oversight

High-Risk Series: Quick Reference Guide

Published by the Government Accountability Office on 1997-02-01.

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

                United States General Accounting Office

GAO             High-Risk Series




February 1997
                Quick Reference Guide




GAO/HR-97-2
GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States



      February 1997
      The President of the Senate
      The Speaker of the House of Representatives

      In 1990, the General Accounting Office began a special
      effort to review and report on the federal program areas
      its work identified as high risk because of vulnerabilities
      to waste, fraud, abuse, and mismanagement. This effort,
      which was supported by the Senate Committee on
      Governmental Affairs and the House Committee on
      Government Reform and Oversight, brought a
      much-needed focus on problems that were costing the
      government billions of dollars.

      In December 1992, GAO issued a series of reports on the
      fundamental causes of problems in high-risk areas and in
      a second series in February 1995, it reported on the status
      of efforts to improve those areas. This, GAO’s third series
      of reports, provides the current status of designated
      high-risk areas.

      This Quick Reference Guide provides summaries of the
      status of each of the 20 areas we have tracked since our
      last report series and 5 areas that are newly designated as
      high-risk. For each area, the Guide outlines the problems,
      progress, and further actions needed; identifies a key GAO
      contact person; and provides a list of related GAO
      products. Nineteen of the 25 high-risk areas are discussed
      in more detail in 12 separate booklets that are also part of
      this series.
Copies of this report series are being sent to the
President, the congressional leadership, all other
Members of the Congress, the Director of the Office of
Management and Budget, and the heads of major
departments and agencies.




James F. Hinchman
Acting Comptroller General
of the United States




            Page 2            GAO/HR-97-2 Quick Reference Guide
Page 3   GAO/HR-97-2 Quick Reference Guide
Contents



Defense Financial                                           8
Management
Defense Contract                                           12
Management
Defense                                                    16
Inventory
Management
Defense Weapon                                             22
Systems
Acquisition
Defense                                                    27
Infrastructure
IRS Financial                                              32
Management
IRS Receivables                                            38

Filing Fraud                                               46

IRS’ Tax Systems                                           53
Modernization
Customs Service                                            62
Financial
Management


                    Page 4   GAO/HR-97-2 Quick Reference Guide
                    Contents




Asset Forfeiture                                             67
Programs
FAA’s Air Traffic                                            74
Control
Modernization
Defense’s                                                    79
Corporate
Information
Management
Initiative
National Weather                                             83
Service’s
Modernization
Information                                                  87
Security
The Year 2000                                                91
Problem
Medicare                                                     95

Supplemental                                               103
Security Income




                    Page 5     GAO/HR-97-2 Quick Reference Guide
                    Contents




Farm Loan                                                  109
Programs
Student Financial                                          114
Aid
Department of                                              119
Housing and
Urban
Development
Department of                                              124
Energy Contract
Management
NASA Contract                                              128
Management
Superfund                                                  136
Program
Management
2000 Decennial                                             141
Census
1997 High-Risk                                             147
Series




                    Page 6     GAO/HR-97-2 Quick Reference Guide
Page 7   GAO/HR-97-2 Quick Reference Guide
Defense Financial Management



            The Department of Defense (DOD) needs
            accurate financial information and
            appropriate internal controls to effectively
            manage the Department’s vast
            resources—over $1 trillion in assets,
            3 million military and civilian personnel, and
            a budget of an estimated $250 billion for
            fiscal year 1997. However, long-standing,
            serious weaknesses in the Department’s
            financial operations continue not only to
            severely limit the reliability of DOD’s financial
            information, but also have resulted in wasted
            resources and undermined the Department’s
            ability to carry out its stewardship
            responsibilities. No military service or other
            major DOD component has been able to
            withstand the scrutiny of an independent
            financial statement audit. This situation is
            one of the worst in government and is the
            product of years of neglect.

            The financial management weaknesses that
            the Department must overcome fall into six
            areas: (1) the lack of an overall integrated
            financial management system structure,
            (2) no reliable means of accumulating actual
            cost data to account for and manage
            resources, (3) continuing problems in
            accurately accounting for billions of dollars
            in disbursements, (4) the critical need to
            upgrade its financial management workforce


            Page 8             GAO/HR-97-2 Quick Reference Guide
Defense Financial Management




and organization, (5) breakdowns in
rudimentary required financial control
procedures, and (6) antiquated bureaucratic
practices that underscore the need for
progress in reengineering business practices.

The past few years have been marked by
DOD’s financial management leadership,
under the direction of the Department’s
Chief Financial Officer (CFO), recognizing the
importance of tackling the broad range of
problems in this area. As a result, the
importance of greater financial
accountability is now clearer throughout the
Department. In laying out his “blueprint” for
reforming the Department’s financial
management, the Secretary took an
important first step towards resolving DOD’s
long-standing problems.

DOD still has a long way to go to meet the
challenges of managing its vast and complex
operations with the business-like efficiency
demanded by the Congress and the
American public. The reforms mandated by
the Chief Financial Officers Act of 1990, as
expanded by the Government Management
Reform Act of 1994, and the Federal
Financial Management Improvement Act of
1996 serve as important catalysts for



Page 9               GAO/HR-97-2 Quick Reference Guide
              Defense Financial Management




              focusing attention on the financial problems
              facing the Department.

              It is now critical that DOD take the next steps
              in transforming its leaders’ candid
              acknowledgement of deficiencies into
              comprehensive, realistic corrective actions.
              It will take a focused, sustained effort if DOD
              is to fully resolve these challenges. The
              Department has begun a number of
              initiatives intended to address its
              long-standing financial management
              weaknesses.

              Additional information on DOD financial
              management problems and progress can be
              found in a separate report issued as part of
              this series (GAO/HR-97-3).


Key Contact   Lisa G. Jacobson, Director
              Defense Financial Audits
              Accounting and Information Management
              Division
              202-512-9542


Related GAO   Financial Management: DOD Inventory of
Products      Financial Management Systems Is
              Incomplete (GAO/AIMD-97-29, Jan. 31, 1997).



              Page 10              GAO/HR-97-2 Quick Reference Guide
Defense Financial Management




DOD Accounting Systems: Efforts to Improve
System for Navy Need Overall Structure
(GAO/AIMD-96-99, Sept. 30, 1996).

Navy Financial Management: Improved
Management of Operating Materials and
Supplies Could Yield Significant Savings
(GAO/AIMD-96-94, Aug. 16, 1996).

CFO Act Financial Audits: Increased
Attention Must Be Given to Preparing Navy’s
Financial Reports (GAO/AIMD-96-7, Mar. 27,
1996).

Financial Management: Challenges Facing
DOD in Meeting the Goals of the Chief
Financial Officers Act (GAO/T-AIMD-96-1,
Nov. 14, 1995).

Financial Management: Challenges
Confronting DOD’s Reform Initiatives
(GAO/T-AIMD-95-146, May 23, 1995).




Page 11              GAO/HR-97-2 Quick Reference Guide
Defense Contract Management



            Improvement and simplification of the
            Department of Defense’s (DOD) contract
            payment system is imperative. If DOD does
            not achieve effective control over its
            payment process, the Defense Finance and
            Accounting Service (DFAS) will continue to
            risk overpaying contractors millions of
            dollars. Further, failure to reform the
            payment system perpetuates other financial
            management and accounting control
            problems and increases the administrative
            burden of identifying and correcting
            erroneous payments and their associated
            costs. DOD is aware of the seriousness of its
            payment problems and is taking steps to
            address them.

            With improved contractor cost-estimating
            systems, DOD could reduce the risk of
            overpricing and manage contracts more
            efficiently. Contractors’ cost-estimating
            systems are a critical control for ensuring
            sound price proposals. Sound price
            proposals reduce the risk that the
            government will pay excessive prices, and
            they permit less government oversight and
            management attention. DOD has improved its
            oversight of contractors’ cost-estimating
            systems, and some improvement in
            contractor systems is indicated.
            Nevertheless, poor cost-estimating systems


            Page 12           GAO/HR-97-2 Quick Reference Guide
Defense Contract Management




remain an area of concern at some
contractors’ locations and require continued
attention by contractors and government
contracting officials.

Maintaining public support for defense
programs requires that potential fraud
involving defense contractors be identified
and dealt with swiftly. DOD has established a
voluntary disclosure program to encourage
defense contractors to voluntarily disclose
potential civil or criminal procurement fraud
to the government. However, contractor
participation in the program has been
relatively small and the dollar recoveries
modest. Efforts to improve the
administration of the program, including the
coordination between DOD and the
Department of Justice, may encourage
program participation and improve dollar
recoveries.

As is the case with many other elements of
defense, contract administration and audit
resources have been reduced, and further
reductions are planned. At the same time,
DOD continues to look to additional
outsourcing opportunities, and it plans to
significantly increase its procurement
budgets in the coming years. Both these
actions may increase contracting actions and


Page 13              GAO/HR-97-2 Quick Reference Guide
              Defense Contract Management




              the need for effective contract
              administration and audit. As DOD seeks to
              reengineer and streamline its contracting
              and acquisition processes, including contract
              administration and audit, new business
              process techniques will be key to
              accomplishing effective and efficient
              oversight in the future.

              Additional information on DOD contract
              management problems and progress can be
              found in a separate report issued as part of
              this series (GAO/HR-97-4).


Key Contact   Louis J. Rodrigues, Director
              Defense Acquisitions
              National Security and International Affairs
              Division
              202-512-4841


Related GAO   Defense Depot Maintenance: Privatization
Products      and the Debate Over the Public-Private Mix
              (GAO/T-NSIAD-96-146, Apr. 16, 1996).

              DOD Procurement: Use and Administration of
              DOD’s Voluntary Disclosure Program
              (GAO/NSIAD-96-21, Feb. 6, 1996).




              Page 14              GAO/HR-97-2 Quick Reference Guide
Defense Contract Management




DODProcurement: Millions in Contract
Payment Errors Not Detected and Resolved
Promptly (GAO/NSIAD-96-8, Oct. 6, 1995).

High-Risk Series: Defense Contract
Management (GAO/HR-95-3, Feb. 1995).

DOD Procurement: Overpayments and
Underpayments at Selected Contractors
Show Major Problem (GAO/NSIAD-94-245, Aug. 5,
1994).

DOD Procurement: Millions in Overpayments
Returned by DOD Contractors
(GAO/NSIAD-94-106, Mar. 14, 1994).




Page 15              GAO/HR-97-2 Quick Reference Guide
Defense Inventory Management



            The Department of Defense (DOD) uses its
            secondary inventory—spare and repair
            parts, clothing, medical supplies, and other
            items—to support its operating forces. In
            September 1995, DOD reported that it had a
            secondary inventory valued at $69.6 billion.
            Based on DOD data, we estimate that about
            half of the inventory includes items that are
            not needed to be on hand to support DOD war
            reserve or current operating requirements.

            In 1992, we reported that DOD had wasted
            billions of dollars on excess supplies. We
            reported that the problem resulted because
            inherent in DOD’s culture was the belief that
            it was better to overbuy items than to
            manage with just the amount of stock
            needed. Had DOD used effective inventory
            management and control techniques and
            modern commercial inventory management
            practices, it would have had lower inventory
            levels and would have avoided the burden
            and expense of storing excess inventory.

            In 1995, we reported that managing DOD’s
            inventory presented challenges that partially
            stemmed from the downsizing of the military
            forces. We reported that DOD needed to move
            aggressively to identify and implement viable
            commercial practices and to provide
            managers with modern, automated


            Page 16           GAO/HR-97-2 Quick Reference Guide
Defense Inventory Management




accounting and management systems to
better control and monitor its inventories.

DOD has clearly had some success in
addressing its inventory management
problems, but much remains to be done. DOD
has implemented, in a limited manner,
certain commercial practices such as direct
vendor delivery for medical and food items.
However, these initiatives address only
about 3 percent of the items for which this
concept could be used. DOD is in the midst of
changing its inventory management culture.
Also, it has reduced its inventory since our
1995 high-risk report. However, we believe
that much of the reduction was the result of
reduced force levels, which reduced overall
demands on DOD’s logistics systems.

DOD has also made little progress in
developing the management tools needed to
help solve its long-term inventory
management problems. It has not achieved
the desired benefits from the Defense
Business Operations Fund (DBOF), and the
Corporate Information Management (CIM)
initiative has not produced the economies
and efficiencies anticipated. In
December 1996, the Defense Comptroller
dissolved DBOF and created separate Army,
Navy, Air Force, and Defense-wide working


Page 17              GAO/HR-97-2 Quick Reference Guide
Defense Inventory Management




capital funds. The four funds will continue to
operate under the revolving fund
concept—using the same policies,
procedures, and systems as they did under
DBOF.


DOD  has also abandoned its initial strategy to
deploy a set of integrated systems across all
inventory control points and has embarked
on a strategy to deploy the systems
individually at selected sites without taking
the steps necessary to ensure that the effort
brings positive results.

As a result of the lack of progress with some
of the key initiatives, it has become
increasingly difficult for inventory managers
to manage DOD’s multibillion-dollar inventory
supply system efficiently and effectively.
Large amounts of unneeded inventory,
inadequate inventory oversight, overstated
requirements, and slowness to implement
modern commercial practices are evidence
of the lack of progress.

Unless DOD acts more aggressively, its
inventory management problems will
continue into the next century.

In the short term, DOD needs to emphasize
the efficient operation of its existing


Page 18              GAO/HR-97-2 Quick Reference Guide
Defense Inventory Management




inventory systems. This includes ensuring
the accuracy of inventory requirements to
preclude the acquisition of unneeded
inventory. It also needs to make greater use
of proven commercial practices where more
immediate savings can be achieved.

In the long-term, DOD must establish goals,
objectives and milestones for changing its
culture and adopting new management tools
and practices. These solutions include
(1) setting aggressive milestones for
substantially expanding the use of modern
commercial practices and (2) providing
managers with the tools—critical to
managing inventory efficiently—that it had
planned to provide through the DBOF and CIM
initiatives. DOD must also continue to explore
other alternatives such as using business
case analysis to identify opportunities for
outsourcing logistics functions.

At the same time, continued close
congressional oversight is key to helping to
ensure that financial resources are not
wasted through the acquisition of additional
inventories that are not needed and that DOD
obtains the tools necessary for efficient and
effective inventory management.




Page 19              GAO/HR-97-2 Quick Reference Guide
              Defense Inventory Management




              Additional information on DOD inventory
              management problems and progress can be
              found in a separate report issued as part of
              this series (GAO/HR-97-5).


Key Contact   David R. Warren, Director
              Defense Management
              National Security and International Affairs
              Division
              202-512-8412


Related GAO   1997 DOD Budget: Potential Reductions to
Products      Operation and Maintenance Program
              (GAO/NSIAD-96-220, Sept. 18, 1996).

              Defense IRM: Critical Risks Facing New
              Materiel Management Strategy
              (GAO/AIMD-96-109, Sept. 6, 1996).

              Navy Financial Management: Improved
              Management of Operating Materials and
              Supplies Could Yield Significant Savings
              (GAO/AIMD-96-94, Aug. 16, 1996).

              Inventory Management: Adopting Best
              Practices Could Enhance Navy Efforts to
              Achieve Efficiencies and Savings
              (GAO/NSIAD-96-156, July 12, 1996).



              Page 20              GAO/HR-97-2 Quick Reference Guide
Defense Inventory Management




Best Management Practices: Reengineering
the Air Force’s Logistics System Can Yield
Substantial Savings (GAO/NSIAD-96-5, Feb. 21,
1996).

Inventory Management: DOD Can Build on
Progress in Using Best Practices to Achieve
Substantial Savings (GAO/NSIAD-95-142, Aug. 4,
1995).

Defense Business Operations Fund:
Management Issues Challenge Fund
Implementation (GAO/NSIAD-95-79, Mar. 1,
1995).

High-Risk Series: Defense Inventory
Management (GAO/HR-95-5, Feb. 1995).

Defense Supply: Inventories Contain
Nonessential and Excessive Insurance
Stocks (GAO/NSIAD-95-1, Jan. 20, 1995).




Page 21              GAO/HR-97-2 Quick Reference Guide
Defense Weapon Systems Acquisition



            The national Defense budget, measured in
            constant 1997 dollars, has declined from a
            peak of $415.8 billion in fiscal year 1985 to
            $269.9 billion in fiscal year 1996—a
            reduction of about 35 percent. A large part of
            the reduction was in funding for the
            development and procurement of new and
            improved weapon systems. Nevertheless, the
            Department of Defense (DOD) still spends
            about $79 billion annually to research,
            develop, and acquire weapon systems. While
            DOD’s expenditures have produced many of
            the world’s most capable weapon systems,
            its weapon system acquisition processes
            have often proved costly and inefficient, if
            not wasteful.

            Despite DOD’s past and current efforts to
            reform its acquisition system, wasteful
            practices still add billions of dollars to
            Defense acquisition costs. Many new
            weapon systems cost more and do less than
            anticipated, and schedules are often delayed.
            Moreover, the need for some of these costly
            weapons, particularly since the collapse of
            the Soviet Union, is questionable. DOD has
            perpetuated its history of establishing
            questionable requirements for weapon
            systems; projecting unrealistic cost,
            schedule, and performance estimates; and
            beginning production before adequate


            Page 22           GAO/HR-97-2 Quick Reference Guide
Defense Weapon Systems Acquisition




testing has been completed. These problems
have been discussed in more detail in our
cross-cutting reports entitled Weapons
Acquisition: A Rare Opportunity for Lasting
Change (GAO/NSIAD-93-15, Dec. 1992) and
Weapons Acquisition: Low-Rate Initial
Production Used to Buy Weapon Systems
Prematurely (GAO/NSIAD-95-18, Nov. 21,
1994) as well as in our reports on individual
programs. (See Related GAO Products.)

