                                             65




                                   Page i                                    GAO-12-197 Background Investigations
Tables
          Table 1: Information Gathered in Conducting a Typical
                   Investigation to Determine Suitability and Eligibility for a
                   Security Clearance                                                    9
          Table 2: OPM’s Federal Investigative Services Workload, Fiscal
                   Years 2005-2011                                                     16
          Table 3: Federal Investigative Services’ Costs, Revenue, and
                   Differences for Fiscal Years 2007 to 2011, in Nominal
                   Dollars                                                             21
          Table 4: Adjudication System Investments                                     31
          Table 5: Office of Personnel Management (OPM) Offices
                   Interviewed                                                         43
          Table 6: Executive Branch Customer Agencies Interviewed                      44
          Table 7: Federal Investigative Services Costs (in Nominal Dollars)
                   for Fiscal Years 2005 through 2011                                  46
          Table 8: OPM Federal Investigations Notice Investigation
                   Percentage Price Increases by Fiscal Year                           47
          Table 9: OPM Federal Investigations Notice Prices by Fiscal Year             50


Figures
          Figure 1: Key Events Related to the Suitability and Personnel
                   Security Clearance Reform Effort                                      3
          Figure 2: Federal Investigative Services Reported Costs (In Fiscal
                   Year 2011 Dollars) and Stand-Alone Investigation
                   Workload for Fiscal Years 2005 through 2011                         13
          Figure 3: OPM’s Calculation of Final Prices for Its Various
                   Investigation Types                                                 19
          Figure 4: Key Steps in OPM’s Background Investigation Process                33




          Page ii                                      GAO-12-197 Background Investigations
Abbreviations

OPM               Office of Personnel Management
DOD               Department of Defense
IRTPA             Intelligence Reform and Terrorism Prevention Act
FBI               Federal Bureau of Investigation



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Page iii                                            GAO-12-197 Background Investigations
United States Government Accountability Office
Washington, DC 20548




                                  February 28, 2012

                                  The Honorable Daniel K. Akaka
                                  Chairman
                                  Subcommittee on Oversight of Government Management, the Federal
                                   Workforce, and the District of Columbia
                                  Committee on Homeland Security and Governmental Affairs
                                  United States Senate

                                  Dear Mr. Chairman,

                                  The federal government spent over $1 billion to conduct more than 2
                                  million background investigations (in support of suitability determinations
                                  and personnel security clearances) for government employment outside
                                  the Intelligence Community in fiscal year 2011. 1 The Office of Personnel
                                  Management (OPM) is currently the investigative service provider for the
                                  majority of the federal government, and all of this work is conducted by its
                                  Federal Investigative Services division. The Department of Defense
                                  (DOD) is OPM’s largest customer, and the recipient of over 788,000
                                  background investigations that cost over $787 million in fiscal year 2011. 2
                                  OPM’s charges to DOD for these investigation requests constituted about
                                  74 percent of OPM Federal Investigative Services’ total revenue in fiscal
                                  year 2011.

                                  In our biennial High-Risk series, we first designated the DOD personnel
                                  security clearance program a high-risk area in 2005 because of delays in
                                  administering the program and resulting backlogs of clearance




                                  1
                                   Determinations of suitability for government employment in positions in the competitive
                                  service and for career appointment in the Senior Executive Service include consideration
                                  of aspects of an individual’s character or conduct that may have an effect on the integrity
                                  or efficiency of their service. Personnel security clearances allow government and industry
                                  personnel to gain access to classified information that, through unauthorized disclosure,
                                  can in some cases cause exceptionally grave damage to U.S. national security.
                                  2
                                   This number is based on DOD data and represents stand-alone investigations that OPM
                                  conducted for DOD in 2011. For purposes of this report, we define stand-alone
                                  investigations as those that result in a suitability determination, secret, or top secret
                                  clearance.




                                  Page 1                                              GAO-12-197 Background Investigations
investigations. 3 Just prior to our designation, Congress set objectives and
established requirements for reforming the clearance process in section
3001 of the Intelligence Reform and Terrorism Prevention Act (IRTPA) of
2004 in light of long-standing concerns regarding delays in processing
clearances and other issues. 4 IRTPA established objectives for
timeliness, requirements for reciprocity (i.e., that, subject to certain
exceptions, all agencies shall accept a background investigation or
clearance determination completed by any other authorized investigative
or adjudicative agency), and an integrated, secure database to house
clearance information.

To improve the process related to determining suitability for government
employment and granting security clearances and to achieve established
timeliness goals, in 2007, the Director of National Intelligence and Under
Secretary of Defense for Intelligence formed the Security Clearance
Process Reform Team or Joint Reform Team. The Suitability and Security
Clearance Performance Accountability Council (Performance
Accountability Council) was later formed to oversee agency progress in
implementing the reform vision, 5 and is chaired by the Deputy Director for
Management of the Office of Management and Budget and vice-chaired
by DOD. The council—which is led by the Office of Management and
Budget, DOD, Office of the Director of National Intelligence, and OPM
and currently comprises representatives from 10 other executive-branch
agencies 6—released several reports detailing reform-related plans,
including a strategic framework in February 2010 that establishes goals,
performance measures, roles and responsibilities, and proposed metrics
for determining the quality of security clearance investigations and
adjudications. 7 However, the strategic framework did not contain details


3
GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).
4
Pub. L. No. 108-458 (2004) (codified at 50 U.S.C. § 435b).
5
 Exec. Order No. 13467, Reforming Processes Related to Suitability for Government
Employment, Fitness for Contractor Employees, and Eligibility for Access to Classified
National Security Information, § 2.2 (June 30, 2008).
6
 The Performance Accountability Council includes the Office of Management and Budget
(Chair), Office of the Director of National Intelligence, Office of Personnel Management,
DOD (Vice-chair), Department of State, Federal Bureau of Investigation (FBI), Department
of Homeland Security, Department of Energy, Department of Health and Human Services,
Department of Veterans Affairs, and Department of the Treasury.
7
 Performance Accountability Council, Security and Suitability Process Reform Strategic
Framework (Washington, D.C.: February 2010).




Page 2                                             GAO-12-197 Background Investigations
                                         about the funding requirements of reform, the cost of background
                                         investigations governmentwide, or cost savings that may result from
                                         reform. In 2011, we removed DOD’s personnel security clearance
                                         program from the high-risk list as a result of DOD’s commitment to
                                         sustaining progress in timeliness and quality, as well as its demonstrated
                                         progress in meeting IRTPA timeliness objectives. 8 Figure 1 below
                                         describes these and other events related to suitability and security
                                         clearance reform over the past decade.

Figure 1: Key Events Related to the Suitability and Personnel Security Clearance Reform Effort




                                         You requested that we conduct a review of the OPM Federal Investigative


                                         8
                                          GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January 2007);
                                         High-Risk Series: An Update, GAO-09-271 (Washington, D.C.: January 2009); and High-
                                         Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 2011).




                                         Page 3                                          GAO-12-197 Background Investigations
Services’ pricing model to determine the actual costs attributable to all
aspects of the various investigative products and packages. Specifically,
we (1) identified the cost trends related to OPM’s background
investigations since fiscal year 2005 and determined the principal factors
driving OPM’s costs, (2) assessed how OPM develops the background
investigation prices charged to agencies and the extent to which the basis
of these prices is transparent, and (3) assessed the extent to which
governmentwide reform efforts have focused on reducing costs.

This report examines background investigations for security clearances
and suitability determinations that are performed by OPM’s federal
workforce and investigative contractors, and OPM’s relationship with its
customer agencies. In addition to OPM, we met with representatives from
DOD and five additional executive branch agencies that use OPM to
conduct background investigations for their employees. 9 We also met with
three DOD intelligence agencies that have authority to conduct their own
investigations to understand their processes and costs. We relied on
OPM’s reported cost data for the purposes of our report; however, the
extent to which these data are reliable is unknown because an audit of
OPM’s revolving fund 10 has not been conducted. Nonetheless,
independent audits of OPM’s overall financial management system,
where revolving fund transactions are recorded, identified material
weaknesses in internal controls, and these weaknesses could affect the
reliability of the cost data. Those audits also made recommendations to
OPM to correct the material weaknesses. Even so, these are the only
Federal Investigative Services’ cost data available, and OPM relies on
them to identify its annual operating costs. For our first objective, to
identify cost trends related to OPM’s background investigations since
fiscal year 2005 and determine the principal factors driving OPM costs,
we obtained and analyzed Federal Investigative Services’ reported direct



9
 For a complete list of agencies interviewed in support of this review, see tables 5 and 6 in
app. I.
10
   An intragovernmental revolving fund is an appropriation account authorized to be
credited with collections from other federal agencies’ accounts that are earmarked to
finance a continuing cycle of business-type operations. According to the Office of
Management and Budget, collections of intragovernmental revolving fund accounts are
derived primarily from within the government. GAO, A Glossary of Terms Used in the
Federal Budget Process, GAO-05-734SP (Washington, D.C.: September 2005.) The self-
sustaining nature of these accounts means that funds received in exchange for services
remains available for authorized purposes without needing to be reappropriated, subject to
certain conditions.




Page 4                                               GAO-12-197 Background Investigations
and indirect costs, revenues, and expenses from fiscal years 2005
through 2011. 11 Further, we interviewed knowledgeable OPM officials
from offices responsible for overseeing budgetary records and discussed
OPM’s budgetary processes and procedures related to background
investigations. For our second objective, to assess how OPM develops
the background investigation prices charged to agencies and the extent to
which the basis of these prices is transparent, we reviewed (1) OPM’s
pricing standard operating procedure and related documentation; (2)
annual investigation pricing rates established by Federal Investigative
Services; (3) fieldwork and investigation support contracts; (4) transaction
processes between OPM and selected executive branch customer
agencies; 12 and (5) OPM and customer interagency agreements, which
serve as an official record of the amounts transferred between the
agencies for investigative services. We interviewed knowledgeable
officials from related OPM divisions, including Federal Investigative
Services (Technical Services, Customer Services, and Business
Management) and the Chief Financial Office; three private investigative
firms that contract with OPM; selected OPM customer agencies—
including DOD—that have the six largest annual transactions with OPM; 13


11
  We define cost drivers as factors that influence or contribute to the expense of business
operations, and in this case the operation is OPM Federal Investigative Services’
background investigations program. According to the Federal Accounting Standards
Advisory Board, direct costs are costs that can be specifically identified with an output. All
direct costs should be included in the full cost of outputs. Typical direct costs in the
production of an output include (a) salaries and other benefits for employees who work
directly on the output; (b) materials and supplies used in the work; (c) various costs
associated with office space, equipment, facilities, and utilities that are used exclusively to
produce the output; and (d) costs of goods or services received from other segments or
entities that are used to produce the output. Indirect costs are costs of resources that are
jointly or commonly used to produce two or more types of outputs but are not specifically
identifiable with any of the outputs. Typical examples of indirect costs include rent, and
operating and maintenance costs for buildings, equipment, and utilities, among others.
Some costs can be either indirect or direct. For example, OPM classifies its training
expenses as both direct (such as training for field contractors) and indirect (such as
training associated with Federal Investigative Services’ federal personnel).
12
  We met with officials from DOD and the Departments of Energy, Justice, the Treasury,
Homeland Security, and Veterans Affairs. We selected agencies on the basis of their
ability to meet a combination of one or more of the following criteria: (1) utilizes OPM to
conduct most of its security clearance investigations, (2) ranks among OPM’s top 10
largest investigation customers, by volume or by total expenditures in fiscal year 2010;
and (3) is a member of the Performance Accountability Council. Because this is a
nonprobability sample, our findings do not generalize to the agencies that we did not
include in our review.
13
  Ibid.




Page 5                                                 GAO-12-197 Background Investigations
             and three agencies from DOD’s Intelligence Community that conduct their
             own investigations for comparison purposes. For our third objective, to
             assess the extent to which governmentwide efforts have focused on
             reducing costs, we analyzed various Performance Accountability Council
             and Joint Reform Team documents, including reform strategic plans and
             information on technology initiatives within the investigative process;
             reviewed internal OPM reports regarding its background investigation
             process and information technology initiatives, and met with officials from
             the Intelligence Community, selected OPM customer agencies, and three
             private investigative firms. We also interviewed knowledgeable officials
             from OPM, DOD, and Office of the Director of National Intelligence to
             understand the status of reform initiatives and determine the extent to
             which cost analyses of these initiatives have been conducted.

             We conducted this performance audit from March 2011 through February
             2012 in accordance with generally accepted government auditing
             standards. Those standards require that we plan and perform the audit to
             obtain sufficient, appropriate evidence to provide a reasonable basis for
             our findings and conclusions based on our audit objectives. We believe
             that the evidence obtained provides a reasonable basis for our findings
             and conclusions based on our audit objectives. Appendix I describes our
             scope and methodology in more detail.


             OPM provides background investigations for suitability determinations
Background   and personnel security clearances to agencies governmentwide. OPM’s
             Federal Investigative Services provides goods and services pursuant to
             various legal authorities that allow agencies to place orders with another
             agency. OPM provides background investigation services to over 100
             executive branch agencies; however, others, including some agencies in
             the Intelligence Community, have been delegated authority from the




             Page 6                                     GAO-12-197 Background Investigations
Office of the Director of National Intelligence, OPM, or both, to conduct
their own background investigations. 14

The National Defense Authorization Act for Fiscal Year 2004 15 permitted
the transfer of the federal government’s personnel security clearance
investigation function from DOD’s Defense Security Services to OPM’s
Federal Investigative Services. In February 2005, DOD transferred its
personnel security investigations function and about 1,800 investigative
positions, and made a onetime fund transfer of $49.4 million to OPM. The
conditions of the transfer were specified in the 2004 Memorandum of
Agreement, which detailed the financial and personnel transactions
between the two agencies. 16 Since the transfer, DOD relies upon OPM for
nearly all of its clearance investigations outside the Intelligence
Community.