DOD’s leadership has emphasized its
commitment to reforming its system
acquisition processes. DOD’s goal is to
become the world’s smartest buyer,
continuously reinventing and improving the
acquisition process while taking maximum
advantage of emerging technologies that
enable business process reengineering. In
the area of “what to buy,” DOD’s efforts are
focusing on (1) greater reliance on
commercial products and processes and
(2) more timely infusion of new technology
into new or existing systems. In the area of
“how to buy,” DOD’s efforts have been
directed at, among other things, increasing
teamwork and cooperation, encouraging risk
management rather than risk avoidance,
reducing reporting requirements, and
reducing nonvalue-added layers of review
and oversight. In addition, the Congress has


Page 23               GAO/HR-97-2 Quick Reference Guide
Defense Weapon Systems Acquisition




passed a series of legislative reforms for the
system acquisition process.

The ultimate effectiveness of DOD’s current
initiatives to reduce the costs and improve
the outcomes of its acquisition processes
cannot yet be fully assessed because they
are in various stages of implementation. DOD
is pursuing a number of positive initiatives
that should, over time, improve the
cost-effectiveness of its acquisition
processes and is reporting some success in
terms of cost savings or avoidance and other
benefits. However, it may be several years
before tangible results can be documented
and sustained.

While these initiatives are commendable,
DOD continues to (1) generate and support
acquisitions of new weapon systems that will
not satisfy the most critical weapon
requirements at minimal cost and (2) commit
more procurement funds to programs than
can reasonably be expected to be available
in future Defense budgets. The fundamental
reforms needed to correct these problems,
such as successfully completing testing
before beginning production, have not yet
been formulated, much less instituted, by
DOD and the Congress. However, the
likelihood of continuing fiscal constraints


Page 24               GAO/HR-97-2 Quick Reference Guide
              Defense Weapon Systems Acquisition




              and reduced national security threats
              provide additional incentives for real
              progress in changing the structure and
              dominant culture of DOD’s system acquisition
              processes.

              Additional information on Defense weapon
              systems acquisition problems and progress
              can be found in a separate report issued as
              part of this series (GAO/HR-97-6).


Key Contact   Louis J. Rodrigues, Director
              Defense Acquisitions
              National Security and International Affairs
              Division
              202-512-4841


Related GAO   Acquisition Reform: Implementation of Title
Products      V of the Federal Acquisition Streamlining Act
              of 1994 (GAO/NSIAD-97-22BR, Oct. 31, 1996).

              Combat Air Power: Joint Mission
              Assessments Needed Before Making
              Program and Budget Decisions
              (GAO/NSIAD-96-177, Sept. 20, 1996).

              Best Practices: Commercial Quality
              Assurance Practices Offer Improvements for
              DOD (GAO/NSIAD-96-162, Aug. 26, 1996).



              Page 25               GAO/HR-97-2 Quick Reference Guide
Defense Weapon Systems Acquisition




Navy Aviation: F/A-18E/F Will Provide
Marginal Operational Improvement at High
Cost (GAO/NSIAD-96-98, June 18, 1996).

Acquisition Reform: Efforts to Reduce the
Cost to Manage and Oversee DOD Contracts
(GAO/NSIAD-96-106, Apr. 18, 1996).

Defense Infrastructure: Budget Estimates for
1996-2001 Offer Little Savings for
Modernization (GAO/NSIAD-96-131, Apr. 4, 1996).

Comanche Helicopter: Testing Needs to be
Completed Prior to Production Decisions
(GAO/NSIAD-95-112, May 18, 1995).

Tactical Aircraft: Concurrency in
Development and Production of F-22
Aircraft Should Be Reduced (GAO/NSIAD-95-59,
Apr. 19, 1995).

High-Risk Series: Defense Weapons Systems
Acquisition (GAO/HR-95-4, Feb. 1995).

Electronic Warfare: Most Air Force ALQ-135
Jammers Procured Without Operational
Testing (GAO/NSIAD-95-47, Nov. 22, 1994).




Page 26               GAO/HR-97-2 Quick Reference Guide
Defense Infrastructure



             Despite the Department of Defense’s (DOD)
             actions over the last 7 to 10 years to reduce
             operations and support costs, billions of
             dollars are wasted annually on inefficient
             and unneeded activities. DOD has, in recent
             years, substantially downsized its force
             structure. However, it has not achieved
             commensurate reductions in operations and
             support costs. For fiscal year 1997, DOD
             estimates that about $146 billion, or almost
             two-thirds of its budget, will be for
             operations and support activities. These
             activities, which DOD generally refers to as its
             support infrastructure, include maintaining
             installation facilities, providing nonunit
             training to the force, providing health care to
             military personnel and their families,
             repairing equipment, and buying and
             managing spare part inventories. DOD is
             faced with transforming its Cold War
             operating and support infrastructure in
             much the same way it has been working to
             transform its military force structure.
             Making this transition is a complex, difficult
             challenge that will affect hundreds of
             thousands of civilian and military personnel
             at activities in many states across the nation.

             Reducing the cost of excess infrastructure
             activities is critical to maintaining high levels
             of military capabilities. Expenditures on


             Page 27            GAO/HR-97-2 Quick Reference Guide
Defense Infrastructure




wasteful or inefficient activities divert
limited Defense funds from pressing defense
needs. For example, DOD has identified net
infrastructure savings as a funding source
for modernization; however, thus far,
anticipated savings have not occurred. As a
result, DOD has been unable to shift funds to
modernization as planned.

DOD has found that infrastructure reductions
are a difficult and painful process because
achieving significant cost savings requires
up-front investments, the closure of
installations, and the elimination of military
and civilian jobs. Service parochialism, a
cultural resistance to change, and
congressional and public concern about the
effects on local communities and economies,
as well as the impartiality of the decisions,
have historically hindered DOD’s ability to
close or realign bases. DOD has also
recognized that opportunities to streamline
and reengineer its business practices could
result in substantial savings, but it has made
limited progress in accomplishing this.

To its credit, DOD has programs to identify
potential infrastructure reductions in many
areas. However, breaking down cultural
resistance to change, overcoming service
parochialism, and setting forth a clear


Page 28                  GAO/HR-97-2 Quick Reference Guide
Defense Infrastructure




framework for a reduced Defense
infrastructure are key to avoiding waste and
inefficiency. To do this, the Secretary of
Defense and the service Secretaries need to
give greater structure to their efforts by
developing an overall strategic plan. The
plan needs to establish time frames and
identify organizations and personnel
responsible for accomplishing fiscal and
operational goals. This plan needs to be
presented to the Congress in much the same
way as DOD presented its plan for force
structure reductions in the Base Force Plan
and the Bottom-Up Review. This will provide
a basis for the Congress to oversee DOD’s
plan for infrastructure reductions and allow
the affected parties to see what is going to
happen and when. In developing the plan the
Department should consider using a variety
of means to achieve reductions, including
such things as consolidations, privatization,
outsourcing, reengineering, and
interservicing agreements. It should also
consider the need and timing for future base
realignment and closure (BRAC) rounds, as
suggested by the 1995 BRAC Commission and
other groups.

Additional information on Defense
infrastructure problems and progress can be



Page 29                  GAO/HR-97-2 Quick Reference Guide
              Defense Infrastructure




              found in a separate report issued as part of
              this series (GAO/HR-97-7).


Key Contact   David R. Warren, Director
              Defense Management
              National Security and International Affairs
              Division
              202-512-8412


Related GAO   Air Force Depot Maintenance:
Products      Privatization-In-Place Plans Are Costly While
              Excess Capacity Exists (GAO/NSIAD-97-13,
              Dec. 31, 1996).

              Army Depot Maintenance: Privatization
              Without Further Downsizing Increases
              Costly Excess Capacity (GAO/NSIAD-96-201,
              Sept. 18, 1996).

              Navy Depot Maintenance: Cost and Savings
              Issues Related to Privatizing-in-Place at the
              Louisville, Kentucky, Depot (GAO/NSIAD-96-202,
              Sept. 18, 1996).

              Defense Acquisition Infrastructure: Changes
              in RDT&E Laboratories and Centers
              (GAO/NSIAD-96-221BR, Sept. 13, 1996).




              Page 30                  GAO/HR-97-2 Quick Reference Guide
Defense Infrastructure




Defense Infrastructure: Costs Projected to
Increase Between 1997 and 2001
(GAO/NSIAD-96-174, May 31, 1996).

Military Bases: Opportunities for Savings in
Installation Support Costs Are Being Missed
(GAO/NSIAD-96-108, Apr. 23, 1996).

Military Bases: Closure and Realignment
Savings Are Significant, But Not Easily
Quantified (GAO/NSIAD-96-67, Apr. 8, 1996).

Defense Infrastructure: Budget Estimates for
1996-2001 Offer Little Savings for
Modernization (GAO/NSIAD-96-131, Apr. 4, 1996).

Defense Transportation: Streamlining of the
U.S. Transportation Command Is Needed
(GAO/NSIAD-96-60, Feb. 22, 1996).

Military Bases: Analysis of DOD’s 1995
Process and Recommendations for Closure
and Realignment (GAO/NSIAD-95-133, Apr. 14,
1995).




Page 31                  GAO/HR-97-2 Quick Reference Guide
IRS Financial Management



            Our audits of the Internal Revenue Service’s
            (IRS) financial statements have outlined the
            substantial improvements needed in IRS’
            accounting and reporting in order to comply
            fully with the requirements of the Chief
            Financial Officers (CFO) Act of 1990. The
            audits for fiscal years 1992 through 1995
            have described IRS’ difficulties in properly
            accounting for its reported $1.4 trillion in tax
            revenues, in total and by reported type of
            tax; reliably determining the amount of
            accounts receivable owed for unpaid taxes;
            regularly reconciling its Fund Balance With
            Treasury accounts; and either routinely
            providing support for receipt of the goods
            and services it purchases or, where
            supported, accurately recording the
            purchased item in the proper period.

            IRShas made progress in addressing these
            problems and has developed an action plan,
            with specific timetables and deliverables, to
            address the issues our financial statement
            audits have identified. This is particularly
            notable in IRS’ administrative accounting
            operations, which track its over $7 billion
            appropriation to fund IRS’ activities. For
            example, IRS recently reported that it has
            identified substantially all of the reconciling
            items for its Fund Balance With Treasury
            accounts, except for certain amounts IRS has


            Page 32            GAO/HR-97-2 Quick Reference Guide
IRS Financial Management




deemed not to be cost-beneficial to research
further. It also has successfully transferred
its payroll processing to the Department of
Agriculture’s National Finance Center and
has begun designing both a short-term and a
long-term strategy to fix the problems that
contribute to its nonpayroll expenses being
unsupported or reported in the wrong
period.

Further, in the revenue accounting area, IRS
has designed an interim approach to capture
the detailed support for revenue and
accounts receivable until longer-term
solutions can be identified and implemented.
The issues with IRS’ revenue accounting
operations are complex, and the remedies
needed are multifaceted and encompass
organizational, managerial, technological,
and procedural improvements. IRS’ revenue
accounting problems are especially affected
and complicated by automated data
processing systems that were implemented
many years ago and thus not designed to
support the financial reporting requirements
ushered in by the 1990 CFO Act. Some of the
longer-term actions needed to correct the
long-standing problems in IRS’ revenue
accounting operations include




Page 33              GAO/HR-97-2 Quick Reference Guide
    IRS Financial Management




•   implementing software, hardware, and
    procedural changes needed to create reliable
    subsidiary accounts receivable and revenue
    records that are fully integrated with the
    general ledger and
•   implementing software changes that allow
    the detailed taxes reported to be maintained
    separately from the results of compliance
    efforts that would not be valid financial
    reporting transactions in the masterfile,
    other related revenue accounting feeder
    systems, and the general ledger.

    The requirements of the CFO Act have
    provided the impetus for ongoing efforts to
    improve IRS’ operations. They led to IRS’ top
    managers having a much better
    understanding than ever before of IRS’
    serious accounting and reporting problems,
    provided information on the magnitude of
    IRS’ tax receivables collection problems, and
    identified the need for stronger controls over
    such areas as payroll operations.

    IRS has made progress in responding to our
    recommendations. Over the past 4 years, we
    have made 59 recommendations to improve
    IRS’ financial management systems and
    reporting. IRS agreed with these
    recommendations and has been working to
    implement them and correct its financial


    Page 34              GAO/HR-97-2 Quick Reference Guide
IRS Financial Management




systems and information problems. IRS has
completed action on some of these
recommendations and has efforts under way
to address the remaining areas. IRS has been
directed in the appropriations committees’
conference report to submit a report by
March 1, 1997, that presents a plan to correct
the problems identified in our July 1996
audit report. As part of our audit of IRS’ fiscal
year 1996 financial statements, which was
ongoing when this report was being
prepared, we are examining and will report
on the additional actions IRS has taken to
respond to the recommendations we have
made.

IRS’efforts are intended to position itself to
have more reliable financial statements for
fiscal year 1997 and thereafter. To
accomplish this, especially in accounting for
revenue and the related accounts
receivables, IRS will need to institute longer
term solutions involving reprogramming
software for IRS’ antiquated systems and
developing new systems as required.

Follow-through by IRS is essential to ensure
that its short-term and long-term plans are
carried out and effectively solve financial
management problems. While IRS’ senior
management has resolved to address these


Page 35              GAO/HR-97-2 Quick Reference Guide
              IRS Financial Management




              issues, in the past IRS has not always
              provided the follow-through needed to
              complete necessary corrective measures.
              Solving these problems is essential to
              providing reliable financial information and
              ensuring taxpayers that their federal tax
              dollars are properly accounted for in
              accordance with federal accounting
              standards. The accuracy of IRS’ financial
              statements is also essential to both IRS and
              the Congress for (1) ensuring adequate
              accountability for IRS programs, (2) assessing
              the impact of tax policies, and (3) measuring
              IRS’ performance and cost effectiveness in
              carrying out its numerous tax enforcement,
              customer service, and collection activities.

              Additional information on IRS financial
              management problems and progress can be
              found in a separate IRS management report
              issued as part of this series (GAO/HR-97-8).


Key Contact   Gregory M. Holloway, Director
              Governmentwide Audits
              Accounting and Information Management
              Division
              202-512-9510




              Page 36              GAO/HR-97-2 Quick Reference Guide
              IRS Financial Management




Related GAO   IRSFinancial Audits: Status of Efforts to
Products      Resolve Financial Management Weaknesses
              (GAO/T-AIMD-96-170, Sept. 19, 1996).

              Financial Audit: Examination of IRS’ Fiscal
              Year 1995 Financial Statements
              (GAO/AIMD-96-101, July 11, 1996).

              Financial Audit: Actions Needed to Improve
              IRS Financial Management (GAO/T-AIMD-96-96,
              June 6, 1996).

              IRSOperations: Significant Challenges in
              Financial Management and Systems
              Modernization (GAO/T-AIMD-96-56, Mar. 6, 1996).

              Financial Audit: Examination of IRS’ Fiscal
              Year 1994 Financial Statements
              (GAO/AIMD-95-141, Aug. 4, 1995).

              Financial Audit: Examination of IRS’ Fiscal
              Year 1993 Financial Statements
              (GAO/AIMD-94-120, June 15, 1994).

              Financial Audit: Examination of IRS’ Fiscal
              Year 1992 Financial Statements
              (GAO/AIMD-93-2, June 30, 1993).




              Page 37              GAO/HR-97-2 Quick Reference Guide
IRS Receivables



             The Internal Revenue Service (IRS) is the
             government’s primary tax collection agency
             and routinely collects over a trillion dollars
             annually. But many taxpayers are either
             unable or unwilling to pay their taxes when
             due and, as a result, IRS estimates that its
             accounts receivable amount to tens of
             billions of dollars. Unfortunately, IRS’
             long-term efforts to efficiently and
             effectively collect the billions of dollars
             taxpayers owe in delinquent taxes and to
             prevent taxpayers from becoming delinquent
             have been seriously hampered, primarily by
             outdated equipment and processes,
             incomplete information needed to better
             target collection efforts, and the absence of a
             comprehensive strategy and detailed plan
             that address the systemic nature of the
             underlying problems.

             On the other hand, short-term results in
             collecting delinquent taxes have shown
             some promise. In fiscal year 1996, for
             example, IRS reported the collection of
             $29.8 billion in delinquent taxes—the most
             ever by IRS. Furthermore, for the first time
             since 1989, IRS also reported that its
             collection employees took in more money
             than they classified as “currently not
             collectible.” While these results are
             encouraging, IRS needs to know more about


             Page 38           GAO/HR-97-2 Quick Reference Guide
IRS Receivables




its inventory of tax assessments and the
types of taxpayers who become delinquent
each year to develop effective strategies to
efficiently target its collection resources and
to prevent future delinquencies.

IRS’ collection efforts have been hampered by
the age of the delinquent tax accounts.
Because of the outdated equipment and
processes used to match tax returns and
related information documents, it can take
IRS several years to identify potential
delinquencies and then initiate collection
actions. In addition, according to IRS, the
10-year statutory collection period generally
precludes it from writing off uncollectible
receivables until that period has expired. As
a result, the receivables inventory includes
many relatively old accounts that will never
be collected because the taxpayers are
deceased or the companies defunct.