OPM manages intragovernmental funds transfers from requesting
agencies using a revolving fund, which finances a cycle of business-type
operations. OPM’s revolving fund, authorized under section 1304 of Title
5 of the United States Code, charges executive branch agencies for the
sale of background investigation-related products and services when the
investigation is scheduled by the requesting agency, and uses the



14
  In 2005, the Office of Management and Budget designated OPM as the agency
responsible for, among other things, the day-to-day supervision and monitoring of security
clearance investigations, and for tracking the results of individual agency-performed
adjudications, subject to certain exceptions. However, the Office of the Director for
National Intelligence can designate other agencies as "authorized investigative agenc[ies]”
pursuant to 50 U.S.C. 435b(b)(3), as implemented through Executive Order 13467.
Alternatively, under 5 U.S.C.1104(a)(2), OPM can redelegate any of its investigative
functions subject to performance standards and a system of oversight prescribed by OPM
under 5 U.S.C. 1104(b). Agencies that have delegated authority from the Director of
National Intelligence include, but are not limited to, the Defense Intelligence Agency,
National Security Agency, National Geospatial-Intelligence Agency, Central Intelligence
Agency, Federal Bureau of Investigation, National Reconnaissance Office, and
Department of State. Agencies that have delegated authority from OPM are the
Department of Homeland Security (Headquarters, Immigration and Customs Enforcement,
Customs and Border Protection, U.S. Secret Service, and U.S. Coast Guard), Bureau of
Alcohol, Tobacco and Firearms and Explosives, Bureau of Engraving and Printing, Bureau
of the Public Debt, U.S. Agency for International Development, Broadcasting Board of
Governors, Department of State, and the Millennium Challenge Corporation.
15
 Pub. L. No. 108-136, § 906 (2003).
16
 Department of Defense and Office of Personnel Management, Memorandum of
Agreement Concerning the Transfer of Certain Elements of the U.S. Department of
Defense to the U.S. Office of Personnel Management (October 2004).




Page 7                                              GAO-12-197 Background Investigations
proceeds to finance its costs, usually on a self-sustaining basis. 17 OPM
provides its customer agencies with an annual background investigation
product pricing list for the upcoming fiscal year in August or September,
and bills monthly according to the rate in effect at the time the customer
agency places an order for an investigation.

OPM provides a variety of investigative services depending upon the
needs of the client agency and the suitability or security clearance
requirements of an applicant’s position. For example, if an agency
requires a secret clearance, OPM would schedule an appropriate level
investigation and conduct a series of record checks to determine the
applicants’ eligibility for a secret clearance.

Many background investigation types have similar components. For all
investigations, information that applicants provide on electronic
applications are checked against numerous databases. 18 Many
investigation types contain credit and criminal history checks, while top
secret investigations also contain citizenship, public record, and spouse
checks as well as reference interviews and an Enhanced Subject
Interview to gain insight into an applicant’s character. Although it is not
standard, the Enhanced Subject Interview can also be triggered for lower-
level investigations if an investigation contains issues that need to be
resolved in accordance with the Federal Investigative Standards. Table 1
highlights the investigative components generally associated with the
suitability, secret, and top secret clearance levels.




17
  Although revolving funds are generally self-sustaining, some, including OPM’s, are
permitted to carry surplus funds from year to year. Additionally, because revolving funds
amount to a permanent authorization for a program to be financed, in whole or in part,
through the use of its collections to carry out future operations, they serve as a form of
permanent appropriation.
18
  The electronic applications for all investigation types are collectively known as the
electronic Questionnaires for Investigations Processing (e-QIP).




Page 8                                                GAO-12-197 Background Investigations
Table 1: Information Gathered in Conducting a Typical Investigation to Determine Suitability and Eligibility for a Security
Clearance

                                                                                                   Type of background investigation
Type of information gathered by component                                                     Suitability                Secret          Top Secret
1. Personnel security questionnaire: The reported answers on an electronic                          X                       X                  X
SF-85P or SF-86 form
2. Fingerprints: Fingerprints submitted electronically or manually                                  X                       X                  X
3. National agency check: Data from Federal Bureau of Investigation, military                       X                       X                  X
records, and other agencies as required
4. Credit check: Data from credit bureaus where the subject                                         X                       X                  X
lived/worked/attended school for at least 6 months
5. Local agency checks: Data from law enforcement agencies where the                                V                       X                  X
subject lived/worked/attended school during the past 10 years or—in the case
of reinvestigations—since the last security clearance investigation
6. Date and place of birth: Corroboration of information supplied on the                                                                       X
personnel security questionnaire
7. Citizenship: For individuals born outside of the United States, verification of                                                             X
U.S. citizenship directly from the appropriate registration authority
8. Education: Verification of most recent or significant claimed attendance,                        V                       V                  X
degree, or diploma
9. Employment: Review of employment records and interviews with workplace                           V                       V                  X
references, such as supervisors and coworkers
10. References: Data from interviews with subject-identified and investigator-                      V                       V                  X
developed leads
11. National agency check for spouse or cohabitant: National agency check                                                                      X
without fingerprint
12. Former spouse: Data from interview(s) conducted with spouse(s) divorced                                                                    X
within the last 10 years or since the last investigation or reinvestigation
13. Neighborhoods: Interviews with neighbors and verification of residence                          V                       V                  X
through records check
14. Public records: Verification of issues, such as bankruptcy, divorce, and                                                                   X
criminal and civil court cases
                                                                                                    a                       a
15. Enhanced Subject Interview: Collection of relevant data, resolution of                                                                     X
significant issues or inconsistencies
                                              Source: DOD and OPM.
                                              Note: The content and amount of information collected as part of a personnel security clearance
                                              investigation is dependent on a variety of case-specific factors, including the history of the applicant;
                                              however, items 1-15 are typically collected for the types of investigations indicated.
                                              V = Components with this notation are checked through a mail voucher sent by OPM’s Federal
                                              Investigative Services.
                                              a
                                               The Enhanced Subject Interview was developed by the Joint Reform Team and implemented by
                                              OPM in 2011 and serves as an in-depth discussion between the interviewer and the subject to ensure
                                              a full understanding of the applicant’s information, potential issues, and mitigating factors. It is
                                              included in a Minimum Background Investigation, one type of suitability investigation, and can be
                                              triggered by the presence of issues in a secret level investigation.




                                              Page 9                                                      GAO-12-197 Background Investigations
OPM’s Federal Investigative Services employs both federal and contract
investigators to conduct work required to complete background
investigations. The federal staff constitutes about 25 percent of Federal
Investigative Services’ investigator workforce, while OPM currently also
has firm fixed price contracts for investigative fieldwork, among other
services, with three contract investigation firms, constituting the other 75
percent of its investigator workforce. According to OPM officials, the
prices that the private firms charge OPM for each type of investigation are
fixed by OPM’s contracts with those firms, and the competition between
firms helps keep prices down. Further, OPM officials stated that the mix of
federal and contract workforce allows them to respond to the changing
investigative demands of the executive branch.

In contracting for investigative fieldwork, OPM typically uses indefinite-
delivery, indefinite-quantity contracts that provide for a variety of
investigative field work and support services at a fixed price. 19 When
OPM selects contractors for its overarching indefinite delivery, indefinite-
quantity contract, officials stated that they assess the proposals for both
technical and price considerations. While technical expertise is the
primary factor in awarding the contract, all else being equal, OPM will
select based on the best value, according to OPM documents. OPM
officials explained that when assessing the prices of proposals for work,
they consider not just the lowest price and the reasonableness of the
prices for each case type, but also the contractor’s experience and the
type of work the contractor wishes to perform.

As the government’s primary background investigation provider and the
Suitability Executive Agent of the Performance Accountability Council,
OPM has been involved in the governmentwide effort to improve and
align the background investigations process across the federal
government. Over the past several years, the Performance Accountability
Council, through the Joint Reform Team at the working level, has
evaluated the efficiency of the security clearance process, including
technologies for increased automation, to further reduce impediments to


19
  Indefinite-delivery, indefinite-quantity contracts allow the government to buy goods and
services within the stated limits when the exact times and exact quantities of future
deliveries of goods and services are not known at the time of award. The government
places orders for individual requirements during the term of the contracts. FAR §§ 16.501-
2 and 16.504. According to OPM officials, OPM's indefinite-delivery, indefinite-quantity
contracts for investigative fieldwork are fixed price contracts, meaning that prices cannot
change as a result of the actual costs incurred by the contractor in performing the work.




Page 10                                             GAO-12-197 Background Investigations
                     the timeliness of investigations, while at the same time minimizing the
                     resources required. Numerous congressional oversight hearings and
                     legislative reforms, such as the Intelligence Reform and Terrorism
                     Prevention Act of 2004 and the Intelligence Authorization Act for Fiscal
                     Year 2010, along with the committed leadership of the Performance
                     Accountability Council, have greatly contributed to the progress of the
                     governmentwide reform. 20

                     The Performance Accountability Council also has provided input into
                     revising the Federal Investigative Standards that govern the investigative
                     process to improve the quality of investigations and minimize duplication
                     to allow an investigation to be reciprocally accepted from one agency to
                     another. As part of the revision of the standards, the Joint Reform Team
                     is currently in the process of developing a tiered investigative model. 21
                     This tiered model is envisioned to reduce the number of investigation
                     types and will align investigations for national security and public trust
                     positions to a greater degree.


                     OPM’s reported cost data suggest that the overall costs incurred by
OPM Reported Costs   OPM’s Federal Investigative Services to conduct background
Have Continually     investigations for the majority of the executive branch have increased by
                     about 79 percent since fiscal year 2005, even though OPM workload has
Increased While      declined since fiscal year 2008. Specifically, OPM’s reported costs
Workload Has         increased from about $602 million in fiscal year 2005 to almost $1.1
Declined in Recent   billion in fiscal year 2011, more than a 10 percent average annual
                     increase in fiscal year 2011 constant dollars. 22 OPM’s workload
Years                experienced a steady increase between fiscal years 2005 and 2008,
                     peaked at approximately 1.7 million stand-alone investigations in fiscal
                     year 2008, and then declined to approximately 1.2 million background




                     20
                      Pub. L. No. 108-458, § 3001 (2004) and Pub. L. No. 111-259, § 367 (2010).
                     21
                        The Joint Reform Team proposed a three-tiered model in 2008, but the team continues
                     to refine the model because agencies had concerns, including those of a legal nature, that
                     it did not meet both suitability and security needs, as intended.
                     22
                      These costs include Intelligence Community employee background investigations that
                     OPM conducts.




                     Page 11                                            GAO-12-197 Background Investigations
investigations in fiscal years 2010 and 2011. 23 Figure 2 shows OPM’s
reported costs by expense type for fiscal years 2005 through 2011. In
order to show real growth and compare Federal Investigative Services
costs since fiscal year 2005, we adjusted for inflation by converting those
costs to constant fiscal year 2011 dollars. For a description of OPM’s
costs in nominal, or current year dollars, see appendix II. In addition, we
relied on OPM’s reported cost data for the purposes of our report;
however, the extent to which these data are reliable is unknown because
an audit of OPM’s revolving fund has not been conducted. Further,
independent audits of OPM’s overall financial management system,
where revolving fund transactions are recorded, conducted during fiscal
years 2005 through 2011 found material weaknesses in internal controls 24
that could affect the reliability of the cost data cited in this report.




23
  OPM currently offers 13 stand-alone investigative products. We define stand-alone
investigations as those that result in suitability determinations, top secret or secret
clearances. Other investigations are add-on items that would not by themselves support a
suitability or security clearance determination, such as national credit checks or Federal
Bureau of Investigation name checks.
24
  Sections 3515 and 3521 of Title 31 of the United States Code require, among other
things, that covered agencies like OPM prepare annual audited financial statements
covering all accounts and associated activities of each office, bureau, and activity of that
agency. OPM’s financial statements must be audited either by its Inspector General or an
independent external auditor. OPM’s financial audits for fiscal years 2005-2011 were
conducted by independent audit authority KPMG.




Page 12                                              GAO-12-197 Background Investigations
Figure 2: Federal Investigative Services Reported Costs (In Fiscal Year 2011 Dollars) and Stand-Alone Investigation Workload
for Fiscal Years 2005 through 2011




                                         Note: The extent to which these cost data are reliable is unknown because independent audits found
                                         material weaknesses in internal controls for OPM’s overall financial management system that
                                         generated these cost data. Cost categories are defined below.
                                         Pay and benefits/personnel: Salaries and benefits paid to Federal Investigative Services' federal
                                         employees.
                                         Rent, Communication and Technology: Rent paid to the General Services Administration, commercial
                                         payments, and expenses for wireless phone services, Internet service providers, and mail.
                                         Information technology: Includes information technology rental agreements, the operation and
                                         maintenance of hardware and software, and specialized technical services related to upgrading
                                         Federal Investigative Services' core suite of technologies.
                                         End-to-end contract: Investigative services provided by contractors, replaced by separate fieldwork
                                         and support contracts and phased out from fiscal years 2005 through 2009.




                                         Page 13                                                    GAO-12-197 Background Investigations
Fieldwork contracts: Fieldwork investigative services provided by contractors that conduct
background investigations.
Support contract: Investigation support and mail services provided by contractors, such as data entry
and verification.
Other services: Includes travel, training for federal investigators, fees for third-party checks, payments
to OPM Common Services, operations and maintenance of facilities, and equipment.
FY = fiscal year


According to OPM officials, the three principal cost factors driving OPM’s
program are (1) contractor personnel, (2) federal personnel, and (3)
investments in information technology. 25 The first cost driver is
investigation fieldwork and support contracts, which represent nearly half
of OPM’s fiscal year 2011 reported costs—about $532 million. 26 Overall,
data suggest that costs of investigation fieldwork and support contracts
increased almost 42 percent between fiscal years 2005 through 2011 (in
fiscal year 2011 dollars). 27 According to OPM officials, the investigative
fieldwork contract allows OPM to assign an investigation to a contractor
and have it completed for a fixed price. 28 According to OPM officials, the
support contract buys clerical support for case-management, including
receiving and scheduling investigations as well as scanning necessary
documents into the investigative file. 29 The second cost driver is
personnel compensation and benefits for OPM’s background investigation
federal workforce, which represent about 25 percent of OPM’s fiscal year
2011 reported costs—about $265 million. OPM’s data suggest that
personnel compensation increased by 151 percent between fiscal years
2005 through 2011. Federal investigators constitute about 25 percent of
OPM’s total investigator workforce. In fiscal year 2011, OPM’s Federal
Investigative Service employed 2,656 individuals, of which 1,581 were


25
  We define cost drivers as factors that influence or contribute to the expense of business
operations, and in this case the operation is OPM Federal Investigative Services’
background investigations program.
26
 The figure of $532 million was calculated by adding fiscal year 2011 costs for Fieldwork
Contracts ($476 million) and Support Contracts (almost $56 million) in fig. 2.
27
  To calculate the increase in costs of OPM contracts during the period of our review, we
calculated the increase in total contract costs, including end-to-end contracts, fieldwork
contracts, and support contracts.
28
  Each investigation type has a unique price. However, the contractor cannot charge more
than what is agreed upon for the type of investigation. For example, if a secret
investigation results in more interviews and in-person checks than a typical investigation,
the contractor may still only charge the fixed price agreed upon.
29
  According to OPM officials, contractor support functions include receiving the case, data
entry, verification, delivery, and administrative support, among other things.




Page 14                                                      GAO-12-197 Background Investigations
federal investigators who are primarily responsible for high-profile and
specialized cases, such as conducting investigations for contractor
investigators and political appointees. The third cost driver is OPM’s
information technology investments. While these investments represent
less than 10 percent of fiscal year 2011 reported costs, they have
increased more than 682 percent over 6 years (in fiscal year 2011
dollars), from about $12 million in fiscal year 2005 to over $91 million in
fiscal year 2011. Further, according to OPM officials, some costs for
information technology are also included in other categories, such as rent,
communication, technology, and other services. Between fiscal years
2005 and 2007, these costs were primarily for the operation and
maintenance of OPM’s information technology for processing background
investigations, while after fiscal year 2008, information technology costs
increased as a result of Federal Investigative Services’ modernization
effort, known as EPIC modernization, according to officials. 30

In addition to the three cost drivers, OPM officials identified other changes
that were increasing the program’s costs. Specifically, officials cited
changes to the investigative standards, the 2011 addition of the more-
comprehensive Enhanced Subject Interview, increased Federal Bureau of
Investigation (FBI) fingerprint and name search fees, and compliance with
mandated timeliness requirements as additional factors affecting the cost
of investigations. Although the Enhanced Subject Interview requires more
labor hours than the previous subject interview, officials from OPM
customer agencies stated that the Enhanced Subject Interview, which has
an associated, one-time charge of $550, replaced a similar OPM
investigation product, the Special Interview, which cost customer
agencies $480 each time an investigator made contact with an applicant.
In addition, the FBI fee increase from fiscal year 2010 to fiscal year 2011
was $3 per investigation, which affected OPM’s operating costs.
According to GAO calculations, this increase totals approximately $6.9
million, or less than 1 percent of OPM’s total costs, if each investigation in
OPM’s fiscal year 2011 overall workload includes an FBI fee. Further, as
Federal Investigative Services has expanded over the years since it
acquired DOD’s background investigation program, its common services
payments (e.g., from the Federal Investigative Services revolving fund to


30
  EPIC is a suite of eight automated background investigation processing tools used by
OPM to modernize and streamline the investigation process. The EPIC suite includes,
among other systems, an electronic background information questionnaire, an electronic
imaging system, an electronic case processing system, and a centralized background
investigation verification system.




Page 15                                           GAO-12-197 Background Investigations
                                              OPM for the use of OPM-wide support resources) have increased. These
                                              services include security, the information technology helpdesk, legal
                                              assistance, congressional and legislative affairs, and the Chief Financial
                                              Office and internal oversight.

                                              Despite the consistent increase in costs, Federal Investigative Services’
                                              workload for stand-alone investigations ultimately declined, after it peaked
                                              in fiscal year 2008, as reflected in table 2 below. Over the past several
                                              years, the number of stand-alone cases for all major investigation types
                                              (top secret, secret, and suitability) has markedly decreased. Specifically,
                                              OPM’s workload for stand-alone investigations decreased by almost 31
                                              percent since 2008, and its total workload for all investigation types
                                              decreased by almost 7 percent since 2008. Further, the number of secret
                                              cases handled by Federal Investigative Services declined in fiscal year
                                              2011 by almost 20 percent of the fiscal year 2008 caseload, and
                                              suitability, by about 48 percent of the 2008 caseload.

Table 2: OPM’s Federal Investigative Services Workload, Fiscal Years 2005-2011
                     a
Investigation type                                                                           Fiscal years
                                                             2005             2006       2007        2008         2009          2010            2011
Stand-alone          Top secret                          145,427         168,387      230,422     241,103      202,786       199,444          225,168
investigations       Secret                             529,096          609,218      710,234     714,360      595,983       553,411          575,614
                     Suitability                         467,462         528,906      681,875     773,805      749,042       403,698          400,586
                     Other                                15,112           18,772      21,473      22,439       22,193        21,710           20,068
                     Total stand-alone                1,157,097        1,325,283     1,644,004   1,751,707   1,570,004    1,178,263     1,221,436
                     investigations
Add-on               Special Agreement Checks            321,584         431,511      546,616     581,845      535,095       891,378          939,700
investigation        Special Interviews (SPIN) /
products             Enhanced Subject
                                                                                                                                                    b
                     Interviews                           64,768           85,810     131,058     143,564      131,806       130,075      143,473
                     Total add-on
                     investigation products              386,352         517,321      677,674     725,409      666,901    1,021,453     1,083,173
Total
investigation
workload                                              1,543,449        1,842,604     2,321,678   2,477,116   2,236,905    2,199,716     2,304,609
                                              Source: GAO analysis of OPM data.
                                              Notes: OPM does not define or categorize its products with stand-alone or add-on designations, as
                                              we did for purposes of this report.
                                              a
                                               For purposes of this table, OPM investigation case types have been consolidated into either
                                              suitability or the clearance level that they support. In addition, initial investigations and
                                              reinvestigations have been consolidated.
                                              b
                                               Enhanced Subject Interviews replaced SPINs in fiscal year 2011 and therefore 143,473 represents
                                              the number of Enhanced Subject Interviews for that fiscal year.




                                              Page 16                                                   GAO-12-197 Background Investigations
                             In addition to these stand-alone investigations, OPM has other
                             investigative products that contribute to its workload and affect OPM’s
                             costs, which we refer to as add-on investigations for the purposes of this
                             report and which are also listed in table 2. Special Agreement Checks are
                             investigation components, such as fingerprint checks or credit checks,
                             that provide additional coverage to a background investigation and are
                             either triggered by information present in the investigation or ordered by
                             the customer agency requesting the background investigation to aid in
                             prescreening an applicant. Special Agreement Checks range in price from
                             $4 to $69, and, according to OPM officials, the number of these record
                             checks almost tripled from fiscal year 2005 through fiscal year 2011
                             because they (1) replaced other OPM products that were discontinued
                             and (2) included electronic fingerprints, versus mailed.


                             OPM develops prices for its various types of background investigations by
OPM Focuses on               using an average cost pricing model focused on full cost recovery, which
Recovering Full              is intended to recover all Federal Investigative Services’ operating costs
                             for each fiscal year. While OPM provides its customers and the public
Operating Costs When         with general information on reasons for price increases, OPM has not
Determining Prices,          been sufficiently transparent with cost details to help customer agencies
and Does Not Provide         better understand background investigation price increases.

Its Customer
Agencies Transparent
Information on Price
Increases

Federal Investigative        Since 1952, OPM (or its predecessor agency, the Civil Service
Services’ Pricing Model Is   Commission) has financed elements of its background investigations
to Fully Recover Operating   program through a revolving fund, which means that revenues recovered
                             from customer agencies ( i.e., prices for background investigations
Costs                        products) pay for the program’s fiscal year operating costs (including both
                             the costs of conducting an investigation and overhead costs). 31 According
                             to Federal Investigative Services officials, they use an average cost
                             model to help ensure that their prices set for each new fiscal year will


                             31
                              GAO, OPM’s Revolving Fund Policy Should Be Clarified and Management Controls
                             Strengthened, GGD-84-23 (Washington, D.C.: October 1983).




                             Page 17                                        GAO-12-197 Background Investigations
cover the overall costs they will incur for providing background
investigations that fiscal year. We have previously reported that fees set
at an average rate may be higher or lower than the actual costs of
providing services to specific users. 32

Each year, Federal Investigative Services officials estimate their total
costs and calculate the total anticipated revenue for the coming year. To
develop the prices of its investigation products, OPM estimates revenue
for the upcoming year, which is based upon OPM’s expected
investigation workload, multiplied by the current prices, adjusted to cover
projected costs for the coming fiscal year. As a result, prices are set to
fully recover operating costs, and, in some cases, have led to a surplus
for OPM such as in fiscal year 2007 through fiscal year 2010 as
demonstrated in table 3. To develop prices, OPM officials described a
three-step process, as shown in figure 3. This mechanism has not
essentially changed in the past two decades although OPM’s overall
workload has substantially increased between fiscal years 2005 through
2008 as a result of the 2005 transfer of DOD’s investigative function to
Federal Investigative Services, which is reflected in table 2.




32
  GAO, Federal User Fees: A Design Guide, GAO-08-386SP (Washington, D.C.: May 29,
2008).




Page 18                                        GAO-12-197 Background Investigations
Figure 3: OPM’s Calculation of Final Prices for Its Various Investigation Types




                                          a
                                           Customer agencies are asked to provide workload projections that are accurate within a 5 percent
                                          margin to assist OPM in estimating costs for the upcoming year. However, OPM officials stated that,
                                          due to the unreliability of agency projections, OPM instead uses agency investigation workloads from
                                          the previous fiscal year to project numbers and types of background investigations.




                                          The first step in setting prices, according to OPM officials, is to estimate
                                          costs and assess the balance of the revolving fund to determine the
                                          remaining cost to be covered by the revenue from investigations in the
                                          coming fiscal year. To estimate its costs for the coming year, OPM
                                          projects its operating expenses in accordance with major budget object
                                          class categories outlined in Office of Management and Budget Circular
                                          No. A-11, such as personnel compensation and benefits, contractual
                                          services and supplies, payments for contractors and General Services




                                          Page 19                                                   GAO-12-197 Background Investigations
Administration rent, and acquisition of assets like equipment. 33 OPM’s
reported information about costs—such as investigative contractor
fieldwork and support costs, and internal investments associated with
conducting investigative services such as OPM’s planned information
technology investments from fiscal year 2008 through 2014 to modernize
its systems—is gathered from various points of contact within OPM and
Federal Investigative Services.

In addition to estimating costs, OPM considers the balance or net position
of its revolving fund. Federal Investigative Services finances its costs by
collecting revenue from customer agencies (fees for providing services to
other agencies) through a revolving fund, rather than through annual
appropriations. GAO has previously noted that, while OPM’s revolving
fund is not required to operate on a break-even basis over the short term,
operating OPM’s revolving fund with deficits or surpluses for 5 or more
years is not consistent with the statutory goal of operating each activity on
an actual cost basis to the maximum extent feasible. 34 In response, OPM
adopted 3 years to 5 years as an appropriate time frame within which to
balance surpluses and deficits. However, in fiscal years 2007 through
2010, OPM’s revolving fund, as a whole, had a surplus, or more revenue
than it needed to cover costs, each year. The total surplus during the 5-
year period of fiscal years 2007 through 2011 was over $227 million, as
indicated in table 3 below.




33
  Section 83 of Office of Management and Budget Circular No. A-11 breaks down budget
object class categories and codes to be used in presenting obligations by the items or
services purchased by the federal government.
34
  GAO, OPM Revolving Fund: Investigation Activities During Fiscal Years 1983 Through
1986, GGD-87-81 (Washington, D.C.: June 26, 1987) and GAO, OPM Revolving Fund:
OPM Sets New Tuition Pricing Policy, GGD-94-120 (Washington, D.C.: Apr. 6, 1994).
Section 1304 of Title 5 of the United States Code states that to the maximum extent
feasible, OPM shall conduct each individual activity financed by the revolving fund on an
actual cost basis over a reasonable period of time.




Page 20                                             GAO-12-197 Background Investigations
Table 3: Federal Investigative Services’ Costs, Revenue, and Differences for Fiscal Years 2007 to 2011, in Nominal Dollars

                                                                             Fiscal years
                                    2007                  2008              2009                2010                 2011                Total
Revenue                     $838,427,517         $1,034,737,301   $929,143,514      $1,063,298,353       $1,063,298,207      $4,928,904,892
Total costs                  788,541,880           911,828,638      882,831,524       1,041,390,763       1,076,793,412        4,701,386,217
Difference between costs
            a
and revenue                    49,885,637          122,908,663       46,311,990           21,907,590        (13,495,205)         227,518,675
                                            Source: GAO analysis of OPM data.
                                            Note: This analysis of Federal Investigative Services data is in nominal dollars to reflect actual
                                            financial position for the time period. We do not show fiscal years 2005 and 2006 revenue because
                                            the funds transferred from DOD to OPM during that time period, as indicated in the Memorandum of
                                            Agreement between the agencies, prevented a simple accounting of revenue.
                                            a
                                            Difference values may vary due to rounding.




                                            Further, according to Federal Investigative Services officials, OPM’s goal
                                            is to maintain a net position, or balance within a 5 percent margin of its
                                            revenue, 35 which they maintained, on average, during the fiscal years
                                            2007 through 2011. In addition, agency officials stated that the net
                                            position or balance allows flexibility for OPM to incur losses in some years
                                            and have surpluses that make up for the losses in other years to break
                                            even as described above. Also, OPM maintains retained earnings that
                                            would be sufficient to close out its operations through leases, contracts,
                                            and other items, and officials said that from fiscal years 2008 through
                                            2010 the agency used the balance of the revolving fund minus the
                                            retained close out costs to fund information technology projects, such as
                                            EPIC modernization.

                                            After costs are estimated and the net position of the revolving fund
                                            considered, OPM then estimates the investigation workload for the next
                                            fiscal year. The workload projections are broken down by investigation
                                            type because each of OPM’s investigative products has different
                                            components and therefore contractors charge OPM different prices for
                                            each investigation type. To estimate workload, officials stated that they
                                            primarily rely on historical trends for each agency’s workload. In addition,



                                            35
                                              OPM strives to maintain a 5 percent net margin, but there is some variance from year to
                                            year depending on how much OPM relies on the revolving fund balance to invest in
                                            information technology upgrades. For example, the percentage of the surplus ranged from
                                            -1 percent to 12 percent, with an average of 5 percent.




                                            Page 21                                                  GAO-12-197 Background Investigations
                           OPM also considers workload projections provided by customer agencies
                           for the upcoming fiscal year.