IRS has undertaken many initiatives to deal
with its accounts receivable problems. These
initiatives include correcting errors in the
masterfile records of tax receivables,
developing more information on the makeup
of the inventory of tax debts, developing
research systems to identify characteristics
of delinquent taxpayers and appropriate
collection techniques, attempting telephone


Page 39            GAO/HR-97-2 Quick Reference Guide
IRS Receivables




contact earlier in the collection process,
speeding up the collection process for repeat
delinquents, revising the format of bills sent
to delinquent taxpayers, automating many of
the processes carried out by collection
employees in field offices, and attempting to
collect compliance-generated delinquencies
earlier. While some of these efforts appear to
have had some impact on collections and the
tax debt inventory, others are long term in
nature, and their effectiveness may not be
determined for years. Further, the problems
with IRS’ data and information systems will
continue to hinder its ability to effectively
measure the results of these efforts.

The Congress has recently taken actions that
could help deal with the collection of
delinquent taxes and the prevention of future
delinquencies. Legislation requiring more
electronic deposits of employment taxes,
expanding voluntary withholding, and
authorizing IRS to test the use of private debt
collectors could help reduce posting errors,
prevent taxpayers from becoming
delinquent, and collect more money. Other
actions in areas such as tax delinquencies
related to independent contractors—a group
of taxpayers that is proportionately more
delinquent than other groups of



Page 40           GAO/HR-97-2 Quick Reference Guide
IRS Receivables




taxpayers—could, if adopted, also help IRS
deal with its collection problems.

Although the results cannot generally be
quantified or traced back to specific actions
or improvements, some of IRS’ efforts
reportedly have resulted in increased
collections and reduced delinquencies in the
short term. For example, during fiscal year
1996, IRS revised the bills sent to taxpayers to
make them clearer and easier to understand,
and reported that collections from the billing
process increased from $11.8 billion in fiscal
year 1995 to $14.7 billion in fiscal year 1996.
IRS has also placed more emphasis on
collecting examination assessments at the
close of an audit, and preliminary results
have been favorable.

Until fiscal year 1996, IRS’ inventory of tax
assessments increased at a faster pace than
collections. For example, during the period
1991-1996, the inventory increased an
average of 16 percent each year, from
$104 billion at the end of fiscal year 1991 to
about $216 billion at the end of fiscal year
1996. Reported collection of delinquent
taxes, however, averaged only a 4.5-percent
increase, from $24.3 billion to $29.8 billion,
during that same period.



Page 41            GAO/HR-97-2 Quick Reference Guide
IRS Receivables




We recognize that the growth in the gross
inventory is not the best measure of IRS’
performance because it includes penalty and
interest charges that continue to accrue on
delinquent accounts, potentially invalid
accounts, and accounts that are truly
uncollectible; however, better figures are not
available. IRS is working toward better
defining its receivables inventory. For its
fiscal year 1995 financial statements, IRS
developed a methodology to differentiate
financial accounts receivable from the
amounts it has assessed for compliance
purposes. While the methodology appeared
sound, mistakes in performing the analysis
and errors in the underlying data made the
sample results unreliable.

A number of IRS initiatives hold some
potential for future improvements in both
collections and compliance. For example, IRS
is developing a number of research and
evaluative tools that are intended to
determine the most efficient and effective
way to handle cases by identifying those
taxpayer characteristics that could predict
the possible outcome of the cases. In
addition, research databases are being
constructed that are intended to allow for
identification of particular groups, and a
research structure has been developed to


Page 42           GAO/HR-97-2 Quick Reference Guide
IRS Receivables




allow for studies dealing with different
groups of taxpayers. However, the
completion dates for full development of the
databases are currently unknown due to the
uncertainty of funding for IRS’ Tax Systems
Modernization program. Even if funding was
assured, it would still take a number of years
to identify the root causes of delinquencies
and to develop, test, and implement courses
of action to deal with the causes. Once the
analyses and planning are completed, it will
still be some time before full results of the
new initiatives are realized.

Nevertheless, the recent increase in reported
collections is a good sign. As previously
mentioned, the $29.8 billion reported in
fiscal year 1996 is the most ever collected.
This sum represents a 19-percent increase
over the $25.1 billion reported in fiscal year
1995 and a 17-percent increase over the
$25.5 billion reported in fiscal year
1990—the previous best year. However, as
we said earlier, IRS does not have the data to
determine which actions or improvements
generate changes in program performance
such as this.

Correcting the problems and improving
collections will require long-term and
continuous efforts. To ensure that these


Page 43           GAO/HR-97-2 Quick Reference Guide
              IRS Receivables




              efforts are on the right track, IRS needs a
              comprehensive strategy that involves all
              aspects of IRS’ operations. As part of this
              strategy, IRS needs to set priorities;
              modernize outdated equipment and
              processes; and establish goals, timetables,
              and a system to measure progress.

              Additional information on IRS receivables
              problems and progress can be found in a
              separate IRS management report issued as
              part of this series (GAO/HR-97-8).


Key Contact   Lynda D. Willis, Director
              Tax Policy and Administration
              General Government Division
              202-512-8633


Related GAO   IRSTax Collection Reengineering
Products      (GAO/GGD-96-161R, Sept. 24, 1996).

              Tax Administration: Tax Compliance of
              Nonwage Earners (GAO/GGD-96-165, Aug. 28,
              1996).

              Financial Audit: Examination of IRS’ Fiscal
              Year 1995 Financial Statements
              (GAO/AIMD-96-101, July 11, 1996).



              Page 44           GAO/HR-97-2 Quick Reference Guide
IRS Receivables




Tax Administration: IRS Tax Debt Collection
Practices (GAO/T-GGD-96-112, Apr. 25, 1996).

Status of Tax Systems Modernization, Tax
Delinquencies, and the Potential for
Return-Free Filing (GAO/T-GGD/AIMD-96-88,
Mar. 14, 1996).

Financial Audit: Examination of IRS’ Fiscal
Year 1994 Financial Statements
(GAO/AIMD-95-141, Aug. 4, 1995).

Taxpayer Compliance: Reducing the Income
Tax Gap (GAO/T-GGD-95-176, June 6, 1995).

Tax Administration: Administrative
Improvements Possible in IRS’ Installment
Agreement Program (GAO/GGD-95-137, May 2,
1995).

High-Risk Series: Internal Revenue Service
Receivables (GAO/HR-95-6, Feb. 1995).




Page 45           GAO/HR-97-2 Quick Reference Guide
Filing Fraud



               When we first identified filing fraud as a
               high-risk area in February 1995, the amount
               of filing fraud being detected by the Internal
               Revenue Service (IRS) was on an upward
               spiral. From 1991 to 1994, the number of
               fraudulent returns that IRS detected rose
               from 11,168 to 77,781, and the total amount
               of fraudulent refunds detected rose from
               $42.9 million to $160.5 million. In 1995, after
               being urged to take immediate action by us,
               the Congress, and a Treasury task force, IRS
               introduced new controls and expanded
               existing controls in an attempt to reduce its
               exposure to filing fraud. Those controls were
               directed toward either (1) deterring the filing
               of fraudulent returns or (2) identifying
               questionable returns after they have been
               filed.

               To deter the filing of fraudulent returns, IRS
               took several steps that were focused on
               electronic filers. As a result of these steps,
               IRS (1) expanded the number of upfront
               filters in the electronic filing system
               designed to screen electronic submissions
               for problems, such as missing or incorrect
               Social Security Numbers (SSN), to prevent
               returns with those problems from being filed
               electronically and (2) strengthened the
               process for checking the suitability of
               persons applying to participate in the


               Page 46           GAO/HR-97-2 Quick Reference Guide
Filing Fraud




electronic filing program as return preparers
or transmitters by requiring fingerprint and
credit checks.

To better identify fraudulent returns once
they have been filed, IRS placed an increased
emphasis in 1995 on validating SSNs on filed
paper returns and delayed any related
refunds to allow time to do those validations
and to check for possible fraud. IRS also
improved its Questionable Refund Program
by (1) revising the computerized formulas
used to score all tax returns as to their fraud
potential and (2) upgrading the Electronic
Fraud Detection System (EFDS) to give staff
better research capabilities.

IRS’efforts produced some positive results.
For example, the number of SSN problems
identified by the electronic filing filters
increased from about 1 million in 1994 to
about 4.1 million in 1995. In addition, about
350 persons who applied to participate in the
electronic filing program for 1995 were
rejected because they failed the new
fingerprint and credit checks. IRS’ efforts to
validate SSNs on paper returns produced over
$800 million in reduced refunds or additional
taxes. Unfortunately, IRS identified many
more SSN problems than it was able to deal



Page 47            GAO/HR-97-2 Quick Reference Guide
Filing Fraud




with and released about 2 million refunds
without resolving the problems.

Despite the generally positive results, there
is insufficient information available to
determine which of IRS’ actions have had a
significant impact on either detecting or
deterring filing fraud. IRS conducted some
studies in 1995 and 1996 that may shed some
light on the effects of its changes and
upgrades, but IRS has not released the results
of these studies.

The number of fraudulent returns identified
by IRS has declined recently, from 77,781
fraudulent returns involving refunds of
$160.5 million in 1994 to 62,309 fraudulent
returns with refunds of $131.7 million in
1995. That downward trend continued in
1996, at an even more significant pace.
During the first 9 months of 1996, IRS
reported detecting 20,521 fraudulent returns
involving refunds of $55.4 million, compared
with 59,241 returns totaling $124.8 million in
the first 9 months of 1995. There is
insufficient information available to
determine whether the decline was the result
of staff reductions, changes in the program’s
operating and reporting procedures, or a
general decline in the incidence of fraud.



Page 48           GAO/HR-97-2 Quick Reference Guide
Filing Fraud




IRS’efforts to control filing fraud are also
constrained by the relatively short time
available, after a return is filed and before
any refund is issued, in which to identify a
questionable return. Therefore, it is critically
important for IRS to (1) optimize the controls,
such as upfront filters, that are intended to
prevent the filing of fraudulent returns and
(2) maximize the effectiveness of available
staff. Modernization is the key to achieving
these objectives, and electronic filing is the
cornerstone of that modernization.

As discussed previously, one of the benefits
of electronic filing is the ability to build
controls into the system, in the form of
filters, that prevent returns with certain
problems (such as incorrect SSNs) from being
filed electronically. IRS cannot identify those
kinds of problems on paper returns until
after the returns are filed and, as happened
in 1995, is limited in the number of cases it
can pursue by the number of staff available.
One solution to this dilemma is to increase
the percentage of returns filed electronically.
IRS’ business vision calls for increasing the
number of electronic returns to 80 million by
2001. However, our analysis of recent filing
trends indicated that only about 33 million
returns are expected to be filed
electronically by 2001. To achieve its goal,


Page 49            GAO/HR-97-2 Quick Reference Guide
Filing Fraud




IRS must first identify those groups of
taxpayers who offer the greatest opportunity
to reduce IRS’ paper-processing workload
and operating costs if they were to file
electronically. IRS must then develop
strategies that focus its resources on
eliminating or lessening impediments that
inhibit those groups from participating in the
program. As of early January 1997, IRS was
finalizing its electronic filing strategy.

EFDS enables IRS to use its staff more
effectively by automating a process that had
been labor and paper intensive and by
enhancing the staff’s research and query
capabilities. To date, EFDS has been used
primarily on electronic returns, which
accounted for only about 13 percent of all
individual income tax returns filed in 1996.
IRS had planned to expand EFDS to all paper
returns, but it is unclear how those plans will
be affected by IRS’ recent decisions to
terminate its major paper processing
modernization project (the Document
Processing System) and to consider other
options for processing paper returns.

Additional information regarding filing fraud
problems and progress can be found in a
separate IRS management report issued as
part of this series (GAO/HR-97-8).


Page 50           GAO/HR-97-2 Quick Reference Guide
              Filing Fraud




Key Contact   Lynda D. Willis, Director
              Tax Policy and Administration
              General Government Division
              202-512-8633


Related GAO   Earned Income Credit: IRS’ 1995 Controls
Products      Stopped Some Noncompliance, But Not
              Without Problems (GAO/GGD-96-172, Sept. 18,
              1996).

              IRS Efforts to Control Fraud (GAO/GGD-96-96R,
              Mar. 25, 1996).

              The 1995 Tax Filing Season: IRS Performance
              Indicators Provide Incomplete Information
              About Some Problems (GAO/GGD-96-48, Dec. 29,
              1995).

              Tax Administration: Electronic Filing Falling
              Short of Expectations (GAO/GGD-96-12, Oct. 31,
              1995).

              Tax Administration: Continuing Problems
              Affect Otherwise Successful 1994 Filing
              Season (GAO/GGD-95-5, Oct. 7, 1994).

              Tax Administration: Electronic Filing Fraud
              (GAO/T-GGD-94-89, Feb. 10, 1994).




              Page 51           GAO/HR-97-2 Quick Reference Guide
Filing Fraud




Tax Administration: Increased Fraud and
Poor Taxpayer Access to IRS Cloud 1993
Filing Season (GAO/GGD-94-65, Dec. 22, 1993).

Tax Administration: IRS Can Improve
Controls Over Electronic Filing Fraud
(GAO/GGD-93-27, Dec. 30, 1992).




Page 52            GAO/HR-97-2 Quick Reference Guide
IRS’ Tax Systems Modernization



             Over the last decade, the Internal Revenue
             Service (IRS) has been attempting to overhaul
             its timeworn, paper-intensive approach to
             tax return processing. In 1995, we identified
             serious management and technical
             weaknesses in the modernization program
             that jeopardize its successful completion,
             recommended many actions to fix the
             problems, and added IRS’ modernization to
             our high-risk list. Since then, IRS and
             Treasury have together taken several steps
             to implement our recommendations, but
             much remains to be done. At stake is the
             over $3 billion that IRS has spent or obligated
             on this modernization since 1986, as well as
             any additional funds that IRS plans to spend
             on modernization.

             In July 1995, we reported that IRS (1) did not
             have a comprehensive business strategy to
             cost-effectively reduce paper tax return
             filings and (2) had not yet fully developed
             and put in place the requisite management,
             software development, and technical
             infrastructure necessary to successfully
             implement its ambitious, world-class
             modernization. We also reported that IRS
             lacked an overall systems architecture, or
             blueprint, to guide the modernization’s
             development and evolution.



             Page 53           GAO/HR-97-2 Quick Reference Guide
IRS’ Tax Systems Modernization




At that time, we made over a dozen
recommendations to the IRS Commissioner
to address these weaknesses. Collectively,
the recommendations called for IRS to
(1) formulate a comprehensive business
strategy for maximizing electronic filings,
(2) improve its strategic information
management by implementing a process for
selecting, prioritizing, controlling, and
evaluating the progress and performance of
all major information systems and
investments, (3) implement disciplined,
consistent procedures for software
requirements management, quality
assurance, configuration management, and
project planning and tracking, and
(4) complete and enforce an integrated
systems architecture and security and data
architectures. IRS agreed to implement our
recommendations.

In May 1996, Treasury reported to the House
and Senate Appropriations Committees on
steps under way and planned to exert
greater management oversight over IRS’
modernization efforts.1 For example, it
established a Modernization Management
Board as the primary review and
decision-making body for modernization and

1
Report to House and Senate Appropriations Committees: Progress
Report on IRS’s Management and Implementation of Tax Systems
Modernization, Department of the Treasury, May 6, 1996.

Page 54                  GAO/HR-97-2 Quick Reference Guide
IRS’ Tax Systems Modernization




for policy and strategic direction. In
addition, Treasury scaled back the overall
size of the modernization by approximately
$2 billion and is working with IRS to obtain
additional contractor help to accomplish the
modernization.

Pursuant to congressional direction, we
assessed IRS’ actions to correct its
management and technical weaknesses, as
delineated in Treasury’s report on tax
systems modernization. We reported in June
and September 1996 that IRS had initiated
many activities to improve its modernization
efforts, but had not yet fully implemented
any of our recommendations. Consequently,
in order to minimize the risk attached to
continued investment in its systems
modernization, we suggested to the
Congress that it consider limiting
modernization funding exclusively to
cost-effective efforts that (1) support
ongoing operations and maintenance,
(2) correct IRS’ pervasive management and
technical weaknesses, (3) are small,
represent low technical risk, and can be
delivered quickly, and (4) involve deploying
already developed and fully tested systems
that have proven business value and are not
premature given the lack of a completed
architecture.


Page 55               GAO/HR-97-2 Quick Reference Guide
IRS’ Tax Systems Modernization




To help oversee IRS’ modernization, the
Congress in the fiscal year 1997 Omnibus
Consolidated Appropriations Act2 directed
IRS to (1) submit by December 1, 1996, a
schedule for transferring a majority of its
modernization development and deployment
to contractors by July 31, 1997, and
(2) establish a schedule by February 1, 1997,
for implementing our recommendations by
October 1, 1997. In its conference report on
the act, the Congress directed the Secretary
of the Treasury to (1) provide quarterly
reports on the status of IRS’ corrective
actions and modernization spending3 and
(2) submit by May 15, 1997, a technical
architecture for the modernization that has
been approved by Treasury’s Modernization
Management Board. Additionally, the Board
was directed to prepare a request for
proposals by July 31, 1997, to acquire a
prime contractor to manage modernization
deployment and implementation.

IRShas continued to take steps to address
our recommendations and respond to
congressional direction. For example, IRS

2
 Public Law 104-208, September 30, 1996.
3
 H.R. Report No. 863, 104th Cong., 2d sess. (1996). Congress also
included the requirement that Treasury provide a milestone
schedule for developing and implementing all modernization
projects in Treasury’s fiscal year 1996 appropriations act (Public
Law 104-52, Nov. 19, 1995).