                           Lastly, OPM uses the prices of its products in the current fiscal year as a
                           starting point and adjusts them accordingly to help ensure projected costs
                           are covered in the coming year, which may result in increasing prices
                           when necessary. Once prices have been estimated, OPM compares the
                           change in price, if any, to changes in the Consumer Price Index–All
                           Urban Consumers. 36 Additionally, OPM has an established review
                           process for both its case pricing procedure and the prices themselves.
                           Both the Associate Director of Federal Investigative Services and the
                           Chief Financial Officer of OPM approve prices, and brief the Director of
                           OPM on price changes for the upcoming year when requested.


OPM Does Not Provide       Although OPM reports on its prices before the start of each fiscal year,
Stakeholders with          agencies do not have access to detailed information about how prices are
Transparent Cost Data      linked to costs, and therefore some customer agency officials have stated
                           that they do not understand the basis for OPM’s prices and price
Used to Determine Prices   increases over time. Some agencies that use OPM background
                           investigation services, such as DOD, have asked for more detailed cost
                           data in support of OPM’s increase in prices. However, OPM does not
                           provide an explanation or crosswalk that links its costs to the prices
                           charged for the services because (1) its prices include costs other than
                           those associated with specific investigative component costs, such as
                           overhead for fees provided to OPM for common services like information
                           technology help desks, and (2) it aggregates all overhead costs. OPM’s
                           prices are a projection of what it expects to spend in the next fiscal year.
                           We have previously identified key operating principles to guide the
                           management of revolving funds, and among those principles is the need
                           for a transparent and equitable pricing methodology that allows agencies




                           37
                             The Consumer Price Index for All Urban Consumers is a measure of the average
                           change over time in the prices paid by urban consumers for a market basket of consumer
                           goods and services.




                           Page 22                                           GAO-12-197 Background Investigations
to recover total costs. 37 Further, if customers understand how a rate is
determined and changed, including the assumptions used by the agency
setting the rate, those customers can anticipate potential changes and
incorporate that information into their budget plans. In addition, according
to Federal User Fees: A Design Guide, providing program information to
other agencies, stakeholders, and Congress, can improve transparency,
ensure that prices remain aligned with program costs and activities, and
increase awareness of the costs of the federal program, 38 such as OPM’s
Federal Investigative Services. While OPM’s pricing methodology is
designed to recover its costs, OPM does not provide this cost information
to agencies. Instead, OPM provides a list of billing rates for the coming
fiscal year, without supporting information and other guidance, through
memos called Federal Investigations Notices, published annually in
August or September. The notices are sent to agencies through OPM
liaisons and are also publicly available on the Federal Investigative
Services website.

According to DOD officials, one of the reasons that OPM’s investigation
prices are not transparent is that the final amount that customer agencies
pay for stand-alone investigations is often higher than the prices OPM
advertises for such investigations in its Federal Investigations Notices.
Federal Investigations Notices publish prices for stand-alone
investigations that, by themselves, would support a suitability
determination, or secret or top secret clearance. The notices also contain
prices for investigation products that are additional to stand-alone
investigations. These add-ons, such as an Enhanced Subject Interview,
are triggered by applicant circumstances found in the investigation, such
as extensive international travel, a poor credit report, or record of illegal


37
   GAO, Intragovernmental Revolving Funds: Commerce Departmental and Census
Working Capital Funds Should Better Reflect Key Operating Principles, GAO-12-56
(Washington, D.C.: Nov. 18, 2011). GAO identified four key operating principles to guide
the management of intragovernmental revolving funds, such as that used by OPM to
finance its background investigations, including (1) clearly delineating roles and
responsibilities, (2) ensuring self sufficiency by recovering the agency’s total costs, (3)
measuring performance, and (4) building in flexibility to obtain customer input and meet
customer needs.
38
  GAO-08-386SP. GAO developed Federal User Fees: A Design Guide, which examines
the characteristics of user fees, and factors that contribute to a well-designed fee. While
fees paid to OPM for clearance investigations are not traditional user fees, which are fees
assessed to private users for goods or services provided by the federal government,
several aspects of the Federal Design Guide can serve as good practices to consider
when managing interagency fees.




Page 23                                              GAO-12-197 Background Investigations
conduct, all of which would require further investigation. DOD officials
stated that the prices contained in OPM’s Federal Investigative Notices
are not always reflective of the amount DOD actually pays for an
investigation, as a result of these add-on investigations. For example, in
fiscal year 2011, OPM’s published price for a military servicemember’s
secret 39 clearance investigation was $228, but the actual average price
that DOD ultimately paid for this type of investigation was $350 as a result
of add-ons, according to DOD calculations. Further, OPM’s published
price for a civilian’s secret 40 clearance investigation in fiscal year 2011
was $260, while, according to DOD, the average price DOD paid for this
type of investigation was $427. As a result, DOD’s fiscal year 2011
requests for these two types of clearances cost about $65 million more
than the published price in OPM’s Federal Investigation Notices.

Excluding add-on investigation products, our trend analysis showed that
the percentage change in stand-alone investigation prices generally
exceeded selected measures of inflation, even though OPM considers
one of those measures, the Consumer Price Index–All Urban Consumers,
in its price calculations. Overall, the prices of OPM stand-alone
investigation types experienced an average annual percent increase of
3.1 percent to 7.9 percent over the period of fiscal years 2005 through
2012, although OPM did not increase any investigation prices in fiscal
years 2010 and 2012. As a specific example, the investigation that
supports a military servicemember’s secret clearance increased in price
from $160 in fiscal year 2005 to $228 in fiscal year 2012, presenting an
average annual price increase of 5.5 percent, compared to the average
annual Consumer Price Index–All Urban Consumers increase of 2.6
percent. See appendix III for the prices and percentage change in prices
for all OPM investigative products from fiscal years 2005 through 2012,
and our analysis comparing weighted average annual percentage change
in prices to changes in selected measures of inflation, including the




39
 The type of investigation used in this example is a National Agency Check with Law and
Credit, and this price is based on OPM’s fiscal year 2011 Federal Investigations Notice.
40
  The type of investigation used in this example is an Access National Agency Check with
Inquiries, and this price is based on OPM’s fiscal year 2011 Federal Investigations Notice.




Page 24                                             GAO-12-197 Background Investigations
Consumer Price Index–All Urban Consumers and the Employment Cost
Index. 41

According to Federal Investigations Notices, the reason OPM did not
increase investigation prices in fiscal years 2010 and 2012 was because
Federal Investigative Services was able to absorb increases in operating
costs, which means that the balance in the revolving fund was more than
the amount OPM needed to fund operations and maintain to close out
operations, if needed. Further, OPM officials said they believe it is OPM’s
responsibility to pass on cost savings to customers whenever it is able to
do so, including by keeping prices at current levels in fiscal years 2010
and 2012. However, some officials from OPM customer agencies said
they did not understand why the prices of lower-level suitability
investigations had continued to increase most years between fiscal years
2005 and 2011 despite few, if any, changes having been made to process
requirements for these investigations. Based on the information provided
in the notices and on testimonial evidence, OPM presents only very broad
reasons for price increases and has never provided customer agencies
with detailed explanations of why it needs to increase prices in most
years, but not in some others. As a result, agency officials expressed
dissatisfaction with OPM’s price increases.

OPM does not determine the prices of its investigations by assessing the
costs of the components that make up investigations, such as those
components listed in table 1, because according to OPM officials, it is
time-intensive and inefficient to determine the exact cost of each
individual investigation. Further, officials said that each type of
background investigation contains different requirements, and
investigations that have the same requirements will still contain varying
components, which are driven by the background of the individual
applicant who is being investigated. For example, investigations cover a
specified time period and are composed of a number of leads based on
the applicant’s credit, public records, law checks, references,
employment, residences, and education, among other things. As the
number of these elements contained in an investigation increases, so
does the amount of labor required to complete it. While this is the case for



41
  In using a weighted average approach to calculate the average, a category that has a
greater proportion of items would receive a greater weight in calculating the average. The
Employment Cost Index is a quarterly measure of changes in labor costs. We used the
Employment Cost Index for total compensation for all civilian workers.




Page 25                                             GAO-12-197 Background Investigations
OPM’s federal workforce conducting investigations, OPM contractors
charge a fixed price for each investigation type that it completes (which
represents about 75 percent of the investigations completed). We also
found that the Joint Reform Team attempted to document cost
information by each investigative component to inform the team’s
decisions about potential changes to the investigative process. However,
according to Reform Team officials and senior OPM officials, they were
unable to document total cost by investigative components, such as
neighborhood checks and subject interviews. Officials from the Joint
Reform Team said that although they were able to determine actual cost
by investigation component, they were not able to break down the cost of
OPM’s overhead by component because OPM does not have the details
of the overhead cost data that would be required to do this. We also
requested these data and OPM officials said it was not available because
they use an average cost model.

Nonetheless, the perceived lack of transparency regarding OPM’s prices
creates customer agency dissatisfaction when they compare OPM’s
prices with those of contractors. For example, several agencies we spoke
to noted that individual contracting firms’ prices were much lower than
OPM’s prices and felt that OPM included excessive overhead in its prices.
For example, officials from customer agencies that have delegated
authority to conduct their own investigations noted that they directly
contract with private investigation providers whose prices for a top secret
investigation were as much as $1,500 lower than OPM’s prices. However,
some customer agencies noted that OPM has additional costs as a
centralized investigative provider that needed to be covered by its pricing.

In response to this lack of transparency surrounding OPM’s pricing, some
agency officials said they believe they can obtain background
investigative services that are cheaper than OPM’s rates and are
considering other options, such as using or seeking delegated authority
from the Director of National Intelligence to perform their own background
investigations and planning to hire private investigation firms to perform
the work. For example, officials at the Department of Homeland Security
recently told us they considered exercising delegated authority to conduct
the agency’s own investigations. According to officials, its Personnel
Security Division considered using delegated authority that the
department already had, instead of voluntarily using OPM to conduct their
investigations, because of cost and time considerations including that
there is a significantly lower cost for top secret investigations when
dealing directly with the contractors. However, OPM is the primary service
provider for most executive branch agencies that require background



Page 26                                    GAO-12-197 Background Investigations
investigations. 42 The risk of agency distrust of OPM’s prices may be
reduced if OPM clearly reports its methods for price setting, including an
accounting of operating costs and the assumptions used to project future
program costs and revenue. Transparent processes for reviewing and
updating fees help assure payers and other stakeholders that fees are set
fairly and accurately and are spent on the programs and activities
intended. If more agencies move toward obtaining delegated authority,
duplication in technology and processes may result, which would dilute
any cost efficiencies that could be gained by having investigative services
centrally conducted. In addition, reciprocity may be affected if multiple
agencies are conducting their own background investigations. For
example, when not conducted centrally, each background investigation
may be subject to varying criteria for completeness and quality, such as
more stringent suitability requirements. Further, the application of the
revised federal investigative standards across the government could be
hindered by agencies’ differing processes and application of those
standards for investigations. Ultimately, agencies may become reluctant
to reciprocally accept a suitability determination or security clearance
because of these potential inconsistencies.

Although customer agencies lack clarity over OPM background
investigation prices, we noted that some communication between OPM
and customer agencies on the prices of investigations does occur. For
example, the Background Investigation Stakeholders Group is a group of
agency policy representatives that meet on a monthly basis. This forum
provides an opportunity for OPM to communicate with its customer
agencies. OPM stated that it shares draft Federal Investigations Notices
at these meetings. In addition, a number of agencies, including the
Department of Homeland Security and the Department of Justice, hold
interagency agreements with OPM, which serve as an official record of
the amounts transferred between the agencies for investigative services,
and some, though not all, agencies consider them useful when
developing their budgets. Although, according to OPM officials, it may not
be efficient to identify the specific costs per investigation or how to
distribute overhead costs to each investigation, OPM has opportunities for
providing customer agencies with more information supporting its price


42
  While OPM was designated as the agency responsible for the day-to-day supervision
and monitoring of security clearance investigations, and for tracking the results of
individual agency-performed adjudications, some executive branch agencies have
delegated authority to conduct their own investigations. These agencies with delegated
authority are primarily within the Intelligence Community.




Page 27                                            GAO-12-197 Background Investigations
                       changes. For example, information about Federal Investigative Services’
                       principal cost factors driving the aggregated operating costs, including
                       contracts, federal personnel costs, and information technology
                       investments, would improve customers’ understanding of how OPM
                       determined or changed investigation prices. However, OPM does not
                       share information with its customers annually in its Federal Investigations
                       Notices about its operating costs, which are the basis for investigation
                       prices. Some customer agency officials stated that in the absence of a
                       cost-based explanation for OPM price increases over the years, they did
                       not have a context to assess the value of changes to investigative
                       processes. Such information would help customer agencies better
                       understand the reasons for investigation price changes, and as a result,
                       customers would be better positioned to anticipate potential changes to
                       those assumptions, identify their effect on costs, and incorporate that
                       information into their budget planning.


                       Governmentwide reform efforts have yet to address or focus upon cost
The Governmentwide     efficiencies and savings related to the investigation process, although
Suitability and        these reform efforts resulted in increased coordination and cooperation to
                       help improve investigation and adjudication timeliness challenges. Both
Personnel Security     the Intelligence Reform and Terrorism Prevention Act (IRTPA) of 2004
Clearance Reform       and the resulting reform effort’s strategic framework 43 established
Efforts Have Not Yet   objectives for timeliness and quality. Additionally, the strategic framework
                       also included cost efficiency as part of its mission statement. The
Focused on Cost        Performance Accountability Council—with the Joint Reform Team at the
Savings                working level—as leaders of the governmentwide reform effort, have not
                       focused on identifying and eliminating process inefficiencies within OPM’s
                       portion of the investigation process. The Performance Accountability
                       Council is positioned to further improve upon the previous successes of
                       reform by focusing future efforts on identifying cost-savings opportunities
                       in the background investigation process. For example, Executive Order
                       13467 makes the Performance Accountability Council responsible for
                       ensuring and overseeing the development of tools and techniques for
                       enhancing background investigations and the making of eligibility
                       determinations.




                       43
                         Performance Accountability Council, Security and Suitability Process Reform Strategic
                       Framework (Washington, D.C.: February 2010). This report was created under the
                       Performance Accountability Council by the Joint Reform Team.