Page 56                    GAO/HR-97-2 Quick Reference Guide
IRS’ Tax Systems Modernization




hired a new Chief Information Officer. It also
created an investment review board to
select, control, and evaluate its information
technology investments. Thus far, the board
has reevaluated and terminated selected
major modernization development projects,
such as the Document Processing System.

Additionally, IRS (1) provided a November 26,
1996, report to the Congress that set forth
IRS’ strategic plan and schedule for shifting
modernization development and deployment
to contractors, (2) is finalizing a
comprehensive strategy to maximize
electronic filing that is scheduled for
completion in early 1997, and (3) is updating
its system development life cycle
methodology and working across various IRS
organizations to define disciplined processes
for software requirements management,
quality assurance, configuration
management, and project planning and
tracking. Additionally, IRS is developing a
technical architecture for the modernization
and plans to provide this to the Congress by
May 15, 1997. Further, IRS is preparing a
schedule for implementing our
recommendations and plans to provide it to
the Congress in February 1997.




Page 57               GAO/HR-97-2 Quick Reference Guide
IRS’ Tax Systems Modernization




While we recognize IRS’ and Treasury’s
actions to address these problems, we
remain concerned. Much remains to be done
to fully implement essential improvements.
Increasing the use of contractors, for
example, will not automatically increase the
likelihood of successful modernization
because IRS does not have the technical
capability needed to manage all of its current
contractors. As a case in point, IRS’
Cyberfile—a system development effort led
by contractors to enable taxpayers to
personally prepare and file their tax returns
electronically—exhibited many
undisciplined software acquisition practices
as well as inadequate financial and
management controls. Eventually, IRS
canceled the Cyberfile project after spending
over $17 million and without fielding any of
the system’s promised capabilities.
Therefore, if IRS is to use additional
contractors effectively, it will have to first
strengthen and improve its ability to manage
those contractors.

In addition, IRS needs to continue to make
concerted, sustained efforts to fully
implement our recommendations and
respond effectively to the requirements
outlined by the Congress. It will take both
management commitment and technical


Page 58               GAO/HR-97-2 Quick Reference Guide
IRS’ Tax Systems Modernization




discipline for IRS to do this effectively.
Accordingly, we plan to continue assessing
IRS’ progress in its critical endeavor to
modernize.

Additional information on tax systems
modernization problems and progress can be
found in separate IRS management and
information management and technology
reports issued as part of this series
(GAO/HR-97-8 and GAO/HR-97-9, respectively).




Page 59               GAO/HR-97-2 Quick Reference Guide
              IRS’ Tax Systems Modernization




Key Contact   Dr. Rona B. Stillman
              Chief Scientist for Computers and
              Telecommunications
              Accounting and Information Management
              Division
              202-512-6412


Related GAO   Tax Systems Modernization: Actions
Products      Underway But Management and Technical
              Weaknesses Not Yet Corrected
              (GAO/T-AIMD-96-165, Sept. 10, 1996).

              IRSOperations: Critical Need to Continue
              Improving Core Business Practices
              (GAO/T-AIMD/GGD-96-188, Sept. 10, 1996).

              Internal Revenue Service: Business
              Operations Need Continued Improvement
              (GAO/AIMD/GGD-96-152, Sept. 9, 1996).

              Tax Systems Modernization: Cyberfile
              Project Was Poorly Planned and Managed
              (GAO/AIMD-96-140, Aug. 26, 1996).

              Tax Systems Modernization: Actions
              Underway But IRS Has Not Yet Corrected
              Management and Technical Weaknesses
              (GAO/AIMD-96-106, June 7, 1996).




              Page 60               GAO/HR-97-2 Quick Reference Guide
IRS’ Tax Systems Modernization




Tax Systems Modernization: Management
and Technical Weaknesses Must Be
Corrected If Modernization Is To Succeed
(GAO/AIMD-95-156, July 26, 1995).

IRSAutomation: Controlling Electronic Filing
Fraud and Improper Access to Taxpayer
Data (GAO/T-AIMD/GGD-94-183, July 19, 1994).




Page 61               GAO/HR-97-2 Quick Reference Guide
Customs Service Financial
Management


             In 1991, we added the U.S. Customs Service
             to our high-risk list because it had major
             weaknesses in its management and
             organizational structure that diminished its
             ability to detect trade violations on imported
             cargo; collect applicable duties, taxes, fees,
             and penalties; control financial resources;
             and report on financial operations. In
             February 1995, we reported that Customs
             had taken several actions to address these
             problems, including aggressively pursuing
             delinquent receivables and embarking on an
             agencywide reorganization plan. We also
             reported in 1995 that such actions should
             reduce Customs’ risks in the general
             management arena but that additional
             efforts were still needed in the financial
             management area. As such, we reported that
             the scope of our future high-risk work at
             Customs would focus on its financial
             management problems.

             Since our 1995 report, Customs has
             continued to take actions to address these
             financial management problems. For
             example, during fiscal year 1995, Customs
             statistically sampled compliance of
             commercial importations through ports of
             entry to better focus enforcement efforts and
             to project and report lost duties, taxes, and
             fees due to noncompliance. It also developed


             Page 62           GAO/HR-97-2 Quick Reference Guide
    Customs Service Financial
    Management




    a methodology to estimate and disclose the
    liability for future claims for drawback
    payments1 and other refunds. In addition,
    Customs reorganized its Office of Finance
    and established financial advisor positions in
    key organizational units to more effectively
    meet financial management responsibilities.
    Further, Customs has taken meaningful
    steps toward correcting its computer access
    problems.

    While these actions have resulted in
    progress, Customs still has not fully
    corrected significant weaknesses in its
    financial management and internal control
    systems which have diminished Customs’
    ability to reasonably ensure that

•   duties, taxes, and fees on imports would be
    properly assessed and collected and refunds
    of such amounts would be valid;
•   sensitive data maintained in its automated
    systems, such as import inspection criteria
    and law enforcement data, were adequately
    protected from unauthorized access and
    modification; and
•   its core financial systems capture all
    activities that occurred during the year and



    1
     Drawback payments are refunds of duties and taxes paid on
    imported goods that are subsequently exported or destroyed.

    Page 63                   GAO/HR-97-2 Quick Reference Guide
Customs Service Financial
Management




provide reliable information for management
to use in controlling operations.

For instance, in June 19942 we reported that
Customs did not have a reliable means of
measuring overall compliance with trade
laws, including those related to the
importation of goods by way of ports of
entry, in-bond shipments, foreign trade
zones, and bonded warehouses. As
previously stated, Customs conducted a
comprehensive compliance measurement
program for goods imported at ports of
entry. However, it still needs to fully develop
and implement such programs for the other
areas noted above. In April 1996, the
Treasury Office of Inspector General (OIG)
reported that until Customs fully implements
such programs, it will continue to lack
adequate assurance that all revenue due is
collected and compliance with trade laws is
achieved.

In June 1994, we also reported that Customs
could not reliably detect and prevent
duplicate and excessive drawback payments
and lacked integrated core financial systems.
In April 1996, the OIG reaffirmed that
weaknesses still existed in these areas.

2
 Financial Audit: Examination of Customs’ Fiscal Year 1993
Financial Statements (GAO/AIMD-94-119, June 15, 1994).

Page 64                   GAO/HR-97-2 Quick Reference Guide
              Customs Service Financial
              Management




              Over the past several years, we and the OIG
              have made numerous recommendations to
              Customs to address its financial
              management problems and have assisted
              Customs in developing and implementing
              corrective actions. Some of these actions
              can be implemented relatively quickly, while
              other improvements will take years. While
              we believe that Customs’ planned
              improvement efforts are appropriately
              focused, it is important that Customs’ top
              and mid-level management provide the
              continuing support needed to ensure that
              these important actions are properly
              implemented and that related problems do
              not recur.


Key Contact   Gregory M. Holloway, Director
              Governmentwide Audits
              Accounting and Information Management
              Division
              202-512-9510


Related GAO   Customs Service Modernization: Strategic
Products      Information Management Must Be Improved
              for National Automation Program to
              Succeed (GAO/AIMD-96-57, May 9, 1996).




              Page 65                GAO/HR-97-2 Quick Reference Guide
Customs Service Financial
Management




High-Risk Series: Quick Reference Guide
(GAO/HR-95-2, Feb. 1995).




Page 66                GAO/HR-97-2 Quick Reference Guide
Asset Forfeiture Programs



             Federal asset forfeiture programs at the U.S.
             Customs Service and the Justice Department
             (administered by the U.S. Marshals Service)
             were part of our original high-risk list in 1990
             because the programs—with inventories
             valued at about $2 billion in 1995—did not
             adequately focus on managing the items
             seized. In December 1992, we reported that
             the existence of major operational problems,
             relating to the management and disposition
             of seized and forfeited property, had been
             identified and that corrective actions were
             being initiated. In our February 1995
             high-risk report, we reported that although
             much had been accomplished and some
             management and systems changes had
             improved program operations, some
             significant problems remained with seized
             property management.

             Specifically, the 1995 high-risk report noted
             that our fiscal years 1992 and 1993 financial
             statement audits of Customs revealed
             serious weaknesses in key internal controls
             and systems that affected Customs’ ability to
             control, manage, and report the results of its
             seizure efforts, including accountability and
             stewardship over property seized.1 As a

             1
              The Congress established the Department of the Treasury
             Forfeiture Fund in October 1992 to supersede the Customs Fund.
             Customs is responsible for managing property seized by Treasury
             law enforcement agencies.

             Page 67                   GAO/HR-97-2 Quick Reference Guide
Asset Forfeiture Programs




result, as we reported, tons of illegal drugs
and millions of dollars of currency and other
property have been vulnerable to theft and
misappropriation.2 We also reported that the
Marshals Service lacked effective oversight
of real property management contracts and
was not disposing of forfeited property
expeditiously, allowing property to
deteriorate with a resulting loss of revenue.

Since the 1995 report, Customs has initiated
several actions to address these problems,
including continuing to upgrade existing
security at storage facilities and developing a
new seized-property inventory system,
which Customs anticipates will be fully
implemented in fiscal year 1997. This new
system is intended to provide improved
controls and audit trails. While progress has
been made, Treasury and Justice still have
not fully corrected their seized property and
internal control weaknesses. For instance, in
February 1996, the Treasury Office of
Inspector General (OIG) reported that
significant errors in recorded quantities were
identified during Customs’ 1995 fiscal year-
end physical inventory, including (1) seized
property items on hand but not recorded in

2
 Seized property includes illegal drugs which have no resale value
to the federal government. These items are subject to forfeiture and
are typically held by the seizing agency until they are approved for
destruction.

Page 68                    GAO/HR-97-2 Quick Reference Guide
Asset Forfeiture Programs




the tracking system and (2) seized property
items recorded in the tracking system but
not on hand. It also reported instances
where weights of seized narcotics on hand
were less than the recorded weights. In
addition, the Treasury OIG reported that
Customs’ seized property tracking system
lacked an audit trail of changes made to
quantities, values, and status of seizures. The
OIG stated that, as a result, it was possible for
users to make changes to the data to
disguise a loss or theft of seized property,
without a record of who made the change. It
will take time to determine whether the new
seized-property inventory system will
prevent these types of problems.

In June 1996, we reported on internal control
weaknesses over disbursements and
transfers made during the period 1993-1995
from the Seized Assets Deposit Fund at one
of the largest Marshals Service districts, the
Central District of California. Weaknesses
included disbursements and transfers that
were not properly authorized or were
authorized after the transaction occurred,
and a lack of adequate segregation of duties
over the disbursement process. We also
reported on inadequate management of
seized real property, including instances
where property deteriorated because of


Page 69               GAO/HR-97-2 Quick Reference Guide
Asset Forfeiture Programs




inadequate maintenance and mortgages were
paid late. Because of these property
management problems, the government has
incurred unnecessary losses. For example,
the roof of an 18-unit apartment building
seized by the government in 1991 suffered
serious maintenance problems while in the
Marshals Service’s possession, thereby
exposing the government to potential
liabilities to tenants. Three years after the
seizure, the property was turned over to the
lienholder at a loss to the federal
government of approximately $105,000. The
Marshals Service is in the process of taking
action to enhance oversight of seized assets
and to improve time frames for property
disposition.

Legislation enacted in 1988 required Justice
and Customs to develop a plan to
consolidate postseizure administration of
certain properties.3 In June 1991, we
recommended that Justice and Customs
consolidate the postseizure management and
disposition of all noncash seized properties.
Our limited review at that time indicated that
by doing so program administration costs
could be reduced 11 percent annually. In
addition, consolidation would likely result in

3
 The Anti-Drug Abuse Act of 1988, P.L. 100-690, 21 U.S.C. 887
(1988).

Page 70                    GAO/HR-97-2 Quick Reference Guide
Asset Forfeiture Programs




lower contractor costs due to economies of
scale. In our February 1995 high-risk report,
we reported that although a small scale pilot
project for consolidation was in effect from
October 1992 through September 1993,
Justice and Treasury had not made
significant progress towards consolidation of
property management functions. In
November 1994, the Marshals Service
reported the costs and proceeds associated
with the assets in the pilot project. However,
the report did not contain a comparison of
what costs would have been had the assets
not been consolidated. Hence, there was no
way to determine the effectiveness of the
pilot project from the information provided.

The House Appropriations Committee stated
in a July 19, 1995, report that “the
consolidation of asset management and
disposition functions of Justice and Treasury
could address duplication and provide cost
savings to the management and disposal
process.” The report added that the
Committee expected Justice to review the
feasibility of consolidating contracts with
vendors for both the Marshals Service and
Treasury agencies.4 However, no such
review had been initiated as of October 1996.

4
Departments of Commerce, Justice, and State, The Judiciary, and
Related Agencies Appropriations Bill, Fiscal Year 1996, H.R. Rep.
No. 104-196, 104th Cong., 1st Sess. 20 (1995).

Page 71                   GAO/HR-97-2 Quick Reference Guide
Asset Forfeiture Programs




Justice and Treasury officials indicated that
there were no plans for consolidation of
asset management and disposition functions.

According to Justice and Treasury,
legislation that established a separate
Treasury Forfeiture Fund in 19925
complicated the potential for consolidation.
Prior to the creation of the Treasury Fund,
three Treasury agencies participated in
Justice’s asset forfeiture program, while
Customs maintained its own fund. Since the
creation of the Treasury Fund, all Treasury
bureaus have joined Customs in establishing
a separate Treasury property management
and disposal program. Possible duplication
of resources within the two forfeiture funds
and programs is of particular interest in light
of budget constraints. Thus, we continue to
believe that consolidation of asset
management and disposition functions
makes sense and that the existence of the
Treasury Fund does not negate the potential
benefits of consolidation.

In summary, Justice and Treasury have made
many improvements to their asset forfeiture
programs over the years. However,
significant enhancements to internal

5
 Treasury Forfeiture Fund Act of 1992, P. L. No. 102-393, 31 U.S.C.
9703 (1992).

Page 72                    GAO/HR-97-2 Quick Reference Guide
              Asset Forfeiture Programs




              controls and property management are still
              needed in order to effectively reduce the
              vulnerability to theft and misappropriation
              of seized property, including tons of illegal
              drugs and millions of dollars of cash and real
              property. In addition, Justice and Treasury
              should aggressively pursue options for
              efficiency gains through consolidation. We
              will continue to monitor Justice’s and
              Treasury’s progress in addressing these
              issues.


Key Contact   Laurie E. Ekstrand, Associate Director
              Administration of Justice Issues
              General Government Division
              202-512-8777


Related GAO   Pre-seizure Planning (GAO/GGD-97-19R, Nov. 20,
Products      1996).

              Review of SADF Disbursements
              (GAO/AIMD-96-114R, June 26, 1996).

              Asset Forfeiture: Historical Perspective on
              Asset Forfeiture Issues (GAO/T-GGD-96-40,
              Mar. 19, 1996).

              High-Risk Series: Asset Forfeiture Programs
              (GAO/HR-95-7, Feb. 1995).


              Page 73               GAO/HR-97-2 Quick Reference Guide
FAA’s Air Traffic Control Modernization



             Faced with rapidly growing air traffic
             volumes and aging air traffic control
             equipment, the Federal Aviation
             Administration (FAA) in 1981 initiated an
             ambitious air traffic control (ATC)
             modernization program. This effort, which is
             expected to cost $34 billion through fiscal
             year 2003, mostly involves investments in a
             multitude of software-intensive computer
             systems.

             Over the past 15 years, the modernization
             program has experienced cost overruns,
             schedule delays, and performance shortfalls
             of large proportions—particularly in the
             $7.6 billion former centerpiece of the
             modernization known as the Advanced
             Automation System, which FAA restructured
             in 1994. The acquisition of that system failed
             because FAA did not recognize the technical
             complexity of the effort, realistically
             estimate the resources required, adequately
             oversee its contractors’ activities, or
             effectively control system requirements.
             With $11 billion planned to be spent on the
             ATC program from fiscal years 1998 through
             2003, and billions more surely to follow, it is
             critical that FAA overcome the weaknesses
             that threaten the effort.




             Page 74            GAO/HR-97-2 Quick Reference Guide
FAA’s Air Traffic Control
Modernization




FAA has made progress in acquiring an
interim replacement for its outage-plagued
system that processes data into displayable
images on controllers’ screens. Although key
acquisition milestones, events, and risks
remain, FAA is currently on track to deliver
promised capabilities ahead of schedule and
within budget. Further, when we
recommended that two risks associated with
system testing—contention for human test
resources and test baseline configuration
change control—be formally managed, FAA
officials agreed to do so.