                       Page 28                                            GAO-12-197 Background Investigations
In previously issued reports, we noted the need for the reform effort to
address costs and pursue cost savings in the background investigation
process. In 2008 we testified that the Joint Reform Team should ensure
that Congress is provided with the long-term funding requirements
necessary to implement any proposed changes to the current clearance
processes. 44 Such requirements would enable the executive branch to
compare and prioritize alternative proposals for reforming the clearance
processes, especially as the nation’s fiscal imbalances constrain federal
funding. Further, we recommended in May 2009 that members of the
Joint Reform Team specify the funding and budget requirements for
reform-related efforts, and estimate any potential cost savings that could
result from reform. 45 To date, members of the Joint Reform Team have
not taken steps to provide Congress with this information, which is
especially critical in the current fiscal environment and may hinder
oversight functions related to the governmentwide background
investigation reform effort. Despite our previous calls for a focus on costs,
we noted that no documented cost savings are currently being pursued
by leaders of the reform effort. Further, OPM officials explained that some
of the reform-related requirements, such as the required completion time
for investigations, may increase OPM operating costs, which could lead to
increases in investigation prices. However, during the course of this
review, we identified two areas of potential duplication and inefficiency
that suggest opportunities exist to improve upon the current investigation
processes and if successfully addressed, could generate cost savings.




44
  GAO, Personnel Clearances: Key Factors to Consider in Efforts to Reform Security
Clearance Processes, GAO-08-352T (Washington, D.C.: Feb. 27, 2008).
45
 GAO, Personnel Security Clearances: An Outcome-Focused Strategy Is Needed to
Guide Implementation of the Reformed Clearance Process, GAO-09-488 (Washington,
D.C.: May 19, 2009).




Page 29                                           GAO-12-197 Background Investigations
Agencies Have Made           We found that multiple agencies have invested or plan to individually
Duplicative Investments in   invest in case-management and adjudication systems to meet their
Case-management and          specific needs. 46 In an effort to better manage the adjudication portion of
                             the suitability and security clearance process, agencies have transitioned
Adjudication Systems
                             or planned to transition from a paper-based to an electronic adjudication
                             case-management system. Although the investment in electronic case-
                             management systems will likely lead to process efficiencies, agencies
                             may not be leveraging adjudication technologies in place at other
                             executive branch agencies to minimize duplication.

                             According to DOD officials, DOD began the development of its Case
                             Adjudication Tracking System in 2006 and has invested a total of $32
                             million since then to deploy the system. The system helped DOD achieve
                             efficiencies with case-management and an electronic adjudication module
                             for secret level cases that did not contain issues, given the volume and
                             types of adjudications performed. After observing that the Case
                             Adjudication Tracking System could easily be deployed to other agencies
                             at a low cost, DOD officials said that the department intended to share the
                             technology with interested entities across the federal government. The
                             Department of Energy is piloting the electronic adjudication module of
                             DOD’s system and, according to DOD officials, the Social Security
                             Administration is also considering adopting the system. In addition to
                             DOD, Department of Justice officials said they began developing a similar
                             system in 2007 at a cost of approximately $15 million.

                             Five other agencies are also developing or seeking funds to develop
                             systems with similar capabilities as shown in table 4. With multiple
                             agencies developing individual case-management systems, these
                             agencies may be at risk of duplicating efforts and may fail to realize cost
                             savings. DOD officials suggested that opportunities may exist to leverage
                             their case-management technology. However, DOD officials explained
                             that agencies would have to initially invest approximately $300,000 for
                             implementation, plus any needed expenditures related to customizations,



                             46
                               The adjudication phase of the suitability determination or security clearance processes
                             occurs at the agency requesting a background investigation, and is separate from the
                             investigation that OPM conducts. Adjudicators from the requesting agency use the
                             information from the investigative report to determine whether an applicant is eligible for a
                             security clearance. To make suitability and clearance eligibility decisions, federal
                             requirements specify that adjudicators consider guidelines in 13 specific areas that elicit
                             information about (1) conduct that could raise security concerns and (2) factors that could
                             allay those security concerns and permit granting a clearance.




                             Page 30                                               GAO-12-197 Background Investigations
and long-term support and maintenance, which could require
approximately $100,000 per year.

Table 4: Adjudication System Investments

                                                                Development
    Agency                       Purpose                        stage                  Investment
    Department of Defense        Case-management,               Developed and          $32 million
    (DOD)                        electronic adjudication,       implemented
                                 adjudication record            across most of
                                 repository                     DOD services
    Department of Homeland       Adjudication record            Developed and          $6.5
    Security                     repository                     implemented            milliona
    Department of the            Case-management                In-progress,           $300,000b
    Treasury                                                    seeking funds
    Office of Personnel          Case-management and            Initiated with         To be
    Management (OPM)             electronic adjudication        Request for            determined
                                                                Information
                                                                                                     c
    Department of Justice        Case-management and            In-progress            $15 million
                                 electronic adjudication
    Department of Veterans       Case-management and            Under                  $900,000
    Affairs                      electronic processing          development by a
                                                                private contractor
    National Reconnaissance      Case-management and            Under                  $6.8 million
    Office                       electronic adjudication        development in-
                                                                house
Source: GAO.
a
 This figure represents the amount that the Department of Homeland Security spent to consolidate
several adjudication systems within the department over the past 5-year period and is inclusive of
software license fees, enhancements, interfaces, and data-migration development and support. The
current system, the Integrated Security Management System, supports approximately 1300 users at
seven DHS components. These costs are offset by the retirement of six legacy case-management
systems and their associated support costs.
b
 According to Treasury officials, this figure represents the estimated sought amount for development
and implementation of a Department of the Treasury case-management and adjudication system.
c
This figure represents Department of Justice’s Justice Security Tracking Adjudication Record
System-related investments since 2007.


In addition to DOD and other agency efforts, OPM officials explained that
they also plan to develop an electronic case-management system for
purchase by customer agencies that is synchronized with its
governmentwide background investigations system. OPM put out a
request for information to evaluate the options for this system. DOD
responded to OPM’s request for information by performing a comparative
analysis of its own case-management system and said that it believes its
system meets the needs set out in OPM’s request for information.
However, OPM officials said that DOD’s system would cost too much



Page 31                                                   GAO-12-197 Background Investigations
money for smaller agencies to adopt, so OPM plans to continue exploring
other options that would allow customer agencies access to their
electronic case-management system without the need to make an
expensive initial investment. Additionally, OPM officials said that their
effort is intended to promote process efficiency by further integrating OPM
with its more than 100 customer agencies. However, some OPM
customer agencies including DOD, which makes up approximately 75
percent of OPM’s investigation workload, expressed concern that such a
system would likely be redundant to currently available case-
management technology. Further, any overhead costs related to the
development of an OPM system would be incorporated into OPM’s
operating costs, which could affect investigation prices.

Although the investment in electronic case-management systems aligns
with the reform effort’s goal to automate information technology
capabilities to improve the timeliness, efficiency, and quality of existing
security clearance and suitability determinations systems and will likely
lead to process efficiencies, agencies may be unclear how they might
achieve cost savings through leveraging adjudication technologies in
place at other executive branch agencies. In its March 2009 Enterprise
Information Technology Strategy, the Joint Reform Team stated that
agencies will leverage existing systems to reduce duplication and
enhance reciprocity. 47 Further, Executive Order 13467, states that the
Performance Accountability Council is responsible for ensuring and
overseeing the development of tools and techniques for enhancing
background investigations and the making of eligibility determinations,
such as adjudication of security clearances, and for establishing
requirements for enterprise information technology. As such, it is
positioned to promote coordination and standardization related to the
suitability and security clearance process through issuing guidance to the
agencies. While the reform effort’s strategic framework includes cost
savings in its mission statement, this framework lacks specificity
regarding how agencies might achieve costs savings. Without specific
guidance, the opportunities to minimize duplication and achieve cost
savings may be lost.




47
  Joint Security and Suitability Reform Team, Enterprise Information Technology Strategy
(Washington, D.C.: Mar. 17, 2009).




Page 32                                            GAO-12-197 Background Investigations
OPM Has Not Studied Cost               OPM is planning an assessment of its background investigation process;
Savings Opportunities                  however, the study is limited to OPM’s workforce and will not include an
within Its Own                         assessment of work processes. During the course of our review we
                                       identified a number of process inefficiencies. OPM’s background
Background Investigations              investigation process is complex, as shown in figure 4, which provides a
Process                                general summary of the process’s key steps.

Figure 4: Key Steps in OPM’s Background Investigation Process




                                       Although this figure generally summarizes OPM’s background
                                       investigation process, it does not account for the range and number of
                                       investigative components, collected in steps 2 and 3, because of the
                                       complexity and variability inherent to each investigation given the
                                       circumstances of the applicant.



                                       Page 33                                   GAO-12-197 Background Investigations
OPM officials explained that, to date, they have chosen to address
investigation timeliness and investigation backlogs rather than the
identification of process and workforce efficiencies. To its credit, OPM
helped reduce the backlog of ongoing background investigations that it
inherited from DOD at the time of the 2005 transfer. Additionally, OPM
has taken initial steps to begin addressing quality challenges. However,
only recently has OPM started to look at its internal processes for
efficiencies. While OPM seeks to identify optimal staffing levels, as
mentioned before, the request for information excludes the identification
of possible process efficiencies, which could lead to cost savings. The
following are examples of potential cost-savings opportunities we
observed during the course of this review:

•   OPM’s Double Charge (with Reimbursement) for Fingerprints Causes
    Extra Labor: According to OPM officials, OPM workload has tripled for
    fiscal years 2005 through 2011; however, OPM overall workload may
    be inflated because some Special Agreement Checks, one type of
    OPM add-on investigation, are charged twice. For example, according
    to DOD and Department of Homeland Security officials, OPM counts
    some add-on investigations, specifically fingerprints, more than once,
    even though the fingerprints pertain to the same investigation request.
    Fingerprinting precedes the scheduling of the investigation and is also
    included as part of the package for investigations in support of secret
    and top secret clearances. Not only does this practice inflate OPM’s
    workload, but it also affects OPM and its customer agencies, in
    several ways. First, OPM needs to refund its customer agencies for its
    initial charge. For example, DOD is charged $24.25 for an individual’s
    fingerprint, then $4,005 for a top secret clearance investigation, which
    also includes $24.25 for an electronic fingerprint. As a result, OPM’s
    reimbursement represents additional labor associated with OPM’s
    clearance process. Second, customer agencies are burdened by the
    need to track the reimbursements from OPM to ensure that refunds
    are received and to reconcile OPM's workload numbers with their
    own, to eliminate the double counting.

•   OPM’s investigation process reverts its electronically-based
    investigations back into paper-based files: In November 2010, the
    Deputy Director for Management of the Office of Management and
    Budget testified that OPM now receives 98 percent of investigation
    applications electronically, yet we observed that it is continuing to use
    a paper-based investigation processing system and convert
    electronically submitted applications to paper. OPM officials stated
    that the paperbased process is required because a small portion of
    their customer agencies do not have electronic capabilities. However,



Page 34                                     GAO-12-197 Background Investigations
                  OPM’s process has not been studied to identify efficiencies. As a
                  result, OPM may be simultaneously investing in process streamlining
                  technology while maintaining a less efficient and duplicative paper-
                  based process.

              While the primary focus of the governmentwide reform effort has been on
              improving timeliness and quality of investigations and adjudications, given
              the pressure government agencies are under to reduce costs there may
              be opportunities for governmentwide cost savings. Specifically, the
              Performance Accountability Council is well-positioned to identify
              opportunities for cost-savings within the process, such as duplications of
              resources across multiple agencies for case-management and
              adjudication systems. Further, OPM—as both a member of the
              Performance Accountability Council and the provider of investigative
              services for the majority of the executive branch outside of the
              Intelligence Community—has an opportunity to identify efficiencies within
              its overall investigation process that could result in cost savings and,
              ultimately, lower prices for agencies governmentwide.


              OPM is responsible for conducting millions of background investigations
Conclusions   that determine individuals’ suitability for public trust positions, clear
              individuals for access to sensitive or classified information, and
              reevaluate these credentials on a periodic basis. Because OPM charges
              its customer agencies fees for providing these investigations,
              transparency over how its costs align with the prices charged and, in
              particular, how changes in price reflect changes in costs, are key to
              building successful working relationships. Especially in the current fiscal
              environment as federal agencies are trying to identify areas where costs
              can be reduced, it is essential that agencies understand the composition
              of the costs that constitute the prices of their investigations. While we
              recognize some of the challenges OPM faces in disaggregating its costs
              to more directly link its costs to its prices, a more transparent rate-setting
              process would help assure that customers are being charged accurately
              and fairly for services supported through OPM's revolving fund. Moreover,
              transparent cost information, which forms the basis of OPM background
              investigation prices, could facilitate stronger and more successful working
              relationships with customer agencies and help with congressional
              oversight of the suitability and security clearance processes. Further,
              detailed and accurate information on OPM’s costs to conduct background
              investigations can help inform the decisions of officials from agencies that
              are considering seeking authority to conduct their own investigations as a
              potential way of saving money.



              Page 35                                     GAO-12-197 Background Investigations
                      In addition to transparency of costs, the Performance Accountability
                      Council, through the Joint Reform Team, is working to reform the overall
                      security clearance process as part of an interagency effort. As part of this
                      effort early on, officials described balancing cost efficiency, improved
                      timeliness, and high-quality products. Given the attention to timeliness,
                      and to some extent quality, and the current pressures on federal agencies
                      to reduce costs of operations, the Performance Accountability Council
                      and OPM have an opportunity to focus on process efficiencies that could
                      lead to cost savings. Any efficiencies gained have the potential to affect
                      agencies across the federal government. Further, since the Performance
                      Accountability Council represents many federal agencies, its position
                      provides an opportunity to facilitate governmentwide coordination that
                      could prevent duplication of effort and result in cost savings.


                      To improve transparency of costs and the efficiency of suitability and
Recommendations for   personnel security clearance background investigation processes that
Executive Action      could lead to cost savings, we recommend that

                      •   the Director of OPM direct the Associate Director of Federal
                          Investigative Services
                          •     to provide customer agencies with better information on the costs
                                of background investigations, including the data related to its main
                                cost drivers in order to clarify, to the extent possible, how its costs
                                align with and affect investigation prices; and
                          •     to take actions to identify process efficiencies that could lead to
                                cost savings within its background investigation process; and that
                      •   the Deputy Director for Management, Office of Management and
                          Budget, in the capacity as Chair of the Performance Accountability
                          Council, expand and specify reform-related guidance to help ensure
                          that reform stakeholders identify opportunities for cost savings, such
                          as preventing duplication in the development of electronic case-
                          management and adjudication technologies in the suitability
                          determination and personnel security clearance processes.