In spite of this progress, FAA still faces
formidable challenges. For example, the
many systems comprising the modernization
effort have long proceeded without a
complete systems architecture, or overall
blueprint, to guide development and
evolution. The result has been unnecessarily
high spending to buy, integrate, and maintain
hardware and software. Also exacerbating
the modernization’s problems is unreliable
cost information—both future estimates of
costs and accumulations of actual costs. The
lack of adequate cost estimating processes
and cost accounting practices needed to
measure actual cost performance against
cost estimates leaves FAA at risk of making



Page 75                GAO/HR-97-2 Quick Reference Guide
FAA’s Air Traffic Control
Modernization




ill-informed decisions on critical
multimillion, even billion, dollar ATC systems.

Additionally, FAA still needs to address
problems in its organizational culture, which
does not reflect a strong enough
commitment to mission focus,
accountability, coordination, and
adaptability. Without strong leadership to
promote the desired organizational behavior,
the modernization effort’s problems will be
difficult to overcome.

To further pinpoint the root causes of FAA’s
modernization problems, we have one
review underway to determine whether FAA’s
software acquisition capability is sufficiently
mature to successfully modernize the highly
complex, real-time ATC system.

Additional information on air traffic control
modernization problems and progress can be
found in a separate information management
and technology report issued as part of this
series (GAO/HR-97-9).




Page 76                GAO/HR-97-2 Quick Reference Guide
              FAA’s Air Traffic Control
              Modernization




Key Contact   Dr. Rona B. Stillman
              Chief Scientist for Computers and
              Telecommunications
              Accounting and Information Management
              Division
              202-512-6412


Related GAO   Air Traffic Control: Complete and Enforced
Products      Architecture Needed for FAA Systems
              Modernization (GAO/AIMD-97-30, Feb. 3, 1997).

              Air Traffic Control: Improved Cost
              Information Needed to Make Billion Dollar
              Modernization Investment Decisions
              (GAO/AIMD-97-20, Jan. 22, 1997).

              Air Traffic Control: Good Progress on
              Interim Replacement for Outage-Plagued
              System, But Risks Can Be Further Reduced
              (GAO/AIMD-97-2, Oct. 17, 1996).

              Aviation Acquisition: A Comprehensive
              Strategy Is Needed for Cultural Change at
              FAA (GAO/RCED-96-159, Aug. 22, 1996).


              Air Traffic Control: Status of FAA’s
              Modernization Program (GAO/RCED-95-175FS,
              May 26, 1995).




              Page 77                GAO/HR-97-2 Quick Reference Guide
FAA’s Air Traffic Control
Modernization




Advanced Automation System: Implications
of Problems and Recent Changes
(GAO/T-RCED-94-188, Apr. 13, 1994).




Page 78                GAO/HR-97-2 Quick Reference Guide
Defense’s Corporate Information
Management Initiative


             The Department of Defense’s Corporate
             Information Management (CIM) initiative,
             started in 1989, was expected to save billions
             of dollars by streamlining operations and
             implementing standard information systems
             supporting such important business areas as
             supply distribution, materiel management,
             personnel, finance, and transportation.
             However, 8 years after beginning CIM, and
             after spending about $20 billion, Defense’s
             savings goal has not been met because the
             Department has not yet implemented sound
             management practices.

             We have made numerous recommendations
             for improving the Department’s management
             of CIM, including (1) linking system
             modernization projects more strongly to
             business process improvement efforts,
             (2) establishing plans, performance
             measures, and clearly defined roles and
             responsibilities for implementing CIM,
             (3) improving controls over information
             technology investments, and (4) not
             initiating system improvement projects
             without sound economic and technical
             analyses.

             But Defense has yet to successfully
             implement these recommendations. Instead,
             it continues to spend billions of dollars on


             Page 79           GAO/HR-97-2 Quick Reference Guide
Defense’s Corporate Information
Management Initiative




system migration projects with little sound
analytical justification.1 Specifically, Defense
is making system migration decisions
without (1) appropriately analyzing costs,
benefits, and technical risks, (2) establishing
realistic project schedules, or
(3) considering how process improvements
could affect technology investments.
Further, in some cases, Defense has denied
its own decisionmakers the opportunity to
evaluate the progress of technology
investments over time by forgoing its
established oversight process.

Not surprisingly, Defense’s major technology
investments have yielded low returns in
terms of reducing operational costs.
Nevertheless, the Department estimates that
it will spend more than an additional
$11 billion on system migration projects
between now and the year 2000. As part of
its Clinger-Cohen Act implementation
efforts, the Department is establishing a
framework for better managing this
investment. However, these actions are just
beginning.

We have ongoing and planned work—
including reviews of the Department’s


1
 A migration system is an automated information system which
replaces several systems that perform similar functions.

Page 80                  GAO/HR-97-2 Quick Reference Guide
              Defense’s Corporate Information
              Management Initiative




              systems modernization strategy and
              investment controls—aimed at helping
              Defense managers make better business
              decisions based on an accurate picture of
              the costs of technology investments, their
              related benefits, and an appreciation for how
              they fit into the Department’s long-term and
              short-term goals.

              Additional information on Defense’s
              Corporate Information Management
              initiative problems and progress can be
              found in a separate information management
              and technology report issued as part of this
              series (GAO/HR-97-9).


Key Contact   Jack L. Brock, Jr., Director
              Defense Information and Financial
              Management Systems
              Accounting and Information Management
              Division
              202-512-6240


Related GAO   Defense IRM: Strategy Needed for Logistics
Products      Information Technology Improvement
              Efforts (GAO/AIMD-97-6, Nov. 14, 1996).




              Page 81               GAO/HR-97-2 Quick Reference Guide
Defense’s Corporate Information
Management Initiative




DOD Accounting Systems: Efforts to Improve
Systems for Navy Need Overall Structure
(GAO/AIMD-96-99, Sept. 30, 1996).

Defense IRM: Critical Risks Facing New
Materiel Management Strategy
(GAO/AIMD-96-109, Sept. 6, 1996).

Defense Transportation: Migration Systems
Selected Without Adequate Analysis
(GAO/AIMD-96-81, Aug. 29, 1996).

Defense Management: Selection of Depot
Maintenance Standard System Not Based on
Sufficient Analyses (GAO/AIMD-95-110, July 13,
1995).

Defense Management: Impediments
Jeopardize Logistics Corporate Information
Management (GAO/NSIAD-95-28, Oct. 21, 1994).

Defense Management: Stronger Support
Needed for Corporate Information
Management Initiative to Succeed
(GAO/AIMD/NSIAD-94-101, Apr. 12, 1994).




Page 82               GAO/HR-97-2 Quick Reference Guide
National Weather Service’s
Modernization


             Promising better weather forecasts and
             downsized operations, the National Weather
             Service (NWS) has been acquiring new
             observing systems—such as radars,
             satellites, ground-based sensors, and
             powerful forecaster workstations—at a
             combined cost of about $4.5 billion. NWS has
             found that the new radars and satellites have
             improved forecasts and warnings but
             acknowledges that key problems confront
             the new systems.

             While the development and deployment of
             the observing systems associated with NWS’
             modernization are nearing completion,
             unresolved issues still remain concerning the
             observing systems’ operational effectiveness
             and efficient maintenance, such as
             performance problems with the new radars
             and ground-based sensors. We
             recommended that NWS correct shortfalls in
             radar performance and define and prioritize
             all ground-based sensor corrections needed
             to meet user needs. NWS addressed some of
             our concerns, but others remain.

             We also recently reported that NWS has not
             managed this massive investment through
             sound decisionmaking processes. For
             instance, NWS lacks a means by which to
             ensure that systems provide promised


             Page 83           GAO/HR-97-2 Quick Reference Guide
    National Weather Service’s
    Modernization




    returns on investments. Also, NWS has not
    demonstrated that all proposed capabilities
    will result in mission improvements, thereby
    increasing the risk that spending will be
    wasted on unneeded system capabilities. For
    example, the forecaster workstations that
    will integrate observing systems’ data and
    support forecaster decisionmaking are far
    from providing all promised capabilities.

    In 1996, we made several recommendations
    that, if implemented, will strengthen NWS’
    ability to manage the acquisition of these
    workstations. Specifically, NWS should

•   validate all workstation requirements on the
    basis of mission impact,
•   improve its process to test software,
•   establish a software quality assurance
    program, and
•   obtain an independent cost assessment since
    NWS does not have reliable project cost
    information.

    As we reported in our 1995 high-risk series,
    the modernization and evolution of this
    major systems initiative has long begged for
    a guiding systems architecture. NWS has
    acknowledged that this technical blueprint is
    needed and is currently developing one to
    address our March 1994 recommendation to


    Page 84                GAO/HR-97-2 Quick Reference Guide
              National Weather Service’s
              Modernization




              do so. In the meantime, however, NWS will
              continue to incur higher system
              development and maintenance costs and
              reduced performance.

              Additional information on NWS’
              modernization problems and progress can be
              found in a separate information management
              and technology report issued as part of this
              series (GAO/HR-97-9).


Key Contact   Joel Willemssen, Director
              Information Resources Management
              Accounting and Information Management
              Division
              202-512-6408


Related GAO   Weather Forecasting: Recommendations to
Products      Address New Weather Processing System
              Development Risks (GAO/AIMD-96-74, May 13,
              1996).

              Weather Forecasting: NWS Has Not
              Demonstrated That New Processing System
              Will Improve Mission Effectiveness
              (GAO/AIMD-96-29, Feb. 29, 1996).




              Page 85                GAO/HR-97-2 Quick Reference Guide
National Weather Service’s
Modernization




Weather Forecasting: Radar Availability
Requirements Not Being Met (GAO/AIMD-95-132,
May 31, 1995).

Weather Forecasting: Unmet Needs and
Unknown Costs Warrant Reassessment of
Observing System Plans (GAO/AIMD-95-81,
Apr. 21, 1995).

Weather Forecasting: Improvements Needed
in Laboratory Software Development
Processes (GAO/AIMD-95-24, Dec. 14, 1994).

Weather Forecasting: Systems Architecture
Needed for National Weather Service
Modernization (GAO/AIMD-94-28, Mar. 11, 1994).




Page 86                GAO/HR-97-2 Quick Reference Guide
Information Security



             Attacks on computer systems are an
             increasing threat to our national welfare.
             Many federal operations that rely on
             computer networks are attractive targets for
             individuals or organizations with malicious
             intentions. Such operations include law
             enforcement, import entry processing,
             taxpayer accounts, various financial
             transactions, payroll, defense operational
             plans, electronic benefit payments, and
             electronically submitted Medicare claims.

             System interconnectivity, combined with
             poor security management, is putting billions
             of dollars worth of federal assets at risk of
             loss and vast amounts of sensitive data at
             risk of unauthorized disclosure. In addition,
             the increasing reliance on networked
             systems and electronic records has elevated
             concerns that critical federal operations are
             vulnerable to serious disruption. Although
             such disruption could be precipitated by
             natural disasters or accidents, there is
             evidence that some organizations are
             developing strategies and tools for
             conducting premeditated attacks on
             information systems.

             Despite their sensitivity and criticality,
             federal systems and data are not being
             adequately protected. Since June 1993, we


             Page 87           GAO/HR-97-2 Quick Reference Guide
Information Security




have issued over 30 reports describing
serious information security weaknesses at
major federal agencies. For example, in
September 1996, we reported that during the
previous 2 years, serious information
security control weaknesses had been
reported for 10 of the 15 largest federal
agencies.

Several problems need to be addressed to
help ensure that federal agencies adequately
protect their systems and data. These
include (1) insufficient awareness and
understanding of information security risks
among senior agency officials, (2) poorly
designed and implemented security
programs that do not adequately monitor
controls or proactively address risk, and
(3) a shortage of personnel with the training
and technical expertise needed to manage
security controls in today’s sophisticated
information technology environment.

In light of the increasing importance of
information security, stronger central
leadership from the Office of Management
and Budget (OMB) is needed. As chair of the
Chief Information Officer’s Council, OMB
should encourage council members to
pursue information security as one of their
top priorities and develop a strategic plan for


Page 88                GAO/HR-97-2 Quick Reference Guide
              Information Security




              addressing the root causes of agency
              security problems. Such a plan could include
              (1) developing information on existing and
              emerging information security risks and
              (2) establishing a program for using
              interagency teams to review individual
              agency security programs and training.

              Additional information on information
              security problems and progress can be found
              in a separate information management and
              technology report issued as part of this
              series (GAO/HR-97-9).


Key Contact   Jack L. Brock, Jr., Director
              IRM/Policies and Issues
              Accounting and Information Management
              Division
              202-512-6240


Related GAO   Information Security: Opportunities for
Products      Improved OMB Oversight of Agency Practices
              (GAO/AIMD-96-110, Sept. 24, 1996).

              Information Security: Computer Attacks at
              Department of Defense Pose Increasing
              Risks (GAO/AIMD-96-84, May 22, 1996).




              Page 89                GAO/HR-97-2 Quick Reference Guide
Information Security




Security Weaknesses at IRS’ Cyberfile Data
Center (GAO/AIMD-96-85R, May 9, 1996).

Department of Energy: Procedures Lacking
To Protect Computerized Data
(GAO/AIMD-95-118, June 5, 1995).

Information Superhighway: An Overview of
Technology Challenges (GAO/AIMD-95-23,
Jan. 23, 1995).

HUD Information Resources: Strategic Focus
and Improved Management Controls Needed
(GAO/AIMD-94-34, Apr. 14, 1994).

IRSInformation Systems: Weaknesses
Increase Risk of Fraud and Impair Reliability
of Management Information (GAO/AIMD-93-34,
Sept. 22, 1993).




Page 90                GAO/HR-97-2 Quick Reference Guide
The Year 2000 Problem



            At 12:01 on New Year’s morning of the year
            2000, many computer systems could either
            fail to run or malfunction—thereby
            producing inaccurate results—simply
            because the equipment and software were
            not designed to accommodate the change of
            date to the new millennium. For the past
            several decades, computer systems have
            typically used two digits to represent the
            year. With this abbreviated format, however,
            the year 2000 is indistinguishable from 1900,
            2001 from 1901, and so on. As a result of this
            ambiguity, computer systems that use dates
            for calculations, comparisons, or sorting
            may generate incorrect results when
            working with years after 1999.

            Unless this problem is resolved ahead of
            time, widespread operational and financial
            impacts could affect federal, state, and local
            governments; foreign governments; and
            private sector organizations worldwide.
            Serious problems could potentially occur at
            the federal level, given the agencies’
            dependence on computer systems in areas
            such as tax processing, benefit payments,
            and loan management, to say nothing of
            major operational systems.

            Date-related problems have been
            manifesting themselves for some years, and


            Page 91           GAO/HR-97-2 Quick Reference Guide
The Year 2000 Problem




more problems are beginning to appear as
the new century approaches. Resolving this
issue will involve extensive,
resource-intensive efforts due to the large
scale of many federal systems and the
numerous dependencies and interactions
they often have with the systems of
private-sector organizations and state
agencies.

To complicate matters further, many
government computer systems were
originally designed and developed 20 to 25
years ago, are poorly documented, and use a
wide variety of computer languages—many
of which are old or obsolete. The systems
consist of tens or hundreds of computer
programs, each with thousands, tens of
thousands, or even millions of lines of code
which must be examined for date problems.
With the end of the decade fast approaching,
agencies must immediately assess their Year
2000 risk exposure and plan and budget for
achieving Year 2000 compliance for all of
their mission-critical systems. They will also
need to develop contingency plans for those
systems that they are unable to change in
time.

In 1995, the Office of Management and
Budget formed an interagency working


Page 92                 GAO/HR-97-2 Quick Reference Guide
               The Year 2000 Problem




               group on the Year 2000 issue, which is
               formulating a strategy and timetable for
               dealing with the problem. We will be
               working with the Congress and the executive
               branch to monitor the progress being made
               and identify specific recommendations for
               resolving the Year 2000 problem. We are also
               developing a set of audit templates for use
               by the audit community and agencies to
               identify their risk areas.

               Additional information on the Year 2000
               problem can be found in a separate
               information management and technology
               report issued as part of this series
               (GAO/HR-97-9).


Key Contacts   Joel Willemssen, Director
               Information Resources Management
               Accounting and Information Management
               Division
               202-512-6408

               William S. Franklin, Director
               Information Systems Methods and Support
               Accounting and Information Management
               Division
               202-512-6499




               Page 93                 GAO/HR-97-2 Quick Reference Guide
              The Year 2000 Problem




Related GAO   None
Products




              Page 94                 GAO/HR-97-2 Quick Reference Guide
Medicare



           In fiscal year 1996, federal spending for
           Medicare was $197 billion. Program
           expenditures have been growing at about
           9 percent per year. While growth has
           moderated somewhat during the last 2 years,
           many view even the lower growth rates as
           unsustainable. Moreover, the trust fund that
           pays for hospital and other institutional
           services is projected to be depleted within 5
           years. The Congress and the President have
           been seeking to introduce changes to
           Medicare to help control program costs. At
           the same time, the Congress is concerned
           that significant amounts of these costs are
           lost to fraudulent and wasteful claims.