                      In commenting on a draft of our report, the Office of Management and
Agency Comments       Budget and OPM concurred with our recommendations directed toward
and Our Evaluation    those agencies. Additionally, DOD provided us comments noting that the
                      observations and recommendations described in the report provide sound
                      justifications for pursuing greater efficiencies and cost savings. We
                      received oral comments from the Office of Management and Budget, and
                      those comments are summarized below. OPM and DOD’s written



                      Page 36                                        GAO-12-197 Background Investigations
comments are reprinted in their entirety in appendixes IV and V,
respectively. OPM and DOD also provided us with technical comments,
which we incorporated in this report, as appropriate.

In oral comments, the Office of Management and Budget concurred with
our recommendation that the Deputy Director for Management, in the
capacity as Chair of the Performance Accountability Council, help its
reform partners identify continued administrative efficiencies and
opportunities for cost savings. In addition, the Office of Management and
Budget agreed that OPM should improve the information it provides
customer agencies about the drivers of its operating costs and
investigation prices. The Office of Management and Budget noted it
appreciated that this report assessed the cost of background
investigations with respect to the larger scope of the ongoing
governmentwide suitability and security clearance reform efforts. Further,
OMB provided additional comments that we took into consideration.

•   First, Office of Management and Budget officials encouraged us to
    review the context of our presentation of OPM’s workload, particularly
    our analysis of stand-alone investigations. We reviewed our
    presentation of OPM’s workload data, and believe that our
    interpretation of that information is correct. In deciding to separate the
    workload, we primarily considered that some of the customer
    agencies expressed concerns that OPM’s overall workload may be
    inflated because some Special Agreement Checks, one type of OPM
    add-on investigation, are charged twice, as described on page 34 of
    our report. Finally, in response to Office of Management and Budget
    comments about our workload presentation, we consolidated two
    tables from our draft report and added a line that displays OPM’s total
    workload, see table 2.
•   Second, Office of Management and Budget officials asked us to
    consider using the same year as the baseline for analysis of changes
    in investigation workload and costs. We agree, and the scope of our
    report is fiscal years 2005 through 2011, as stated in appendix I. In
    response to OMB’s comment, we also compared the changes in
    workload and costs from fiscal years 2008 through 2011. Our analysis
    of OPM workload data indicates that, regardless of the fiscal year
    used as a baseline, OPM workload is decreasing. Specifically we
    found that OPM’s costs increased by almost 14 percent in fiscal year
    2011 dollars between fiscal years 2008 and 2011, while OPM’s
    workload for stand-alone investigations decreased by almost 31
    percent, and its total workload for all investigation types decreased by
    7 percent.




Page 37                                      GAO-12-197 Background Investigations
•   Lastly, the Office of Management and Budget encouraged us to
    consider addressing why OPM’s investigation prices may be
    perceived as more expensive than those investigations acquired
    through direct authority with a private contractor, and the
    nonmonetary costs and benefits of using such contracts. We did not
    address why OPM’s background investigation prices may be
    perceived as more expensive than those acquired through a private
    contractor or the costs and benefits of OPM versus private
    investigative service providers because that analysis is outside the
    scope of this report and would require additional work. However, we
    noted that some agencies that we met with felt OPM’s overhead was
    justified as a governmentwide central investigative provider.
In written comments, OPM concurred with our recommendation to provide
customer agencies with better information on the costs of background
investigations. Specifically, OPM agreed that its background
investigations stakeholders require transparency from Federal
Investigative Services in order to anticipate and plan for cost changes in
background investigations and described an initial action it took to
improve transparency. In addition, OPM concurred with our
recommendation to take actions to identify business process efficiencies.
OPM noted that these actions also reinforce a Federal Investigative
Services priority and that the agency will continue to map its processes to
achieve maximum process efficiencies and identify potential cost savings.
While concurring with our recommendation, OPM stated that it did not
agree with our basis for reaching it. Specifically, OPM identified some
areas of concern in our report as addressed below.

•   Cost drivers: OPM did not agree with our characterization of its cost
    drivers for the Federal Investigative Services background investigation
    program on page 14 of this report. Specifically, in its agency
    comments, OPM expressed the view that we misrepresented primary
    operational costs as cost drivers and then cited the Federal
    Accounting Standards Advisory Board’s definition of a cost driver,
    which defines a cost driver as “any factor that causes a change in the
    cost of an activity or an output.” We disagree because, while we
    recognize the advisory board’s definition, we identified the cost drivers
    on the basis of the available documentation of OPM’s costs.
    Therefore, for purposes of this report, we define cost drivers as a
    factor that influences or contributes to the expense of business
    operations, and in this case the operation is OPM Federal
    Investigative Services background investigations program. To identify
    Federal Investigative Services cost drivers, we analyzed cost data
    provided by Federal Investigative Services and identified its largest



Page 38                                     GAO-12-197 Background Investigations
    operating costs. Further, our report cites other factors in addition to
    the three cost drivers that OPM officials said affected their operating
    costs, including more-comprehensive subject interviews, increased
    FBI fees, and compliance with investigation timeliness requirements,
    as discussed on page 15. While we recognize that the additional
    drivers identified by OPM in its comments on a draft of this report—
    congressionally mandated timeliness requirements, elimination of
    investigation backlog, workload shifts toward more costly
    investigations, and delivery of suitability and security processes—may
    affect their total operating costs, OPM does not capture cost
    information in a way that allows it to document those costs as drivers.
    Further, OPM did not provide documentation to support how the
    additional drivers that officials identified affected costs or cite the
    amount that costs increased as a result of those drivers.

•   Information technology spending: In its comments, OPM stated that
    we made no attempt to benchmark Federal Investigative Services
    information technology costs, and provided technical corrections
    about our characterization of its information technology investment
    category of costs, which we applied to the report. We disagree that we
    did not benchmark information technology costs. As stated in the
    report, the total growth of information technology costs between fiscal
    years 2005 and 2011 is 682 percent, and the average annual growth
    rate is 40.9 percent. We acknowledge that information technology
    cost increases are the result of EPIC modernization by stating on
    page 15 that, according to OPM officials, information technology costs
    were primarily for EPIC modernization. In addition, we focused on
    actual costs incurred to date on information technology, which we cite
    as being driven by EPIC, through fiscal year 2011. Further, although
    OPM officials updated us on the status of EPIC modernization, they
    did not provide documentation of EPIC modernization cost estimates
    through 2014.

•   Strategic goals of reform: OPM stated in its comments that we
    mischaracterized the goals of the governmentwide suitability and
    security clearance reform effort. In our draft report, we stated that cost
    savings is a goal of the reform effort. We have modified this report to
    reflect that the overall mission statement of the governmentwide
    suitability and security clearance strategic framework includes
    timeliness and quality, as well as cost efficiency. Therefore we believe
    that the reform effort’s strategic goals—timeliness, quality, reciprocity,
    an integrated database, end-to-end information technology
    automation, suitability and security alignment, and continuous
    evaluation—should be implemented with the mission of cost efficiency



Page 39                                      GAO-12-197 Background Investigations
    in mind. Further, in a previous GAO report in which we recommended
    that the reform effort develop its mission statement and strategic
    goals, DOD and Office of the Director for National Intelligence officials
    cited that the aims of reform were to achieve comprehensive reform of
    the end-to-end security clearance process delivering high-assurance
    security clearances fairly, efficiently, and at the lowest reasonable
    cost to the federal government.

•   Workload and cost data: OPM’s said we inaccurately applied OPM-
    provided workload and cost data. We disagree that our application of
    the data was inaccurate; however, in response, we added the total
    workload numbers that OPM provided for this report in table 2. We
    also acknowledge that OPM does not define or categorize its products
    with stand-alone or add-on designations, as we did for purposes of
    this report. As stated above in our response to input from the Office of
    Management and Budget, we separated the workload as a result of
    customer agency concerns that OPM overall workload may be
    inflated. For example, some Special Agreement Checks, one type of
    OPM add-on investigation, are charged twice. In addition, our analysis
    indicates that OPM’s total workload has declined 7 percent since it
    peaked in fiscal year 2008.

•   Data reliability: OPM stated that we inaccurately characterized the
    facts of the audit of OPM’s revolving fund and that the findings of the
    financial audits that we reviewed do not impact the reliability of the
    data provided for this report. We disagree. It is GAO policy and a
    requirement of the Government Auditing Standards to assess the
    reliability of all data used in the report. As OPM acknowledged during
    the course of our work, an audit of OPM’s revolving fund has not been
    conducted. Therefore, we concluded that the reliability of the cost data
    provided by Federal Investigative Services is unknown. In addition,
    independent audits of OPM’s overall financial management system,
    now the Consolidated Business Information System, conducted during
    fiscal years 2005 through 2011 found that there were material
    weaknesses or significant deficiencies in internal controls related to
    the information control environment. Because there were problems
    with internal controls at the consolidated level—the level on which the
    audits were conducted—we concluded that it was possible that
    problems also exist at the Federal Investigative Services level, which
    was not audited. Therefore, given weaknesses and deficiencies in
    internal controls at the consolidated level and that the revolving fund
    has not been audited, the extent to which the financial data are
    reliable is unknown.




Page 40                                     GAO-12-197 Background Investigations
We addressed other specific OPM comments at the end of appendix IV.
In written comments, DOD stated that the observations and
recommendations contained in our report provide sound justification for
the further pursuit of cost efficiencies. In addition, DOD stated that it
questions 1) the basis of OPM's background investigation prices, 2)
OPM’s information technology investments, and 3) OPM's investigation
billing processes. Finally, DOD noted that reciprocity should not be
affected by the use of multiple investigative service providers. We did not
include in our scope the use of multiple investigative service providers.

As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to the Office of Management
and Budget, OPM, and DOD. In addition, the report will be available at no
charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (202) 512-3604 or farrellb@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this report
are listed in appendix VI.




Sincerely yours,
Brenda S. Farrell
Director, Defense Capabilities and Management




Page 41                                    GAO-12-197 Background Investigations
             Appendix I: Scope and Methodology

Appendix I: Scope and Methodology


             This report reviewed the Office of Personnel Management’s (OPM)
             Federal Investigative Services’ pricing model for all investigation
             products, including both suitability and personnel security clearance
             background investigations. In addition, we examined OPM’s relationship
             with its customer agencies and OPM’s role in the governmentwide reform
             effort. We relied on OPM’s reported cost data for the purposes of our
             report; however, the extent to which these data are reliable is unknown
             because an audit of OPM’s revolving fund 1 has not been conducted.
             Independent audits found material weaknesses in internal controls for
             OPM’s overall financial management system, where revolving fund
             transactions are recorded, and these weaknesses could affect the
             reliability of the cost data contained in this report. Those audits, which are
             mandated by sections 3515 and 3521 of Title 31 of the United States
             Code and executed annually by KPMG, also made recommendations to
             OPM to correct the material weaknesses. Nonetheless, these are the only
             cost data available and what OPM uses to develop background
             investigation prices.

             To identify cost trends related to OPM’s background investigations since
             2005 and determine the principal factors that drive OPM costs, we
             obtained and analyzed relevant documentation from key OPM
             representatives, listed in table 5.




             1
               An intragovernmental revolving fund is an appropriation account authorized to be
             credited with collections from other federal agencies’ accounts that are earmarked to
             finance a continuing cycle of business-type operations. According to the Office of
             Management and Budget, collections of intragovernmental revolving fund accounts are
             derived primarily from within the government. GAO, A Glossary of Terms Used in the
             Federal Budget Process, GAO-05-734SP. (Washington, D.C.: September 2005). The self-
             sustaining nature of these accounts means that funds received in exchange for services
             remains available for authorized purposes without needing to be reappropriated, subject to
             certain conditions.




             Page 42                                            GAO-12-197 Background Investigations
Appendix I: Scope and Methodology




Table 5: Office of Personnel Management (OPM) Offices Interviewed

 Federal Investigative Services           •   Associate Director
                                          •   Billing Oversight
                                          •   Business Management
                                          •   Customer Services
                                          •   Field Management
                                          •   Management Services and Oversight
                                          •   Processes and Systems Modernization
 Chief Financial Office
 Special Advisor to the Director of OPM
Source: GAO.




Through interviews with knowledgeable OPM officials from Federal
Investigative Services and the Chief Financial Office, we obtained and
reviewed Federal Investigative Services’ expenditures from fiscal years
2005 through 2011, and converted those data to fiscal year 2011 dollars
in order to assess real growth and account for inflation. Further, we
obtained documentation of Federal Investigative Services’ workload by
investigation type for fiscal years 2005 through 2011 in order to describe
the workload trends and compare them to cost trends for the same
period. To assess the reliability of these workload data maintained within
OPM’s Personnel Investigations Processing System, we reviewed and
updated our 2010 data reliability assessments by discussing reliability-
related issues with OPM officials. We found these workload data
sufficiently reliable for our purposes.

To assess how OPM develops the background investigation prices
charged to agencies and the extent to which the basis of these prices is
transparent, we interviewed the offices listed in table 6, including the
Department of Defense (DOD)—OPM’s largest customer—and five
additional executive branch agencies that use OPM to conduct
background investigations for their employees. We selected these
executive branch agencies in table 6 on the basis of their ability to meet a
combination of one or more of the following criteria: (1) utilizes OPM to
conduct most of its security clearance investigations for civilians, military,
and industrial (contractor) personnel; (2) ranks among OPM’s top ten
largest investigation customers, by volume and/or by total expenditures in
fiscal year 2010; and (3) is a member of the Performance Accountability
Council. Because this is a nonprobability sample, our findings do not
generalize to the agencies that we did not include in our review.



Page 43                                         GAO-12-197 Background Investigations
Appendix I: Scope and Methodology




Table 6: Executive Branch Customer Agencies Interviewed

 Executive branch agency      Associated departments and offices
 Department of Defense        •     The Office of the Under Secretary of Defense for
                                    Intelligence
 (DOD)
                              •     Defense Security Services
                              •     Defense Personnel Security Research Center
                              •     Defense Business Transformation Agency
                              •     DOD Intelligence Community agencies;
                                              •   Defense Intelligence Agency
                                              •   National Security Agency
                                              •   National Reconnaissance Office
 Department of Energy         Office of Departmental Personnel Security
 Department of Homeland       Personnel Security Division
 Security
 Department of Justice        Security and Emergency Planning Staff
 Department of the Treasury   Office of Security Programs
 Department of Veterans       Office of Operations, Security, and Preparedness
 Affairs
Source: GAO.



In addition, we obtained and reviewed (1) OPM’s pricing standard
operating procedure and related documentation; (2) OPM’s annual
Federal Investigations Notices that document and publish prices charged
to customer agencies for each investigation type; (3) fieldwork and
investigation support contracts, (4) the transaction processes between
OPM and selected executive branch customer agencies in table 6; and
(5) OPM and customer interagency agreements, which serve as an
official record of the amounts transferred between the agencies for
investigative services. To observe headquarters-level background
investigation processes, we conducted a site visit at Federal Investigative
Services’ headquarters in Boyers, Pennsylvania, and obtained testimonial
evidence from knowledgeable officials representing related OPM divisions
listed in table 5. These discussions included information on the effect of
OPM’s process modernization investments and the suitability and
personnel security clearance reform effort on prices, and the extent to
which OPM discusses price information with its customer agencies. Next,
we performed analysis synthesizing documentation of how OPM
determines prices on the basis of cost estimations and projections for the
upcoming fiscal year with the testimonial evidence we gathered. We also
spoke with representatives from three private investigative firms—U.S.
Investigative Services, CACI International, and Keypoint Government
Solutions—that hold current investigation contracts with OPM to gather


Page 44                                           GAO-12-197 Background Investigations
Appendix I: Scope and Methodology




general information about how the background investigations conducted
for OPM and its customer agencies are assessed for cost and price.
However, since contract information is proprietary, we received limited
pricing information and did not include it in the report. To understand
various perspectives on the extent to which OPM is transparent about its
costs and pricing determination with its stakeholders, we met with
selected OPM customer agencies in table 6.

To assess the extent to which governmentwide reform efforts have
focused on reducing the costs associated with the suitability and
personnel security clearance processes, we analyzed various
Performance Accountability Council and Joint Reform Team documents,
including reform strategic plans. We also reviewed internal OPM reports
regarding its background investigation process and information
technology initiatives. In addition, we held discussions with
knowledgeable officials from the agencies listed above in tables 1 and 2
and met with Joint Reform Team representatives from the Office of the
Director for National Intelligence to determine the extent to which (1)
relevant background investigation stakeholders have prioritized cost
efficiencies within the broader investigation reform effort and (2) agencies
have invested resources in modern case-management and adjudication
systems. Further, in an effort to understand how OPM officials have
sought investigation process efficiencies, we conducted numerous
meetings with OPM officials and conducted a site visit at Federal
Investigative Services’ investigation processing facility in Boyers,
Pennsylvania. We also interviewed knowledgeable officials from OPM,
DOD, and Office of the Director of National Intelligence to understand the
status of reform initiatives and determine the extent to which cost
analyses of these initiatives have been conducted.

We conducted this performance audit from March 2011 through February
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




Page 45                                     GAO-12-197 Background Investigations
Appendix II: Federal Investigative Services
                                         Appendix II: Federal Investigative Services
                                         Reported Nominal Costs for Fiscal Years 2005
                                         through 2011


Reported Nominal Costs for Fiscal Years 2005
through 2011
                                         The cost information described in table 7 below was provided for this
                                         report by OPM’s Federal Investigative Services and corresponds to
                                         OPM’s reported cost information in figure 2 of this report; however, the
                                         reported costs presented in figure 2 have been adjusted for inflation and
                                         the reported costs presented below are in nominal, or current year,
                                         dollars. Further, the extent to which this cost data is reliable is unknown
                                         because independent audits found material weaknesses in internal
                                         controls for OPM’s overall financial management system that generated
                                         this cost data.

Table 7: Federal Investigative Services Costs (in Nominal Dollars) for Fiscal Years 2005 through 2011

Nominal dollars
                                                                        Fiscal years
                            2005           2006              2007              2008               2009                 2010                 2011
Pay and
benefits/personnel    $93,273,845 $166,760,581 $197,215,632 $215,737,383 $208,044,519                        $218,918,665         $265,373,471
Rent,
communication,
and technology         12,243,406    10,885,764         15,246,323      14,909,286         14,606,805           14,998,102           17,602,411
Information
technology             10,306,070    13,572,386         13,616,275      39,137,976         40,127,330           58,450,887           91,286,610
End-to-end
contract              314,303,920   304,724,088         62,914,182      13,153,656          5,071,753
Fieldwork
contracts              17,166,848    84,109,856        325,114,172     456,475,465       426,619,900          478,430,014          476,036,406
Support contract                        466,439         57,138,126      54,844,317         56,868,793           56,453,380           55,576,837
Other services         84,873,976    93,108,699        117,297,170     117,570,555       131,492,424          214,139,715          170,917,677
Total expenses       $532,168,065 $673,627,813 $788,541,880 $911,828,638 $882,831,524 $1,041,390,763 $1,076,793,412
                                         Source: OPM
                                         Notes: Cost categories are defined below.
                                         Pay and benefits/personnel: Salaries and benefits paid to Federal Investigative Services' federal
                                         employees.
                                         Rent, communication and technology: Rent paid to the General Services Administration, commercial
                                         payments, and expenses for wireless phone services, Internet service providers, and mail.
                                         Information technology: Includes information technology rental agreements, the operation and
                                         maintenance of hardware and software, and specialized technical services related to upgrading
                                         Federal Investigative Services’ core suite of technologies.
                                         End-to-end contract: Investigative services provided by contractors, replaced by separate fieldwork
                                         and support contracts and phased out from fiscal years 2005 through 2009.
                                         Fieldwork contracts: Fieldwork investigative services provided by contractors that conduct
                                         background investigations.
                                         Support contract: Investigation support and mail services provided by contractors, such as data entry
                                         and verification.
                                         Other services: Includes travel, training for federal investigators, fees for third-party checks, payments
                                         to OPM Common Services, operations and maintenance of facilities, and equipment.




                                         Page 46                                                      GAO-12-197 Background Investigations
Appendix III: OPM’s Weighted Annual Percentage
                                         Appendix III: OPM’s Weighted Annual
                                         Percentage Change in Prices Is More Than
                                         Consumer Price Index and Employment Cost

Change in Prices Is More Than Consumer Price Index
                                         Index for Fiscal Years 2005 through 2012



and Employment Cost Index for Fiscal Years 2005
through 2012
                                         The Office of Personnel Management (OPM) conducts several different
                                         types of investigations. However, three categories of stand-alone
                                         investigations (suitability, secret, and top secret) make up approximately
                                         half of OPM’s workload, but are most labor-intensive. Table 8 below
                                         shows that the average annual percent increase in prices for each
                                         investigation type ranged from 3.1 percent to 7.9 percent over the period
                                         of fiscal year 2005 through fiscal year 2012.

Table 8: OPM Federal Investigations Notice Investigation Percentage Price Increases by Fiscal Year

Percent
                                                                                                Fiscal years
                                                                                                                                Average
                                                                                                                                  annual
                                                                     2005-     2006-   2007-   2008-   2009-    2010-    2011- percent
                                                                                                                                       a
Investigation type                                                    2006      2007    2008    2009    2010     2011     2012 increase
Suitability             National Agency Check (NAC)                   5.3%     3.8% 15.7%      6.3%             2.9%                    4.8%
                        National Agency Check and                                                    No               No                 3.1
                        Inquiries (NACI)                                 4.9    -6.5    14.0     6.1 increase     3.3 increase
                        Minimum Background Investigation                                                                                 7.9
                        (MBI)                                            5.6    10.5     6.3     5.9             27.2
Secret                  National Agency Check with Law                                                                                   5.5
                        and Credit (NACLC)                             25.0     -4.0     9.4     5.2              3.2
                        Access National Agency Check and                                                                                 5.3
                        Inquiries (ANACI)                              24.3     -4.3     8.6     5.4              3.2
Top secret              Single Scope Background                                                                                          4.6
                        Investigation (SSBI)                           25.0     -5.3     4.8     4.5              3.0
                        Single Scope Background                                                                                          4.5
                        Investigation, Periodic
                        Reinvestigation (SSBI-PR)                      25.2     -6.3     4.9     4.6              3.0
Average of average
              b
percent change                                                        5.1%
Weighted average
              c
percent change                                                      20.1%      -4.3% 10.0%     5.5%      0%     4.6%        0%          5.1%
Consumer Price Index
                d
percent increase                                                         3.2     4.1     2.4     5.6     -2.1     1.2       3.6          2.6
Employment Cost Index
                e
percent increase                                                         3.0     3.4     3.0     1.9     1.8      2.2          -         2.6
                                         Source: GAO analysis of OPM data.
                                         Notes: All price increases are based on standard rates from OPM Federal Investigative Services’
                                         annual Federal Investigations Notices. The prices and percent increases provided for 2005 and 2006
                                         reflect the Department of Defense (DOD)-specific rates that OPM charged DOD at that time. After
                                         2007, the DOD premium charge ended and was followed by a rise in prices for all agencies, but
                                         DOD’s prices decreased slightly.
                                         a
                                          This column notes the average of the annual percentage price changes for each investigative
                                         product from fiscal years 2005 to 2012.




                                         Page 47                                                   GAO-12-197 Background Investigations
Appendix III: OPM’s Weighted Annual
Percentage Change in Prices Is More Than
Consumer Price Index and Employment Cost
Index for Fiscal Years 2005 through 2012




b
    This row presents the simple average of the average annual percent increases.
c
 We calculated weighted percent changes based on the volume of the major case types shown in this
table, which represent approximately half of OPM’s total caseload in fiscal years 2005 to 2011 for
stand-alone investigation types. The weights represent the proportion of total investigations for each
investigative type for that year, so investigations representing a larger proportion of the workload
received a greater weight. Weights for fiscal year 2012 are not yet available; however, since the price
change was zero, the weighted percent change will also be zero.
d
 The CPI percent increases are based on the Consumer Price Index for urban consumers (which
measures consumer inflation for all urban or nonfarm consumers) and represent the change from the
previous July to the July in which OPM sets prices for the upcoming fiscal year.
e
 The ECI percent increases are based on the Employment Cost Index for total compensation for
civilian workers and represent the change from the previous June quarter to the June quarter in which
OPM sets prices for the upcoming fiscal year.


We found that the weighted average annual percentage change of prices
was 5.1 percent between fiscal years 2005 and 2012. In the weighted
average approach, the percentage change in prices for a particular type
of investigation is weighted by its share of total investigations. If a
category of investigation makes up a larger proportion of total
investigations, then its percentage change in prices would receive a
greater weight in calculating average annual prices over the period. 1 To
calculate the weighted average over the period, we computed the
weighted average percentage change in prices for each year. We then
averaged these annual averages over the period to get the overall
weighted average.

Our trend analysis also showed that OPM prices generally exceed the
Consumer Price Index (All Urban Consumers) rate. We found that the
weighted average annual percent increase in the investigation prices, 5.1
percent, was about 2.5 percentage points more than the average percent
increase in the Consumer Price Index (All Urban Consumers), 2.6
percent. For example, the price of OPM’s Minimum Background
Investigation (MBI), a type of investigation that supports a suitability
determination, increased from $450 in fiscal year 2005 to $752 in fiscal



1
  When a simple average is used to calculate an average, each category receives an equal
weight in the calculation. In using a weighted average approach in calculating the
average, a category that has a greater proportion of items would receive a greater weight
in calculating the average. For example, suppose we had two categories of investigations
where category A had 90 investigations and category B had 10 investigations, for a total
number of investigations of 100. Suppose the percentage change in prices for category A
was 3% and for category B it was 5%. If a simple average of percentage change is
calculated, the result is 4%. If a weighted average is calculated, the average would be (.9
times 3% plus .1 times 5%) equals 3.2%. This would be a better representation of the
overall percentage change in prices.




Page 48                                                     GAO-12-197 Background Investigations
Appendix III: OPM’s Weighted Annual
Percentage Change in Prices Is More Than
Consumer Price Index and Employment Cost
Index for Fiscal Years 2005 through 2012




year 2012, with a 27 percent increase between 2010 and 2011 and an
average annual price increase of 7.9 percent, compared to the average
annual Consumer Price Index (All Urban Consumers) increase of 2.6
percent. Further, OPM’s National Agency Check with Law and Credit
(NACLC), a type of investigation that supports a secret clearance,
increased in price from $160 in fiscal year 2005 to $228 in fiscal year
2012, presenting an average annual price increase of 5.5 percent,
compared to the average annual Consumer Price Index (All Urban
Consumers) increase of 2.6 percent. We compared the percent change in
investigation prices to percent changes in the Consumer Price Index (All
Urban Consumers) because OPM stated it compares its proposed
changes in prices to the Consumer Price Index (All Urban Consumers);
however, our comparison showed that, overall, OPM price increases were
larger than the average annual Consumer Price Index (All Urban
Consumers) percentage increase for the respective years.

Further, given that personnel costs make up a large portion of OPM’s
investigation costs, we compared the weighted average annual
percentage change in the prices of investigations to the Employment Cost
Index for Total Compensation for civilian workers, which shows the
changes in wages, bonuses, and benefits of the nonfarm industries
excluding the federal government. As table 8 shows, the average annual
percentage change in the Employment Cost Index from 2005 through
2011 was 2.6 percent, while the weighted average annual percentage
change in prices over the same period was 5.1 percent. As with the
Consumer Price Index (All Urban Consumers), the weighted average
annual percentage change in prices of investigations exceeded the
percentage change in the Employment Cost Index.




Page 49                                    GAO-12-197 Background Investigations
                                             Appendix III: OPM’s Weighted Annual
                                             Percentage Change in Prices Is More Than
                                             Consumer Price Index and Employment Cost
                                             Index for Fiscal Years 2005 through 2012




Table 9: OPM Federal Investigations Notice Prices by Fiscal Year

Dollars
                                                                                              Fiscal years
                                                                         2005               2006
                                                                         DOD                DOD
Investigation type                                         2005           rate       2006    rate   2007     2008   2009   2010    2011        2012
Suitability           National Agency Check
                      (NAC)                                 $76            $76        $80    $80     $83      $96   $102   $102    $105        $105
                      National Agency Check
                      and Inquiries (NACI)                    92           102         97    107     100      114    121    121     125         125
                      Minimum Background
                      Investigation (MBI)                   450                  -    475       -   525       558    591    591     752        752
Secret                National Agency Check
                      with Law and Credit
                      (NACLC)                               125            160        131    200     192      210    221    221     228         228
                      Access National Agency
                      Check and Inquiries
                      (ANACI)                               140            185        147    230     220      239    252    252     260         260
Top secret            Single Scope
                      Background
                      Investigation (SSBI)                3,000         3,000 3,150         3,750 3,550 3,719 3,888 3,888 4,005 4,005
                      Single Scope
                      Background
                      Investigation, Periodic
                      Reinvestigation (SSBI-
                      PR)                                 1,825         2,045 2,050         2,560 2,400 2,517 2,632 2,632 2,711 2,711
Add-on items          Special Interview
                            a
                      (SPIN)                                     -         410          -    430    440       460    480    480     550        550
                      Special Agreement
                                  b
                      Check (SAC)                             21                       22            23 24.25 24.25 24.25 24.25 24.25
                                             Source: GAO analysis of OPM data.
                                             Notes: All prices are based on standard rates from OPM Federal Investigative Services’ annual
                                             Federal Investigations Notices.
                                             a
                                              The SPIN was discontinued in 2010 with the Joint Reform Team development of the Enhanced
                                             Subject Interview, which replaced the SPIN.
                                             b
                                             OPM currently offers 17 types of SAC. We used the price of the electronic fingerprint-only SAC.




                                             Page 50                                                       GAO-12-197 Background Investigations
Appendix IV: Comments from the Office of
                            Appendix IV: Comments from the Office of
                            Personnel Management



Personnel Management

Note: GAO comments
supplementing those in
the report text appear at
the end of this appendix.




See comment 1.

See comment 2.




                            Page 51                                    GAO-12-197 Background Investigations
                          Appendix IV: Comments from the Office of
                          Personnel Management




See comments 2, 3, & 4.




                          Page 52                                    GAO-12-197 Background Investigations
Appendix IV: Comments from the Office of
Personnel Management




Page 53                                    GAO-12-197 Background Investigations
                 Appendix IV: Comments from the Office of
                 Personnel Management




See comment 5.




                 Page 54                                    GAO-12-197 Background Investigations
                 Appendix IV: Comments from the Office of
                 Personnel Management




See comment 6.




See comment 7.




                 Page 55                                    GAO-12-197 Background Investigations
Appendix IV: Comments from the Office of
Personnel Management




Page 56                                    GAO-12-197 Background Investigations
          Appendix IV: Comments from the Office of
          Personnel Management




The following are GAO’s comments on specific points made in OPM’s letter sent on
January 24, 2012.

GAO Comments:

   1. OPM stated that the GAO conclusions drawn from the OPM-provided
      information are often problematic and that the report does not always
      accurately interpret the information or clearly represent OPM information with
      appropriate balance. As stated in our report, we conducted this audit in
      accordance with government auditing standards, which require that we plan
      and perform the audit to obtain sufficient, appropriate evidence to provide a
      reasonable basis for our findings and conclusions based on our audit
      objectives. In addition, appendix I describes the scope and methodology used
      to carry out our work. We held meetings with and collected data from OPM
      officials as well as its executive branch agency customers and
      representatives from the Joint Reform Team. We sought to reflect all of those
      perspectives in our report to achieve balance.

   2. OPM stated that this report provides direction that is inconsistent with many
      previous GAO recommendations. Further, OPM states that the reforms and
      improvements that explain the costs—congressionally mandated IRTPA
      timeliness requirements, elimination of the inherited DOD investigation
      backlog, workload shifts toward more costly fieldwork-intensive
      investigations, and delivery of suitability and security processes—were all
      recommended and endorsed by GAO over the years as necessary. We
      disagree. GAO has never made recommendations regarding elimination of
      the backlog, workload shifts, or merging suitability and security processes to
      the extent possible. Previous GAO recommendations regarding timeliness
      were to help ensure timeliness requirements outlined in statute were met. For
      example, in 2010 we recommended that the Chair of the Performance
      Accountability Council collaborate with executive branch agencies that were
      not meeting IRTPA timeliness objectives to identify the challenges and
      develop mitigation strategies, among other things.

   3. Further, OPM stated that GAO creates many data scenarios to demonstrate
      cost increases throughout the report but does little to explain the reasons for
      the increases and to provide context to operating costs. We disagree. This
      report included both documented cost drivers and testimony from OPM
      officials regarding factors that contribute to increasing costs on page 15.
      Further, OPM was unable to provide documentation about how the factors it
      identified as “drivers,” in its formal response increased operating costs.




          Page 57                                     GAO-12-197 Background Investigations
       Appendix IV: Comments from the Office of
       Personnel Management




4. OPM stated that GAO intentionally leaves information gaps and uses those
   gaps to support the recommendation that more transparency is needed. We
   disagree. As stated, we conducted this audit in accordance with government
   auditing standards, which require that we plan and perform the audit to obtain
   sufficient, appropriate evidence to provide a reasonable basis for our findings
   and conclusions based on our audit objectives. As stated on page 22, we
   found that OPM customer agencies do not understand the basis for OPM’s
   investigation prices or the changes in prices, which led to the
   recommendation that OPM provide its customer agencies with more
   transparent information about prices. OPM agreed with this recommendation
   and stated that relating cost-benefits to its stakeholders is critical to its
   leadership role.

5. OPM commented on our recommendation to the Office of Management and
   Budget that the Deputy Director for Management, in the capacity as Chair of
   the Performance Accountability Council, help its reform partners identify
   continued administrative efficiencies and opportunities for cost savings. The
   Office of Management and Budget concurred with our recommendation and
   stated that it was pleased that this report assessed the cost of background
   investigations with respect to the larger scope of the ongoing
   governmentwide suitability and security clearance reform efforts. However,
   OPM stated that GAO overlooked the estimated $24 billion in productivity
   savings it has delivered the executive branch, attributable to the
   improvements in investigation timeliness. We disagree that this information
   was overlooked because OPM did not provide it during the course of our
   work, despite repeated requests for documentation of cost savings that
   resulted from the reform effort. OPM provided the cost savings estimate of
   $24 billion after reviewing a draft of this report. According to OPM officials,
   this estimate is based on productivity gained by OPM clearing the
   investigation backlog it inherited from DOD in the 2005 transfer. However,
   when we interviewed officials from the Office of Management, and Budget
   and the Joint Reform Team for this report, they were not able to provide
   documentation of cost savings resulting from the reform effort.

6. OPM stated that shifting the focus of the reform effort to direct costs savings
   would put other reform goals and deliverables in peril. We disagree. As
   previously stated, the overall mission statement of the governmentwide
   suitability and security clearance strategic framework includes cost efficiency.
   Therefore, it is GAO’s interpretation that this mission should drive decisions
   at the strategic goal-level, and that of the reform effort’s goals should be
   implemented with the whole mission, including cost efficiency, in mind.
   Further, none of the other reform leaders or stakeholders expressed concern
   that focusing on cost savings would put the reform effort in peril and the


       Page 58                                     GAO-12-197 Background Investigations
       Appendix IV: Comments from the Office of
       Personnel Management




   Office of Management and Budget concurred with our recommendation to
   further expand and specify reform-related guidance to help ensure
   opportunities for cost savings are identified.

7. OPM stated that DOD’s Case Adjudication Tracking System was not
   developed as the reform enterprise solution and that agencies interested in
   using CATS must have similar processes and incorporate the electronic
   adjudication module. In the report, we do not advocate the use of one case-
   management system. We encourage collaboration to prevent duplication in
   the development of multiple case-management systems that have similar
   capabilities. However, according to DOD officials, after the system was
   initially developed, the Department quickly realized its potential to be shared
   with other agencies. During the course of our work, DOD officials stated that
   their system is highly adaptable and that the electronic adjudication module of
   the Case Adjudication Tracking System can be turned on and off. Further, as
   stated in our report, the Department of Energy is piloting the system.




       Page 59                                    GAO-12-197 Background Investigations
Appendix V: Comments from the Department
                              Appendix V: Comments from the Department
                              of Defense



of Defense

Note: Page numbers in
the draft report may differ
from those in this report.




                              Page 60                                    GAO-12-197 Background Investigations
Appendix V: Comments from the Department
of Defense




Page 61                                    GAO-12-197 Background Investigations
Appendix V: Comments from the Department
of Defense




Page 62                                    GAO-12-197 Background Investigations
Appendix V: Comments from the Department
of Defense




Page 63                                    GAO-12-197 Background Investigations
Appendix VI: GAO Contact and Staff
                  Appendix VI: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Brenda S. Farrell, (202) 512-3604 or farrellb@gao.gov
GAO Contact
                  In addition to the contact named above, Lori Atkinson (Assistant Director),
Staff             Grace Coleman, Sara Cradic, Dianne Guensberg, Tara Jayant, Katherine
Acknowledgments   Lenane, Jacqueline Nowicki, Charles Perdue, Tom Predmore, Jillena
                  Roberts, Grant Sutton, and Michael Willems, made key contributions to
                  this report.




                  Page 64                                    GAO-12-197 Background Investigations
Related GAO Products
             Related GAO Products




             Intragovernmental Revolving Funds: Commerce Departmental and
             Census Working Capital Funds Should Better Reflect Key Operating
             Principles. GAO-12-56. Washington, D.C.: November 18, 2011.

             Budget Issues: Better Fee Design Would Improve Federal Protective
             Service’s and Federal Agencies’ Planning and Budgeting for Security.
             GAO-11-492. Washington, D.C.: May 20, 2011.

             High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February
             16, 2011.

             Personnel Security Clearances: Overall Progress Has Been Made to
             Reform the Governmentwide Security Clearance Process. GAO-11-232T.
             Washington, D.C.: December 1, 2010.

             Personnel Security Clearances: Progress Has Been Made to Improve
             Timeliness but Continued Oversight Is Needed to Sustain Momentum.
             GAO-11-65. Washington, D.C.: November 19, 2010.

             DOD Personnel Clearances: Preliminary Observations on DOD’s
             Progress on Addressing Timeliness and Quality Issues. GAO-11-185T.
             Washington, D.C.: November 16, 2010.

             Intragovernmental Revolving Funds: NIST’s Interagency Agreements and
             Workload Require Management Attention. GAO-11-41. Washington, D.C.:
             October 20, 2010.

             Personnel Security Clearances: An Outcome-Focused Strategy and
             Comprehensive Reporting of Timeliness and Quality Would Provide
             Greater Visibility over the Clearance Process. GAO-10-117T.
             Washington, D.C.: October 1, 2009.

             Personnel Security Clearances: Progress Has Been Made to Reduce
             Delays but Further Actions Are Needed to Enhance Quality and Sustain
             Reform Efforts. GAO-09-684T. Washington, D.C.: September 15, 2009.

             Personnel Security Clearances: An Outcome-Focused Strategy Is
             Needed to Guide Implementation of the Reformed Clearance Process.
             GAO-09-488. Washington, D.C.: May 19, 2009.

             DOD Personnel Clearances: Comprehensive Timeliness Reporting,
             Complete Clearance Documentation, and Quality Measures Are Needed



             Page 65                                  GAO-12-197 Background Investigations
Related GAO Products




to Further Improve the Clearance Process. GAO-09-400. Washington,
D.C.: May 19, 2009.

High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January
2009.

Personnel Security Clearances: Preliminary Observations on Joint
Reform Efforts to Improve the Governmentwide Clearance Eligibility
Process. GAO-08-1050T. Washington, D.C.: July 30, 2008.

Federal User Fees: A Design Guide. GAO-08-386SP. Washington, D.C.:
May 29, 2008.

Personnel Clearances: Key Factors for Reforming the Security Clearance
Process. GAO-08-776T. Washington, D.C.: May 22, 2008.

Employee Security: Implementation of Identification Cards and DOD’s
Personnel Security Clearance Program Need Improvement.
GAO-08-551T. Washington, D.C.: April 9, 2008.

Personnel Clearances: Key Factors to Consider in Efforts to Reform
Security Clearance Processes. GAO-08-352T. Washington, D.C.:
February 27, 2008.

DOD Personnel Clearances: DOD Faces Multiple Challenges in Its Efforts
to Improve Clearance Processes for Industry Personnel. GAO-08-470T.
Washington, D.C.: February 13, 2008.

DOD Personnel Clearance: Improved Annual Reporting Would Enable
More Informed Congressional Oversight. GAO-08-350. Washington, D.C.:
February 13, 2008.

DOD Personnel Clearances: Delays and Inadequate Documentation
Found for Industry Personnel. GAO-07-842T. Washington, D.C.: May 17,
2007.

High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January
2007.

DOD Personnel Clearances: Additional OMB Actions Are Needed to
Improve the Security Clearance Process. GAO-06-1070. Washington,
D.C.: September 28, 2006.



Page 66                                  GAO-12-197 Background Investigations
           Related GAO Products




           DOD Personnel Clearances: New Concerns Slow Processing of
           Clearances for Industry Personnel. GAO-06-748T. Washington, D.C.:
           May 17, 2006.

           DOD Personnel Clearances: Funding Challenges and Other Impediments
           Slow Clearances for Industry Personnel. GAO-06-747T. Washington,
           D.C.: May 17, 2006.

           DOD Personnel Clearances: Government Plan Addresses Some Long-
           standing Problems with DOD’s Program, But Concerns Remain.
           GAO-06-233T. Washington, D.C.: November 9, 2005.

           A Glossary of Terms Used in the Federal Budget Process.
           GAO-05-734SP. Washington, D.C.: September 2005.

           DOD Personnel Clearances: Some Progress Has Been Made but Hurdles
           Remain to Overcome the Challenges That Led to GAO’s High-Risk
           Designation. GAO-05-842T. Washington, D.C.: June 28, 2005.

           High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January
           2005.

           OPM Revolving Fund: OPM Sets New Tuition Pricing Policy.
           GAO/GGD-94-120. Washington, D.C.: April 6, 1994.

           OPM Revolving Fund: Investigation Activities During Fiscal Years 1983
           Through 1986. GAO/GGD-87-81. Washington, D.C.: June 26, 1987.

           OPM’s Revolving Fund Policy Should Be Clarified and Management
           Controls Strengthened. GAO/GGD-84-23. Washington, D.C.: October 13,
           1983.




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           Page 67                                  GAO-12-197 Background Investigations
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