           Although no one can claim with precision
           how much Medicare loses each year, our
           work suggests that by reducing unnecessary
           or inappropriate payments, the federal
           government could realize large savings and
           help dampen the growth in Medicare costs.
           The hidden nature of improper billing and
           health care crimes precludes a rigorously
           quantified estimate of expenditures
           attributable to fraud and abuse. Estimates
           ranging from 3 to 10 percent have been cited
           for health expenditures nationwide, so
           applying this range to Medicare suggests that
           losses to fraud and abuse in fiscal year 1996



           Page 95           GAO/HR-97-2 Quick Reference Guide
Medicare




could have been from $6 billion to as much
as $20 billion.

The Health Care Financing Administration
(HCFA), which runs the Medicare program,
has begun to acquire a new claims
processing system, the Medicare Transaction
System (MTS), to provide, among other
things, better protection from fraud and
abuse. In the past, we have reported on risks
associated with this project, including a plan
to implement the system in a single stage,
rather than incrementally; difficulty in
defining requirements; inadequate
investment analysis; and significant schedule
problems. HCFA has responded to these
concerns by changing its single-stage
approach to one under which the system will
be implemented incrementally, and is
working to resolve other reported problems.
We plan to monitor these efforts.

In 1992 and again in 1995, GAO reported on
Medicare as one of several government
programs highly vulnerable to waste, fraud,
abuse, and mismanagement.1 Since the first
report in the series, HCFA has made some
regulatory and administrative changes aimed
at curbing fraudulent and unnecessary

1
  High-Risk Series: Medicare Claims (GAO/HR-93-6, Dec. 1992) and
High-Risk Series: Medicare Claims (GAO/HR-95-8, Feb. 1995).

Page 96                   GAO/HR-97-2 Quick Reference Guide
Medicare




payments. However, in recent years, sizable
cuts in the budget for program safeguards,
where most of the funding for the fight
against abusive billing is centered, have
diminished efforts to thwart improper billing
practices.

Most Medicare services are provided
through the fee-for-service sector, where any
qualified provider can bill the program for
each covered service rendered. In recent
years, greater numbers of Medicare
beneficiaries have enrolled in health
maintenance organizations (HMO) to receive
covered services. The most recent figures
show, however, that almost 90 percent of
beneficiaries remain under fee-for-service.
Problems in funding program safeguards and
HCFA’s limited oversight of contractors
continue to contribute to fee-for-service
program losses. While HCFA expects a major
system acquisition project to reduce certain
weaknesses, the project itself has several
risks that may keep HCFA from attaining its
goals. In addition, the managed care program
suffers from excessive payment rates to
HMOs and weak HCFA oversight of the HMOs it
contracts with. These flaws leave
beneficiaries without information essential
to guide their HMO selection and without



Page 97           GAO/HR-97-2 Quick Reference Guide
Medicare




assurance that HMOs are adequately screened
and disciplined for unacceptable care.

Since GAO’s last high-risk report in 1995, the
government has made important strides in
its efforts to protect Medicare from
exploitation. Recent legislation—the Health
Insurance Portability and Accountability Act
of 1996 (P.L. 104-191), popularly known as
the Kassebaum-Kennedy Act—increases
funding for program safeguards, although
per-claim expenditures will remain below
the level of 1989 after adjusting for inflation.
Nevertheless, we expect that the increase, if
properly applied, can significantly improve
antifraud and antiabuse efforts. In addition,
HCFA anticipates that it will gain enhanced
oversight capacity and reduced
administrative costs when the
next-generation claims processing
system—the Medicare Transaction
System—is fully implemented, which HCFA
expects to occur after the year 2000. Further,
the Department of Health and Human
Services Inspector General and other federal
and state agencies have banded together to
fight fraud in five states, in an effort called
Operation Restore Trust. After the first year
of operation, the effort yielded more than
$40 million in recoveries of payments for
claims that were not allowed under Medicare


Page 98            GAO/HR-97-2 Quick Reference Guide
Medicare




rules, as well as convictions for fraud,
impositions of civil monetary penalties, and
the exclusion of providers from the program.

Progress is also being made in addressing
program management issues. For example,
the Health Insurance Portability and
Accountability Act gives additional flexibility
to HCFA to contract with firms specializing in
utilization reviews and makes the penalties
for Medicare fraud more severe. HCFA is also
improving its credentialing process for
Medicare providers and is currently
evaluating commercially available software
for its potential to screen out some types of
inappropriate claims. Additionally, the new
Health Insurance Portability legislation and
several planned consumer information
efforts offer the potential for improved HCFA
oversight of HMOs.

Many of Medicare’s vulnerabilities are
inherent in its size and mission, making the
government’s second largest social program
a perpetually attractive target for
exploitation. That wrongdoers continue to
find ways to dodge safeguards illustrates the
dynamic nature of fraud and abuse and the
need for constant vigilance and increasingly
sophisticated ways to protect against gaming
the system. Judicious changes in Medicare’s


Page 99           GAO/HR-97-2 Quick Reference Guide
              Medicare




              day-to-day operations entailing HCFA’s
              improved oversight and leadership, its
              appropriate application of new antifraud and
              antiabuse funds, and the mitigation of MTS
              acquisition risks are necessary ingredients to
              reduce substantial future losses. Moreover,
              as Medicare’s managed care enrollment
              grows, HCFA must ensure that payments to
              HMOs better reflect the cost of beneficiaries’
              care, that beneficiaries receive sufficient
              information about HMOs to make informed
              choices, and that the agency’s expanded
              authority to enforce HMO compliance with
              federal standards is used. To adequately
              safeguard the Medicare program, HCFA needs
              to meet these important challenges
              promptly.

              Additional information on Medicare claims
              fraud and abuse problems and progress can
              be found in a separate report issued as part
              of this series (GAO/HR-97-10).


Key Contact   William J. Scanlon, Director
              Health Financing and Systems Issues
              Health, Education and Human Services
              Division
              202-512-7114




              Page 100          GAO/HR-97-2 Quick Reference Guide
              Medicare




Related GAO   Medicare: HCFA Should Release Data to Aid
Products      Consumers, Prompt Better HMO Performance
              (GAO/HEHS-97-23, Oct. 22, 1996).

              Medicare: Private Payer Strategies Suggest
              Options to Reduce Rapid Spending Growth
              (GAO/T-HEHS-96-138, Apr. 30, 1996).

              Medicare: Home Health Utilization Expands
              While Program Controls Deteriorate
              (GAO/HEHS-96-16, Mar. 27, 1996).

              Medicare: Millions Can Be Saved by
              Screening Claims for Overused Services
              (GAO/HEHS-96-49, Jan. 30, 1996).

              Fraud and Abuse: Providers Target Medicare
              Patients in Nursing Facilities (GAO/HEHS-96-18,
              Jan. 24, 1996).

              Medicare Transaction System: Strengthened
              Management and Sound Development
              Approach Critical to Success
              (GAO/T-AIMD-96-12, Nov. 16, 1995).

              Medicare Managed Care: Growing
              Enrollment Adds Urgency to Fixing HMO
              Payment Problem (GAO/HEHS-96-21, Nov. 8,
              1995).




              Page 101           GAO/HR-97-2 Quick Reference Guide
Medicare




Medicare: Increased HMO Oversight Could
Improve Quality and Access to Care
(GAO/HEHS-95-155, Aug. 3, 1995).

High-Risk Series: Medicare Claims
(GAO/HR-95-8, Feb. 1995).




Page 102         GAO/HR-97-2 Quick Reference Guide
Supplemental Security Income



            The Social Security Administration (SSA)
            administers the Supplemental Security
            Income (SSI) program, which pays cash
            benefits to the low-income aged, blind, and
            disabled. Since its inception in 1974, the
            number of individuals receiving SSI cash
            benefits has grown significantly. During the
            first 10 months of 1996, about 6.6 million SSI
            beneficiaries received about $22 billion in
            federal benefits and $3 billion in state
            supplemental payments. As the program has
            grown in both size and complexity,
            criticisms have been raised regarding SSA’s
            ability to effectively manage SSI workloads
            and the program’s susceptibility to fraud,
            waste, abuse, and mismanagement. The SSI
            program has been adversely impacted by
            internal control weaknesses, vague and
            complex policies, and insufficient
            management attention.

            Previous GAO reviews of the SSI program have
            highlighted several long-standing problem
            areas: (1) determining initial and continuing
            financial eligibility for beneficiaries,
            (2) determining disability eligibility and
            performing continuing disability reviews,
            and (3) inadequate return-to-work assistance
            for recipients who may be assimilated back
            into the workforce.



            Page 103          GAO/HR-97-2 Quick Reference Guide
Supplemental Security Income




In determining financial eligibility, SSA relies
heavily on program beneficiaries to report
information that affects their benefits levels,
such as incarceration and changes in
resources or income. This reliance on
self-reporting significantly affects the
agency’s ability to control overpayments. For
example, in August 1996, we reported that
about 3,000 current and former prisoners in
13 county and local jail systems had been
erroneously paid $5 million in SSI benefits,
primarily because SSA lacked timely and
complete information. Program
overpayments have grown to nearly
$1 billion per year, which is about 5 percent
of total benefit payments.

Determining whether a claimant’s
impairment qualifies him or her for disability
benefits is also a significant problem in the
SSI program, particularly for
non-English-speaking applicants and
individuals with mental impairments, drug
and alcohol addictions, and other hard to
diagnose conditions. For example,
translators have assisted immigrants unable
to speak English to fraudulently obtain
benefits by coaching them on which medical
symptoms to claim and providing false
information on their medical conditions and
family history. SSA’s ability to ensure


Page 104              GAO/HR-97-2 Quick Reference Guide
Supplemental Security Income




reasonable consistency in administering the
program for children with behavioral and
learning disorders has also been limited by
the subjective nature of certain disability
criteria.

SSA’s lengthy and complex processes for
determining disability often result in
inconsistent and untimely decisions. In
August 1994, we reported that applicants for
SSI benefits wait 94 days on average for an
initial decision, with an additional 373-day
wait for appealed decisions. Moreover, SSA
has a poor record of controlling program
expenditures by reviewing recipients to
ensure they remain eligible for benefits and
referring individuals to vocational and
rehabilitation services so they can return to
the workforce and leave the SSI rolls. These
problems have compromised the integrity of
the disability program and reinforced public
perceptions that SSA pays SSI benefits to too
many people for too long.

To address SSI program problems, SSA has
initiated a major redesign of the disability
claims and appeals process, which will be
implemented over the next several years. In
addition, the Congress recently passed
legislation to tighten eligibility criteria for
children and immigrants, remove drug


Page 105              GAO/HR-97-2 Quick Reference Guide
Supplemental Security Income




addicts and alcoholics from the SSI rolls, and
strengthen existing laws aimed at preventing
SSI payments to individuals in correctional
institutions. The legislation also requires SSA
to conduct more reviews of SSI recipients to
ensure that they remain eligible for benefits.
It is too early to determine how these
changes will affect the SSI program’s
vulnerability to inappropriate expenditures.

The magnitude of the SSI program and its
demonstrated vulnerability to fraud, waste,
abuse, and mismanagement call for decisive
management action to address long-standing
problems. Redesign of the disability claims
process must remain an agency priority, and
SSA must also establish effective program
policy, management accountability, and
internal controls to protect taxpayer dollars
and assure timely and accurate decisions for
SSI claimants. The selection of a new
Commissioner will provide an opportunity
for renewed agency focus on management of
the SSI program and ensuring the future
viability and integrity of the program.




Page 106              GAO/HR-97-2 Quick Reference Guide
              Supplemental Security Income




Key Contact   Jane L. Ross, Director
              Income Security Issues
              Health, Education and Human Services
              Division
              202-512-7215


Related GAO   SSA Disability Redesign: Focus Needed on
Products      Initiatives Most Crucial to Reducing Costs
              and Time (GAO/HEHS-97-20, Dec. 20, 1996).

              Social Security Disability: Improvements
              Needed to Continuing Disability Review
              Process (GAO/HEHS-97-1, Oct. 16, 1996).

              Supplemental Security Income: SSA Efforts
              Fall Short in Correcting Erroneous Payments
              to Prisoners (GAO/HEHS-96-152, Aug. 30, 1996).

              Supplemental Security Income:
              Administrative and Program Savings
              Possible by Directly Accessing State Data
              (GAO/HEHS-96-163, Aug. 29, 1996).

              Supplemental Security Income: Some
              Recipients Transfer Valuable Resources to
              Qualify for Benefits (GAO/HEHS-96-79, Apr. 30,
              1996).




              Page 107              GAO/HR-97-2 Quick Reference Guide
Supplemental Security Income




Pass Program: SSA Work Incentive for
Disabled Beneficiaries Poorly Managed
(GAO/HEHS-96-51, Feb. 28, 1996)

Supplemental Security Income: Disability
Program Vulnerable to Applicant Fraud
When Middlemen Are Used (GAO/HEHS-95-116,
Aug. 31, 1995).

Social Security: New Functional
Assessments for Children Raise Eligibility
Questions (GAO/HEHS-95-66, Mar. 10, 1995).




Page 108              GAO/HR-97-2 Quick Reference Guide
Farm Loan Programs



            The U.S. Department of Agriculture’s (USDA)
            farm loan programs are intended to provide
            temporary financial assistance to farmers
            and ranchers who are unable to obtain
            commercial credit at reasonable rates and
            terms.1 In operating the farm loan programs,
            USDA faces the conflicting tasks of providing
            temporary credit to high-risk borrowers so
            that they can stay in farming until they are
            able to secure commercial credit and of
            ensuring that the taxpayers’ investment is
            protected. We reported on the federal
            government’s exposure to financial loss in
            two earlier reports in GAO’s high-risk series.

            In December 1992, we highlighted the poor
            financial condition of USDA’s farm loan
            portfolio. We pointed out that even after
            forgiving or writing off billions of dollars of
            unpaid debt, much of the portfolio continued
            to be held by delinquent borrowers.
            Furthermore, we reported that USDA had
            become a permanent, rather than a
            temporary, source of credit for many
            borrowers. We identified three factors
            contributing to these problems: (1) field
            office lending officials were not always
            implementing lending and servicing
            standards designed to safeguard federal

            1
             Within USDA, farm loans are administered by the Farm Service
            Agency; prior to the Department’s October 1994 reorganization, the
            loans were administered by the Farmers Home Administration.

            Page 109                  GAO/HR-97-2 Quick Reference Guide
Farm Loan Programs




financial interests, (2) some of the
loan-making, loan-servicing, and property
management policies were fundamentally
weak and increased the government’s
vulnerability to loss, and (3) the Congress
had not provided clear direction on the basic
purposes of the farm loan programs.

In our February 1995 high-risk series, we
noted that some progress had been made in
addressing two causes of the loan programs’
problems. First, USDA had improved
compliance with certain lending and
servicing standards by increasing the
training of its field officials. Second, the
Congress had clarified certain aspects of the
Department’s basic lending mission by
requiring it to focus on assisting beginning
farmers. However, we also reported that no
actions had been taken to strengthen weak
loan and property management policies and
that the Congress needed to further clarify
the agency’s role.

Since our February 1995 report, the
Congress has enacted legislation that, if
implemented properly, should significantly
reduce the financial risks associated with the
farm lending programs. Specifically, Title VI
of the Federal Agriculture Improvement and
Reform (FAIR) Act of 1996 (P.L. 104-127,


Page 110             GAO/HR-97-2 Quick Reference Guide
    Farm Loan Programs




    Apr. 4, 1996) made fundamental changes to
    the programs’ loan-making, loan-servicing,
    and property management policies. The
    changes included

•   prohibiting delinquent borrowers from
    obtaining additional direct farm operating
    loans,
•   generally prohibiting borrowers who cause
    USDA to incur loan losses from obtaining
    additional direct or guaranteed farm loans,
    except annual operating loans,
•   limiting the number of times delinquent
    borrowers can receive debt forgiveness, and
•   requiring certain delinquent borrowers to
    pay a portion of the interest due to USDA as a
    condition for having the terms of their loans
    rewritten.

    In addition to substantially strengthening
    lending and property management policies,
    the FAIR Act provided direction for many
    other aspects of USDA’s basic lending
    mission. For example, it emphasized that
    farm loan assistance is temporary and,
    consistent with that policy, promoted
    borrowers’ graduation from direct loans to
    commercial loans guaranteed by the federal
    government. In addition, the act further
    reinforced the importance that the Congress
    placed on using the lending programs to


    Page 111             GAO/HR-97-2 Quick Reference Guide
              Farm Loan Programs




              assist beginning farmers and ranchers over
              other groups of potential beneficiaries.

              Overall, the extensive reforms mandated by
              the FAIR Act, combined with USDA’s actions to
              improve compliance with program
              standards, should reduce the farm lending
              programs’ vulnerability to loss. However,
              USDA is still in the process of implementing
              the mandated reforms, and their impact on
              the loan portfolio’s financial condition will
              not be known for some time. During fiscal
              year 1997, we plan to monitor USDA’s
              implementation of these reforms and
              reevaluate whether the farm loan programs
              should be removed from the list of high-risk
              areas.


Key Contact   Robert A. Robinson, Director
              Food and Agriculture Issues
              Resources, Community, and Economic
              Development Division
              202-512-5138


Related GAO   Farm Service Agency: Update on the Farm
Products      Loan Portfolio (GAO/RCED-97-35, Jan. 3, 1997).




              Page 112             GAO/HR-97-2 Quick Reference Guide
Farm Loan Programs




Emergency Disaster Farm Loans:
Government’s Financial Risk Could Be
Reduced (GAO/RCED-96-80, Mar. 29, 1996).

Consolidated Farm Service Agency: Update
on the Farm Loan Portfolio
(GAO/RCED-95-223FS, July 14, 1995).

High-Risk Series: Farm Loan Programs
(GAO/HR-95-9, Feb. 1995).

Farmers Home Administration: The
Guaranteed Farm Loan Program Could Be
Managed More Effectively (GAO/RCED-95-9,
Nov. 16, 1994).

Debt Settlements: FmHA Can Do More to
Collect on Loans and Avoid Losses
(GAO/RCED-95-11, Oct. 18, 1994).

Farmers Home Administration: Billions of
Dollars in Farm Loans Are at Risk
(GAO/RCED-92-86, Apr. 3, 1992).




Page 113             GAO/HR-97-2 Quick Reference Guide
Student Financial Aid



             Although the Department of Education has
             shown a commitment to improving its
             oversight and management of the student aid
             programs, we believe the financial risk to
             U.S. taxpayers remains substantial. The
             procedural and structural program elements
             that are the root causes of the problems
             remain. Some of these arose from the
             statutory design of the programs and will
             remain unless changed through
             congressional action. Although the
             Department can mitigate some of these
             problems through more effective oversight
             and management, many of its initiatives,
             discussed in our 1995 report, have not been
             fully implemented. Progress toward their full
             implementation has been mixed.

             The student aid programs employ complex
             and cumbersome processes with many
             participants. The major ones—the Federal
             Family Education Loan Program (FFELP),
             Ford Direct Loan Program (FDLP), and Pell
             grants—have their own procedures and set
             of participants. Overseeing these processes
             clearly presents a management challenge to
             the Department. Moreover, the introduction
             of FDLP (which accounted for about
             33 percent of loans in 1995-96) has added a
             new dimension of complexity. Although the
             administration planned for FDLP to replace


             Page 114          GAO/HR-97-2 Quick Reference Guide
Student Financial Aid




FFELP,the Congress has allowed both
programs to operate concurrently for the
time being.

The programs’ structural flaws remain. To
maximize access to aid funds, the Higher
Education Act placed nearly all the financial
risk of loan defaults on the federal
government. Since 1980, as the number of
borrowers increased, so have the number of
defaults. In addition, the number of students
coming from lower income families and
attending proprietary trade and other
nontraditional schools has increased,
increasing the risk of programwide defaults.
How FDLP may impact these known problems
is unclear. Loan repayment and default
histories are just beginning to be developed
as the first FDLP borrowers complete their
education and begin repaying their loans.

Management shortcomings are another
major problem. Actions in four areas in
particular are critical for minimizing waste,
fraud, abuse, and mismanagement and
require continuing attention and
improvement by the Department:
(1) gatekeeping, (2) program administration,
(3) information resources management, and
(4) financial management. In some areas,
such as gatekeeping, the Department has


Page 115                GAO/HR-97-2 Quick Reference Guide
    Student Financial Aid




    improved some of its practices. In others,
    many past problems remain. For example,
    Department initiatives to improve
    information resources management have not
    fully succeeded in improving data quality
    and systems integration. This situation also
    affects the programs’ internal controls, as
    follows:

•   Poor quality and unreliable FFELP student
    loan data remain in the Department’s
    systems. As a result, the Department cannot
    obtain complete, accurate, and reliable FFELP
    data necessary to report on its financial
    position.
•   Inaccurate loan data are being loaded in the
    National Student Loan Data System, the
    Department’s principal student aid database
    intended to help resolve data quality
    problems.

    On the other hand, the Department has
    generally been responsive to addressing
    problems in its student aid programs, and
    many of those actions appear to be achieving
    some results. For example, FFELP default
    claim payments declined slightly from
    $2.7 billion in fiscal year 1992 to $2.5 billion
    in fiscal year 1995.




    Page 116                GAO/HR-97-2 Quick Reference Guide
              Student Financial Aid




              The Department has also begun planning a
              major reengineering effort that it expects
              will resolve these problems in the next
              several years. This effort, which is known as
              Easy Access for Students and Institutions, or
              Project EASI, is envisioned as a
              student-based, integrated data system
              through which all management and control
              functions will be conducted.

              Additional information on student financial
              aid problems and progress can be found in a
              separate report issued as part of this series
              (GAO/HR-97-11).


Key Contact   Carlotta C. Joyner, Director
              Education and Employment Issues
              Health, Education and Human Services
              Division
              202-512-7014


Related GAO   Department of Education: Status of Actions
Products      to Improve the Management of Student
              Financial Aid (GAO/HEHS-96-143, July 12, 1996).

              Higher Education: Ensuring Quality
              Education From Proprietary Institutions
              (GAO/T-HEHS-96-158, June 6, 1996).



              Page 117                GAO/HR-97-2 Quick Reference Guide
Student Financial Aid




Financial Audit: Federal Family Education
Loan Program’s Financial Statements for
Fiscal Years 1994 and 1993 (GAO/AIMD-96-22,
Feb. 26, 1996).

Student Financial Aid: Data Not Fully
Utilized to Identify Inappropriately Awarded
Loans and Grants (GAO/HEHS-95-89, July 11,
1995).

High-Risk Series: Student Financial Aid
(GAO/HR-95-10, Feb. 1995).

Student Loans: Millions Loaned
Inappropriately to U.S. Nationals at Foreign
Medical Schools (GAO/HEHS-94-28, Jan. 21,
1994).




Page 118                GAO/HR-97-2 Quick Reference Guide
Department of Housing and Urban
Development


            The diversity of the Department of Housing
            and Urban Development’s (HUD) missions
            has resulted in a Department that is
            intricately woven into the nation’s financial
            and social framework and that interacts with
            a number of diverse constituencies, such as
            public housing authorities, private property
            owners, and nonprofit groups. HUD also
            spends a significant amount of tax dollars in
            carrying out its missions. The discretionary
            budget outlays for HUD’s programs were
            estimated at close to $31.8 billion in fiscal
            year 1995, over three-fourths of which was
            for public and assisted housing programs.
            HUD is also one of the nation’s largest
            financial institutions, with significant
            commitments, obligations, and exposure. It
            is responsible for managing more than
            $400 billion worth of insured mortgages,
            $485 billion in outstanding mortgage-backed
            securities, and about $180 billion in prior
            years’ budget authority for which it has
            future financial commitments.

            Our February 1995 high-risk report
            discussed four long-standing
            Departmentwide management
            deficiencies—weak internal controls,
            inadequate information and financial
            management systems, ineffective
            organizational structure, and insufficient mix


            Page 119          GAO/HR-97-2 Quick Reference Guide
Department of Housing and Urban
Development




of staff with proper skills—that first led us to
designate HUD as a high-risk area in
January 1994. While HUD has subsequently
formulated approaches and initiated actions
to address these deficiencies, its efforts are
far from reaching fruition, and HUD’s
programs continue to pose a high risk to the
government in terms of their vulnerability to
waste, fraud, abuse, and mismanagement.

In the area of internal controls, HUD has
made limited progress, but major problems
persist. Over the past 2 years, auditors have
been unable to render opinions on HUD’s
financial statements because of weaknesses
involving internal controls and financial
systems. HUD’s remaining internal control
weaknesses are significant and long-standing
and, despite its importance as a management
control tool, monitoring of program
participants continues to be a problem area
for HUD. Despite HUD’s efforts to improve
information and financial management
systems, some of the improvement projects
that involve HUD’s major financial and
information systems will not be completed
before the year 2000. Furthermore, many of
HUD’s systems do not comply with the
Federal Managers’ Financial Integrity Act
and therefore cannot be relied upon to



Page 120              GAO/HR-97-2 Quick Reference Guide
Department of Housing and Urban
Development




provide timely, accurate, and reliable
information and reports to management.

HUD has taken significant steps to improve its
organizational structure by eliminating its
regional office structure, consolidating many
program operations and functions into
service centers, and better balancing service
delivery needs. However, HUD has not yet
evaluated the effects of its actions. HUD plans
additional efforts to reorganize and to
reduce its total staff by 29 percent (from
about 10,500 to 7,500) by the year 2000. HUD
has made progress in addressing problems
with staff members’ skills and with resource
management. In spite of the progress, the
Department needs to increase the number of
staff receiving training, perform a needs
assessment process to plan future training,
and develop sufficient training in certain
areas, such as technical and interpersonal
skills.

HUD deserves credit for its continued
emphasis on, and progress toward,
addressing its long-standing management
deficiencies. However, HUD’s programs will
remain at high risk to fraud, waste, abuse,
and mismanagement until the agency
completes more of its planned corrective
actions and until the administration and the


Page 121              GAO/HR-97-2 Quick Reference Guide
              Department of Housing and Urban
              Development




              Congress agree on and implement a
              restructuring strategy that focuses HUD’s
              mission and consolidates, reengineers, or
              reduces HUD’s programs so as to bring the
              Department’s management responsibilities
              in line with its management capacity. In
              reaching agreement, the parties will need to
              consider the inherent trade-offs involved in
              fulfilling the needs of those seeking HUD’s
              assistance with other demands on the total
              federal budget.

              Additional information on HUD problems and
              progress can be found in a separate report
              issued as part of this series (GAO/HR-97-12).


Key Contact   Judy A. England-Joseph, Director
              Housing and Community Development Issues
              Resources, Community, and Economic
              Development Division
              202-512-7631


Related GAO   Multifamily Housing: Effects of HUD’s
Products      Portfolio Reengineering Proposal
              (GAO/RCED-97-7, Nov. 1, 1996).

              Housing and Urban Development: Limited
              Progress Made on HUD Reforms
              (GAO/T-RCED-96-112, Mar. 27, 1996).


              Page 122              GAO/HR-97-2 Quick Reference Guide
Department of Housing and Urban
Development




FHA Hospital Mortgage Insurance Program:
Health Care Trends and Portfolio
Concentration Could Affect Program
Stability (GAO/HEHS-96-29, Feb. 27, 1996).

Homeownership: Mixed Results and High
Costs Raise Concerns About HUD’s Mortgage
Assignment Program (GAO/RCED-96-2, Oct. 18,
1995).

Housing and Urban Development: Public and
Assisted Housing Reform (GAO/T-RCED-96-25,
Oct. 13, 1995).

HUD Management: Greater Oversight Needed
of FHA’s Nursing Home Insurance Program
(GAO/RCED-95-214, Aug. 25, 1995).

High-Risk Series: Department of Housing
and Urban Development (GAO/HR-95-11,
Feb. 1995).

HUD Information Resources: Strategic Focus
and Improved Management Controls Needed
(GAO/AIMD-94-34, Apr. 14, 1994).




Page 123              GAO/HR-97-2 Quick Reference Guide
Department of Energy Contract
Management


            The Department of Energy (DOE)—the
            largest civilian contracting agency in the
            federal government—contracted out about
            91 percent of its $19.2 billion in fiscal year
            1995 obligations. Contractors who manage
            and operate DOE-owned facilities generally
            fulfill such DOE missions as maintaining the
            nation’s weapons complex and cleaning up
            environmental contamination from past
            weapons production.

            We designated DOE contracting in 1990 as a
            high-risk area vulnerable to waste, fraud,
            abuse, and mismanagement because DOE’s
            missions rely heavily on contractors and DOE
            has a history of weak contractor oversight.
            Special contracting arrangements initiated
            for the Manhattan Project’s development of
            the atomic bomb during World War II
            continued decades later. DOE continued to
            enter into contracts in which competition
            was the exception, reimbursement of
            virtually any contractor cost was the
            practice, and lax contractor oversight was
            the norm.

            We issued a series of reports and testimonies
            documenting DOE’s contracting practices and
            problems and identifying some of the costly
            effects. These products have contributed to
            the Congress’ budget deliberations and


            Page 124           GAO/HR-97-2 Quick Reference Guide
Department of Energy Contract
Management




provided an impetus for DOE to reform its
contracting.

However, changing the way DOE does
business has not come easily or quickly. DOE
has taken various actions in the past to
improve its contracting, and a recent
contract reform effort that has received high
priority and visibility appears promising.
DOE’s Contract Reform Team, in a
February 1994 report, recommended nearly
50 actions to fundamentally change DOE’s
contracting practices.

In response, DOE has made progress in
developing an array of policies and
procedures to support the
recommendations. For example, it
(1) published a regulation adopting a
standard of full and open competition in the
award of its management and operating
contracts, (2) included in its contracts
incentives to improve performance and
control costs, and (3) initiated a new
approach to shift to the contractor much of
the risk and responsibility for some
environmental cleanup work.

The proposed reforms are unprecedented in
scope within DOE and provide the framework
for improved contracting. However, the test


Page 125              GAO/HR-97-2 Quick Reference Guide
              Department of Energy Contract
              Management




              of success will occur as DOE implements,
              monitors, and adjusts to this totally new way
              of doing business. Our recent review of DOE’s
              reforms revealed problems in early
              implementation. For example, most of DOE’s
              contract decisions continue to be
              noncompetitive and contract goals are not
              always linked to those of DOE.

              Given the magnitude of these reforms,
              implementation problems are to be
              expected. However, they must be identified
              and corrected for contract reform to
              succeed. Therefore, DOE’s continuance of
              high-level monitoring and oversight will be
              needed to further identify problems,
              standardize the best practices, and make
              needed corrections as DOE makes its way
              through these changes.

              Additional information on DOE’s contracting
              problems and progress can be found in a
              separate report issued as part of this series
              (GAO/HR-97-13).


Key Contact   Victor S. Rezendes, Director
              Energy, Resources, and Science Issues
              Resources, Community, and Economic
              Development Division
              202-512-3841


              Page 126              GAO/HR-97-2 Quick Reference Guide
              Department of Energy Contract
              Management




Related GAO   Department of Energy: Contract Reform Is
Products      Progressing, But Full Implementation Will
              Take Years (GAO/RCED-97-18, Dec. 10, 1996).

              Hanford Waste Privatization
              (GAO/RCED-96-213R, Aug. 2, 1996).

              High-Risk Series: Quick Reference Guide
              (GAO/HR-95-2, Feb. 1995).




              Page 127              GAO/HR-97-2 Quick Reference Guide
NASA Contract Management



           The National Aeronautics and Space
           Administration (NASA) spends about 90
           percent of its budget on contracts with
           businesses and other organizations. NASA’s
           procurement budget is one of the largest of
           all federal civilian agencies, totalling about
           $13 billion annually in recent years. NASA first
           identified its contract management as
           vulnerable to waste and mismanagement in
           the late 1980s. Since then, it has grappled
           with a variety of contract management
           problems caused by (1) planning
           procurements based on unrealistic funding
           expectations, (2) the lack of adequate
           systems and information with which to
           monitor contractors’ cost, schedule, and
           performance activities, and (3) field centers’
           failure to fully comply with contract
           management requirements.

           In the early 1990s, we reported that NASA’s
           5-year program plan was about $20 billion
           higher than its likely budgets. To adjust
           programs to budgets, NASA’s projects and
           programs often must be slowed down, thus
           extending their schedules and increasing
           total contract costs. By the end of 1994, NASA
           had eliminated almost all of the $20 billion
           gap between its program plan and likely
           budgets that had existed just 2 years earlier,
           in large part by terminating, slowing the


           Page 128           GAO/HR-97-2 Quick Reference Guide
    NASA Contract Management




    pace, or reducing the capability of ongoing
    projects. However, in early 1995, the
    executive branch directed NASA to cut its
    future years’ budgets by another $5 billion.
    This gap is much smaller than the previous
    one, and NASA management hopes to absorb
    as much of it as possible by reducing the
    agency’s infrastructure, including facilities,
    personnel, and support contractors. Based
    on our observations of NASA’s current
    reduction efforts, however, we have
    reported that NASA may not be able to close
    this latest “budget gap” solely through
    infrastructure reductions. Thus, there is still
    some potential for a continuation of
    programmatic cutbacks and slowdowns that
    extend schedules and increase contract
    costs.

    NASA has made considerable progress in
    developing ways to better influence
    contractors’ performance and to improve
    oversight of field centers’ procurement
    activities. For example, NASA

•   established a process for collecting cost,
    schedule, and technical information for all
    major NASA contracts to assist management
    in agencywide tracking of contractor
    performance;



    Page 129            GAO/HR-97-2 Quick Reference Guide
    NASA Contract Management




•   restructured its policy on award fees to
    emphasize contract cost control and the
    performance of contractors’ end products;
•   issued guidance on providing property to
    contractors to comply with the Federal
    Acquisition Regulation, which severely
    restricts the amount of general purpose
    equipment that agencies should provide; and
•   improved the management of contract audit
    services, including expanding the use of
    such services in managing and reporting on
    contract property.

    NASA headquarters has developed and
    implemented a broad range of metrics and
    reports to help it oversee the field centers’
    procurement activities and to measure the
    effectiveness of its contract management
    improvement efforts. The metrics show
    progress and improvement in a number of
    targeted areas. For example, NASA lowered
    the value of contract changes for which
    prices had not yet been negotiated from a
    peak of $6.6 billion in December 1991 to less
    than $500 million in September 1996. Also,
    the number of unresolved audits by the
    Defense Contract Audit Agency was reduced
    to 13 in June 1996 from 92 in 1994. Moreover,
    as of April 1, 1995, all contracting officers’
    technical representatives had received or
    were scheduled to receive mandatory


    Page 130            GAO/HR-97-2 Quick Reference Guide
NASA Contract Management




training on their duties, responsibilities, and
authority. Finally, more than 600 NASA
personnel received procurement-related
training from fiscal year 1993 through
March 1996.

Despite NASA’s progress, our most recent
work identified barriers to relying solely on
infrastructure reductions to close the budget
gap, additional problems in contract
management, and opportunities for
improvement in procurement oversight.
Barriers to implementing infrastructure
cost-reduction opportunities include
parochial concerns that hinder NASA’s efforts
to close facilities, relocate activities, and
consolidate operations. In some cases, NASA
heightened these concerns by performing
questionable cost-reduction studies and
substantially overstating the cost-reduction
potential of certain actions.

In July 1996, we reported on problems in
controlling costs in the International Space
Station Program, which accounts for over
10 percent of NASA’s annual procurement
funding. Although NASA’s prime development
contractor and its major subcontractors had
implemented performance measurement
systems to monitor cost and schedule status,
procedural errors and other problems in


Page 131            GAO/HR-97-2 Quick Reference Guide
NASA Contract Management




implementing the systems affected the
accuracy of reported information.

In recent years, NASA field centers have
assumed increasing responsibility for
overseeing their own procurement activities.
Earlier in 1996, we indicated that NASA could
improve the self-assessment process its field
centers use to periodically evaluate their
procurement functions. We specifically
noted that the quality, consistency, and
usefulness of such assessments could be
improved if centers had additional guidance
and information in a variety of areas,
including self-assessment documentation
and follow-up on the correction of problems.
NASA officials noted that they would consider
our observations on improving
self-assessments as they continue to refine
the process.

The effectiveness of the self-assessment
process is critical in light of recent and
planned personnel reductions. NASA faces the
formidable challenge of operating and
overseeing procurement activities under
heavy personnel reduction pressures. While
NASA headquarters and field center
procurement officials believe that recent
efforts to improve and streamline the
procurement process will help them cope


Page 132            GAO/HR-97-2 Quick Reference Guide
NASA Contract Management




with staff reductions, they are concerned
about the long-term implications of planned
and potential cutbacks. For example,
headquarters officials are concerned that
they may not have adequate personnel to
effectively manage contracting and
subcontracting activities. We have not
assessed the potential implications of
reduced procurement staffing.

Periodic problems will inevitably occur in a
procurement activity the size of NASA’s. The
agency’s objective must be to identify these
problems early so they can be evaluated,
monitored, and corrected before they
become systemic. NASA has demonstrated
that it can take timely action once a potential
problem has surfaced. We are encouraged by
the agency’s efforts to evaluate identified
problems and to develop, implement, and
monitor needed improvements. However,
our initial look at NASA’s approach to
periodically assessing its management of
procurement functions indicated that the
process could benefit from additional
agencywide guidance to help ensure
consistent and thorough coverage of the
procurement cycle. We are continuing our
review of NASA’s ability to adequately assess
its procurement activities, and we will report
on the results of our work later this year. We


Page 133            GAO/HR-97-2 Quick Reference Guide
              NASA Contract Management




              are also continuing our oversight of NASA’s
              actions to improve cost reporting on the
              International Space Station Program and
              NASA’s continuing efforts to downsize its
              infrastructure, especially its facilities.


Key Contact   Thomas J. Schulz, Associate Director
              Defense Acquisitions Issues
              National Security and International Affairs
              Division
              202-512-4841


Related GAO   NASA Infrastructure: Challenges to Achieving
Products      Reductions and Efficiencies (GAO/NSIAD-96-187,
              Sept. 9, 1996, and GAO/T-NSIAD-96-238, Sept. 11,
              1996).

              Space Station: Cost Control Difficulties
              Continue (GAO/NSIAD-96-135, July 17, 1996, and
              GAO/T-NSIAD-96-210, July 24, 1996).


              NASA Contract Management (GAO/NSIAD-96-95R,
              Feb. 16, 1996).

              NASA Budgets: Gap Between Funding
              Requirements and Projected Budgets Has
              Been Reopened (GAO/NSIAD-95-155BR, May 12,
              1995).



              Page 134            GAO/HR-97-2 Quick Reference Guide
NASA Contract Management




High-Risk Series: Quick Reference Guide
(GAO/HR-95-2, Feb. 1995).

NASA Procurement: Contract and
Management Improvements at the Jet
Propulsion Laboratory (GAO/NSIAD-95-40,
Dec. 30, 1994).




Page 135            GAO/HR-97-2 Quick Reference Guide
Superfund Program Management



           The Environmental Protection Agency’s
           (EPA) Superfund program began in 1980 as a
           relatively short-term project to clean up
           abandoned hazardous waste sites. At that
           time, the country’s hazardous waste
           problems were thought to be limited. Since
           then, thousands of waste sites have been
           discovered. Furthermore, cleaning up these
           sites—many of which are owned by the
           federal government—has proved to be far
           more complicated and costly than
           anticipated. Recent estimates show that
           cleaning up these sites could amount to over
           $300 billion in federal costs and many
           billions more in private expenditures.

           Under the Superfund law, EPA can compel
           the private parties responsible for
           abandoned or inactive hazardous waste sites
           to clean them up, or it can conduct the
           cleanup and demand reimbursement of its
           costs from the responsible parties.
           Currently, EPA has negotiated with private
           parties to do over 70 percent of the cleanups.
           To pay for EPA’s cleanups, the agency draws
           on a legislatively established trust fund that
           is primarily financed by a tax on crude oil
           and certain chemicals and by an




           Page 136          GAO/HR-97-2 Quick Reference Guide
Superfund Program Management




environmental tax on corporations.1 Federal
agencies generally use their annual
appropriations to finance cleanups of the
facilities under their jurisdiction.

However, as we previously reported, certain
management problems have put this
investment at risk.2 First, EPA and other
federal agencies have not consistently
allocated their cleanup resources to reduce
the most significant threats to human health
and the environment. Second, although EPA
is responsible for pursuing reimbursement
when it funds a cleanup, the agency has
recovered from responsible parties only a
fraction of the moneys that it has spent.
Finally, while about half of the Superfund
program’s budget annually goes to
contractors, EPA has had long-standing
problems with controlling the contractors’
costs.

Since our 1995 report, EPA and other federal
agencies have taken steps toward addressing
these areas. For instance, EPA has begun

1
 In December 1995, the authority to collect these taxes expired and
taxes are no longer being collected. However, as of
September 1995, the trust fund had an unappropriated balance of
$2.9 billion. As a result, it could still be used to finance the
Superfund program.
2
 High-Risk Series: Superfund Program Management
(GAO/HR-93-10, Dec. 1992) and High-Risk Series: Superfund
Program Management (GAO/HR-95-12, Feb. 1995).

Page 137                   GAO/HR-97-2 Quick Reference Guide
Superfund Program Management




using a risk-based process to set priorities
and allocate some of its fiscal year 1996
cleanup funds. Other federal agencies have
made uneven progress in (1) taking the first
step toward setting priorities—that is,
developing a complete inventory of the
waste sites that need cleanup—and
(2) implementing systems to rank sites for
cleanup according to risk.

Second, EPA has made some improvements
in its cost recovery program, although it still
recovers only a small percentage of its costs
when it does the cleanup work. While some
costs are not expected to be recovered, EPA’s
historically low recovery rate in part results
from the agency’s slow pace in revising its
policy that limits the recovery of indirect
program costs. EPA estimates that the value
of these excluded costs has grown to
$3.8 billion through fiscal year 1995—up
from a value of $1.1 billion 3 years earlier.

Finally, while EPA has focused attention on
strengthening its management of Superfund
contracts, past problems still persist:
(1) EPA’s regions are still too dependent upon
the contractors’ own cost proposals to
establish the price of cost-reimbursable
work, (2) EPA continues to pay its cleanup
contractors a high percentage of total


Page 138            GAO/HR-97-2 Quick Reference Guide
Superfund Program Management




contract costs to cover administrative
expenses rather than ensuring that the
maximum amount of available moneys is
going toward the actual cleanup work, and
(3) little progress has been made in
improving the timeliness of audits to verify
the accuracy of billions of dollars in
Superfund contract charges.

Thus, despite improvements, further actions
are needed to safeguard the investment of
hundreds of billions of dollars. EPA and other
federal agencies need to expand their use of
risk as a criterion to set cleanup priorities.
Further, to help recover more of its program
costs, EPA needs to move expeditiously to
increase the amount of indirect program
costs that are recoverable. EPA estimates
show that planned changes could increase
recoveries by as much as $500 million (of the
$3.8 billion in excluded indirect costs).
Finally, although EPA has been addressing
the weaknesses in contract management, the
agency needs to take such steps as better
estimating the costs of contractors’ work.

Additional information on Superfund
problems and progress can be found in a
separate report issued as part of this series
(GAO/HR-97-14).



Page 139            GAO/HR-97-2 Quick Reference Guide
              Superfund Program Management




Key Contact   Peter F. Guerrero, Director
              Environmental Protection Issues
              Resources, Community, and Economic
              Development Division
              202-512-6111


Related GAO   Federal Facilities: Consistent Relative Risk
Products      Evaluations Needed for Prioritizing Cleanups
              (GAO/RCED-96-150, June 7, 1996).

              Environmental Protection: Selected Issues
              Related to EPA’s Fiscal Year 1997
              Appropriations (GAO/T-RCED-96-164, Apr. 17,
              1996).

              Superfund: System Enhancements Could
              Improve the Efficiency of Cost Recovery
              (GAO/AIMD-95-177, Aug. 25, 1995).

              Federal Hazardous Waste Sites:
              Opportunities for More Cost-Effective
              Cleanups (GAO/T-RCED-95-188, May 18, 1995).

              Superfund: The Role of Risk in Setting
              Priorities (GAO/T-RCED-95-161, Apr. 5, 1995).

              High-Risk Series: Superfund Program
              Management (GAO/HR-95-12, Feb. 1995).




              Page 140            GAO/HR-97-2 Quick Reference Guide
2000 Decennial Census



            The decennial census, the nation’s most
            comprehensive statistical data-gathering
            program, is required by the Constitution. The
            results are critical for apportioning seats in
            the House of Representatives and are also
            used to (1) draw district boundaries within
            states, cities, and counties, (2) allocate
            billions of dollars in federal funding for
            numerous programs, (3) provide a baseline
            for comparative data collection and analysis
            for the ensuing decade, and (4) guide the
            plans and decisions of government, business,
            education, and health institutions in the
            multibillion dollar investments they make.
            Agreement is needed between the
            administration and the Congress on an
            approach that will both minimize risk of an
            unsatisfactory census and keep the cost of
            doing it within reasonable bounds.

            Since 1970, the Census Bureau has used
            essentially the same methodology in
            conducting the decennial census. It
            developed an address list of the nation’s
            housing units, mailed census forms to those
            households, and asked the residents to mail
            back the completed forms. Temporary
            census-takers, known as enumerators, were
            then hired by the hundreds of thousands to
            gather the required information from each
            nonresponding household.


            Page 141          GAO/HR-97-2 Quick Reference Guide
2000 Decennial Census




Because the most accurate and cost-effective
data have been provided voluntarily on
mailed back census forms, the key to the
success of the decennial census is public
cooperation. Over the years, however, the
public has become less and less willing to
respond. The proliferation of surveys and
solicitations in the mail, privacy concerns,
changes in household makeup and stability,
and suspicions about the uses to which
government information is put have all
played a hand in eroding voluntary
cooperation. In addition, changes in the
labor market have reduced the number of
people available for temporary enumerator
positions.

By 1990, these problems had mounted to the
point where the most expensive census in
history produced results that were less
accurate than those of the preceding census.
In part because enumerators had to visit
about 35 percent of all housing units in the
United States, costs rose 25 percent on a
per-household, constant-dollar basis to $25.
In large cities, more than 10 percent of the
population was counted, after up to six
failed visits, through minimal information
provided by nonhousehold members and
thus highly prone to error.



Page 142                GAO/HR-97-2 Quick Reference Guide
2000 Decennial Census




Even more important, we estimated that
9.7 million persons, or 3.9 percent of the
population, were not counted at all in 1990,
although this was partially offset in the net
count by millions of persons who were
improperly included. Furthermore, the net
undercount was not equally distributed.
According to the 1990 Post-Enumeration
Survey, 4.99 percent of Hispanics were
missed, and 4.57 percent of
African-Americans, but only 0.68 percent of
non-Hispanic whites.

On several occasions since 1992, we testified
on the need for careful advance planning to
avoid the risk of a very expensive and
seriously flawed census in 2000. In 1992, the
Bureau of the Census estimated that,
without design changes, $4.8 billion in 1990
dollars would be needed to carry out the
design that cost $2.6 billion in 1990. The
Bureau responded by deciding to make
changes to the census design with cost
savings implications approaching or
exceeding $1 billion. Several of these
changes, such as streamlining the census
questionnaires, a more aggressive outreach
and promotion program, and greater use of
the Postal Service to identify households, are
aimed at stopping the downward trend in the
response rate, but it is unclear whether these


Page 143                GAO/HR-97-2 Quick Reference Guide
2000 Decennial Census




efforts will promote public cooperation at
the level needed for a successful census. In
anticipation of the need to deal with an even
larger nonresponse workload than in 1990,
the Bureau has designed statistical sampling
and estimation procedures that should be
more accurate and cost-effective than
visiting every nonresponding household.

The Constitution and court decisions clearly
give the Congress authority to determine the
manner in which the census will be taken.
However, the Census Bureau has so far
failed to demonstrate convincingly to the
Congress exactly what effects sampling and
estimation would have at different levels of
geographical detail. As a result, the Congress
could choose to preclude the Bureau from
moving forward with its sampling plan.

At this time, despite congressional concerns
over its proposed approach, the
administration has done little to plan for the
possibility that greater amounts of funding
than now anticipated may be necessary to
cover added personnel, facilities, and
equipment costs if sampling and estimation
are not used. Firm plans, careful tests, and
detailed preparations need to be decided on
very soon. The 2000 Census “dress
rehearsal” is only about a year away. The


Page 144                GAO/HR-97-2 Quick Reference Guide
              2000 Decennial Census




              Bureau’s 1997 funding request for census
              planning has been reduced 20 percent. With
              limited funds and a fast-approaching
              deadline, the available resources need to be
              focused on testing the census that will
              actually be carried out.

              There is a high risk to the nation of an
              unsatisfactory census in 2000, and planning
              the census must have a higher priority than
              has been evident so far. The longer the delay
              in securing agreement over design and
              funding, the more difficult it will be to
              execute an effective census, and the more
              likely it will be that we will have spent
              billions of dollars and still have
              demonstrably inaccurate results. Given the
              dependence of many decisions affecting
              governments, businesses, and citizens on the
              results of the census, the country can ill
              afford an unsatisfactory census at the turn of
              the century, especially if it comes at a
              substantially higher cost than previous
              censuses.


Key Contact   Bernard L. Ungar, Associate Director
              Federal Management and Workforce Issues
              General Government Division
              202-512-4232



              Page 145                GAO/HR-97-2 Quick Reference Guide
              2000 Decennial Census




Related GAO   Addressing the Deficit: Updating the
Products      Budgetary Implications of Selected GAO
              Work (GAO/AIMD-96-5, June 28, 1996).

              Decennial Census: Fundamental Design
              Decisions Merit Congressional Attention
              (GAO/T-GGD-96-37, Oct. 25, 1995).

              Decennial Census: 1995 Test Census
              Presents Opportunities to Evaluate New
              Census-Taking Methods (GAO/T-GGD-94-136,
              Sept. 27, 1994).

              Decennial Census: Promising Proposals,
              Some Progress, But Challenges Remain
              (GAO/T-GGD-94-80, Jan. 26, 1994).

              Decennial Census: Test Design Proposals
              Are Promising, But Fundamental Reform Is
              Still at Risk (GAO/T-GGD-94-12, Oct. 7, 1993).

              Decennial Census: Focused Action Needed
              Soon to Achieve Fundamental
              Breakthroughs (GAO/T-GGD-93-32, May 27,
              1993).

              Decennial Census: 1990 Results Show Need
              for Fundamental Reform (GAO/GGD-92-94,
              June 9, 1992).




              Page 146                GAO/HR-97-2 Quick Reference Guide
1997 High-Risk Series



             An Overview (GAO/HR-97-1)

             Quick Reference Guide (GAO/HR-97-2)

             Defense Financial Management (GAO/HR-97-3)

             Defense Contract Management (GAO/HR-97-4)

             Defense Inventory Management (GAO/HR-97-5)

             Defense Weapon Systems Acquisition
             (GAO/HR-97-6)

             Defense Infrastructure (GAO/HR-97-7)

             IRS   Management (GAO/HR-97-8)

             Information Management and Technology
             (GAO/HR-97-9)

             Medicare (GAO/HR-97-10)

             Student Financial Aid (GAO/HR-97-11)

             Department of Housing and Urban
             Development (GAO/HR-97-12)

             Department of Energy Contract Management
             (GAO/HR-97-13)




             Page 147            GAO/HR-97-2 Quick Reference Guide
1997 High-Risk Series




Superfund Program Management
(GAO/HR-97-14)




The entire series of 14 high-risk reports
can be ordered by using the order
number GAO/HR-97-20SET.



Page 148                GAO/HR-97-2 Quick Reference Guide
Ordering Information

The first copy of each GAO report and testimony
is free. Additional copies are $2 each. Orders
should be sent to the following address,
accompanied by a check or money order made
out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards
are accepted, also. Orders for 100 or more
copies to be mailed to a single address are
discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th & G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling
(202) 512-6000 or by using fax number
(301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available
reports and testimony. To receive facsimile
copies of the daily list or any list from the past
30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide
information on how to obtain these lists.

For information on how to access GAO reports
on the INTERNET, send an e-mail message with
"info" in the body to: info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:
http://www.gao.gov
United States
                                    Bulk Rate
General Accounting Office
                               Postage & Fees Paid
Washington, D.C. 20548-0001
                                      GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested