. CONTENTS MAKING GOVERNMENT ACCOUNTABLE HIGHLIGHTS OF GAO REPORTS AND TESTIMONY OVERVIEW OF OPERATIONSAND FINANCIAL MANAGEMENT MAKING GOVE~NM ACCOUNTABLIZ, s citizens, Americans expect performance and accountability from A their government in return for the taxes they pay. Today, thanks to a set of interrelated reforms put into place by the Congress, federal agencies have the opportunity and the means to meet this expecta- tion. Like America’s private sector and governments at the state and local level, the federal government is beginning to rise to the challenge of improving performance and becoming more accountable for results. Since 1990, the Congress has passed a series of measures that, taken together, constitute a new framework for managing the federal government, one that imposes a common-sense, businesslike approach to fulfilling the public trust. Once implemented, these measures will help agencies .operate with new discipline and accountability; agencies will be able to demonstrate what results they achieve and how much those results cost. The framework consists of three elements: financial management reform, information technology reform, and a basic shift in management emphasis from process to performance. FINANCIALMANAGEMENTREFORM During the 198Os, GAO warned of long-standing financial management weaknesses that routinely cost the federal government billions of dollars and left it vulnerable to fraud, waste, abuse, and mismanagement. In 1990, the Congress passed the Chief Financial Officers (CFO) Act, creating chief financial offrceipositions in major executive branch agencies. Four years later, the Government Management ReformAct expanded this legislation to require that all major government entities produce annual audited financial state- ments. Federal agencies are now subject to the same kinds of financial reporting that had long been required of state and local governments and in the private sector. Since ,the passage of the CFO Act, work has proceeded on all facets of its imp!ementation:from the appointment of chief financjal officers, to the develop- ment ,of modern financial systems, to the reporting and, auditing of financial results and management controls. T,his spring, the Secretary of the Treasury will issue the first-ever consolidated financial statements for the federal government, which will be subjecr to independent audit by GAO. This will be an important milestone toward s.uccessful implementation of the CFO Act and realization of its goal of providing, congressional and executive branch decisionmakers with the reliable financial~infor- mation that has been absent in the, past. : I INFORMATION TECHNOLOGY REFO& ” ., , : 1 .. 1 Federal agencies spend about $25 billion each year on their information. technology infrastructure. Computer systems, networks, and electronic records are’ now vital to nearly every aspect of government operations and spending-from national defense and air traffic control to revenue collection and the payment of benefits. But the efforts.that agencies have made to acquire and make use of information technology have suffered numerous setbacks: schedule delays; cost overruns;.and a failure to live. up to their potential to improve mission performance, lower,. administrative costs, and enhance ‘service to the public. i . Agencies’ widespread problems with information technology led the Congress to pass the Paperwork Reduction Act of 1,992 and the ClingerCohen Act of l996. ‘These reforms directed agencies to follow a new approach, toward technology management-one based in part on GAO’s study of the practices of leading public and private-sector orgamzations, that have s,uccessfully,used technology to improve their performance and meet their strategic goals. ,, ( . , ., ,‘_ ,( I?ERF~RIv~AN~E-BA~ED MANAGEMENT : , At .the core of the new management framework is the Government Performance and Results Act of :1993 (also known as GPRA or the Results Act). While the CFO Act is focused on improving agencies’ management and financial accountability, the Results Act is aimed at improving program performance. Over the years, GAO’s audits and -evaluations have highlighted areas in which government programs have not achieved expected results, and traditionally agencies’have used the amount of money directed toward programs or staff size as measures of program success. With the Results Act, the Congress recognized that if an agency reports only these kinds of measures, it hasnot answered the most’important question ofall: What are the taxpayers getting for their money? -- Under the Results Act, accountability for performance would now mean accountability for results. Agencies would have to ask themselves some basic questions: What is our mission? “What are our goals, and how, can we achieve, them? How can we measure our performance ? How will we use performance information to make improvements? The ansyers to these questions could not be expected to come quickly or easily. The Congress understood this when it passed the Results Act, and provided for a pilot program. About 70 federal entities, including components of most cabinet depart- ments and major independent agencies, used the pilot phase to gain experience in the annual goal-setting and performance-measurement requirements of the act, and to provide lessons for other agencies. In 1997;agencies prepared their first 5year strategic plans, as required by the act. Later this year, they will issue their first annual performance plans. ACCOUNTABILITY: THE HEART OF’REFORM Accountability, more than any other principle, underlies these governmentwide management reforms. The CFO Act, the Paperwork Reduction Act; the Clinger-Cohen Act, and the Results Act were adopted separately, but all were aimed at creating a more,‘accountable’government. In essence, these reforms require that the public’s business be done in accordance with sound business practices. Sound strategic planning, for example, will heI6 agencies better define their missions and set results-based goals in accordance with the interests and expectations of their stakeholders. Performance measurement will allow agencies to track their progress against the goals they have set, and give managers crucial information on which to base their organizational and management decisions. Improvements in accountability will open a window onto federal agencies. Decisionmakers in the Congress, executive branch officials, and the public at large Ml be better able to oversee where tax dollars are going and what they buy. They will have better data with which to make and evaluate program and budgeting decisions. Financial management reform, information technology reform, and the, reorientation , toward performance-based management reflect the Congress’s growing insistence that federal entities be accountable for their actions and expenditures. The challenges that federal entities faceare too great, and the government’s resources are stretched too thin, to settle for good intentions; federal agencies and programs must demonstrate that they are getting results. GAO’s CONTINUING CONTRIBUTIONS Whether in formal audit and evaluation work or through its other contributions ,to legislative deliberations and oversight, GAO has long sought greater accountability in government, and it has worked with the Congress in creating this new framework for governmentviride management reform. It is now playing a continuing role in helping the Congress ensure that the reform is successful. For example, GAO developed a set of key questions for the Congress to ask when evaluating the strategic plans submitted by agencies this year in accordance with the Results Act, and staff throughout GAO assisted in a comprehensive review of the plans for the Congress. In addition, GAO is working with the executive branch on all facets of management reform. To help agencies better manage their information technology programs, GAO has issued guidance to the agencies on such critical concerns as information technology invest- ment controls and information security. It is also working closely with inspectors general on financial audits of departments and agencies across the government. As this report’s next section, “Highlights of GAO Reports and Testimony,” m,akes clear, these contributions to governmentwide management reform were only a part of GAO’s work in 1997. The agency continues to produce information and analysis covering the full spectrum of federal agencies and programs to assist the Congress in carrying out its legislative and oversight responsibilities. GAO’s work in the past year addressed such diverse issues as the Federal Aviation Administration’s airline inspec- tion program, the structure and financing of Social Security, the design of the 2000 census, and the role of federal agencies in protecting the nation from terrorism. During fiscal year 1997, GAO produced 1,337 audit and evaluation products in support of the Congress’s legislative and oversight needs, including 1,006 reports to Congress and agency officials, 149 formal congressional briefings, and 182 congres- sional testimony statements delivered by 65 GAO executives. GAO’s work contrib- uted to legislative and executive actions that resulted in about $21 billion in measur- able financial benefits-a reflection of the value of GAO’s audits, evaluations, and investigations. Measurable financial benefits flowing from GAO’s work in fiscal year 1997 were the highest of the past 5 years. But no less important a contribution were the benefits that could not be measured in dollars but which, by improving’practices or opera- tions, had the potential to increase taxpayer trust in government. For example, a GAO report led the Congress to make unauthorized “browsing” of electronic tax records at IRS a criminal offense. And a GAO report that diabetics were not being adequately monitored helped persuade the Congress that Medicare recipients should 1 receive more comprehensive preventive care. Accomplishments such as these reflect GAO’s continuing commitment to objective, fair and important work that contributes to honest, efficient management and greater accountability throughout government. The men and women of GAO take pride in this commitment and in their service to the Congress and the nation. James F. Hinchman Acting Comptroller General of the United States HIGHLIGHTS OF GAO REPORTS AND : In fk~.year 1997, GAO p _ I evaluation products, inc itid &$n,cy dfkials, 14 : 182 cp&ressional t$ GAO &ecutives. .Gf I I ,, ,) : : .; ,. ,;;. : ” ., 6 AVIATION SAFEm NEWAIRLINES ILLUSTRATELONG-STANDING PROBLEMSIN FAA’SINSPIXTI~N PROGRAM In this report GAO looks ,at the safety performance of new airlines, and the fre- quency with which the Federal Aviation Administration (FAA) inspects them compared with inspections of established airlines. Although not concluding that the new airlines sacrifice safety, GAO did find that during the first 5 years of operation, new airlines had higher rates of accidents, incidents, and enforcement actions than did established airlines. GAO urges FAA to study the feasibility of developing airline-specific safety-related performance measures that could be published for use by the traveling public. (RCED-97-2) NUCLEAR SAFETY: STATUS OF U.S. &SIST~CE’TO IMPROVE THE SAFETY OF SOVIET-DESIGNED REACTORS In 19.92 the US. government initiated a program, the Lisbon Initiative on Multilat- eral Nuclear Safety, to help improve the safety of Soviet-designed reactors. As of February 1996,22 donors, including the United @es, had pledged or contributed more than $1.4 billion in assistance to this effort. While the U.S. nuclear stiety assistance program seeks to reduce the risk of accidents and to encourage the shutdown of the Soviet-designed nuclear power reactors deemed at highest risk, none of these have been closed and one, in Armenia, has been restarted. (RCED-97-5) AIRLINE DEREGULATION: BARRIERS TO ENTRY CONTINUE TO LIMIT COMPETITION IN SEVERAL Knr DOMESTIC MARKETS Barriers to the entry of new airlines persist in the industry today. While access barriers, such as limited landing and takeoff slots and exclusive-use gate leases, can potentially affect any airline, they primarily affect new airlines-those begun after deregulation in 1978. The marketing practices of established airlines, such as bonuses to travel agents and frequent flyer plans, can also make it more difficult for new carriers to attract passengers. As a result, competition suffers, leading to higher airfares. (RCEDL9 7-4) - SOCIAL SECURITY DISABILITY: ALTERNATIVESWOULD BOOST COST-EFFECTIVENESSOF CONTINUING DISABILITY REVIEWS The current system of periodic disability reviews for Supplemental Security Income and Disability Insurance program beneficiaries is costly. An alternative approach would be to focus on beneficiaries whose cases are more cost-effective to review- that is, those with the greatest potential for medical improvement. The Social Security Administration could also contact beneficiaries to remind them of their responsibility to’report medical improvements and to inquire about their interest in returning to work. (HEHS-97-2) MEDICARE: HCFA SHOULD RELEASEDATA TO AID CONSUMERS, PROMPT BETTER HMO PERFORMANCE Unlike leading private and public health care purchasers, Medicare, the nation’s largest purchaser of managed care services, does not routinely provide its consumers with comparative information on benefits, premium rates, and member satisfaction. Medicare collects such useful data, and sharing it could help older Americans and their families make more informed health care decisions. As it stands, millions of Medicare beneficiaries are selecting plans and making health care choices with little or no comparative information to help them. (HEHS-97-23) VA HEALTH CARE: OPPORTUNITIES TO SIGNIFICANTLY REDUCE OUTPATIENT PHARMACY COSTS Unlike most public and private health care plans, the Department of Veterans Affairs (VA) provides over-the-counter products such as aspirin, vitamins, and hand creams to veterans at low or no cost. One reason it does so is because veterans may lack the funds to purchase them. In this report GAO suggests ways to limit VA pharmacy costs by using copayments and limiting quantities and products dis- pensed. Reducing the costs of its pharmacies could better direct VA resources to hospitals, nursing homes, and home health care. (HEHS-97-15) FEDERAL DEBT: ANSWERS TO FREQUENTLYASKED QUESTIONS L .’ 8. , ,, ,. This publication concisely presents information on the federal debt, including how debt is defined, how it is measured, how much it has grown, who holds federal debt, and its implications for the national economy. A large federal debt constrains economic growth, and thus living standards of future,generations,;by reducing U.S. savings available for private’investment.. Interest on the federal debt-15 cents of every federal budget dollar-was one of the three largest.spending items in the-k396 federal budget, behind Social Security and defense spending. &MD-97-12)’ RURAL HEALTH CLINICS: RISING PROGRAM EXPENDITURES NOT FOCUSED ON IMPROVING CAREoh ISOLATED AREAS : i, t .,.. The Rural Health Clinic (RHC) program was adrift, without focus on its original goal of assisting underserved rural communities and without adequate controls over steadily increasing costs. Nonetheless, the program continued to grow, even in well-populated areas where established health care systems already existed. T,here was little~evidence to show that such grokth . was improving access,to health care in underserved populations. In the Balanced Budget Act of 1997, the Congress adopted GAO recommendations on specific ways to refocus the RHC program to meet its original purpose. (HEHS-97-24) MULTIFAMILY HOUSING: EFFECTS OF HUD’s PORTFOLIO REENGINEE~~NGPROPOSAL The Department of,Housing and Urban Development’s (HUD) insured Section 8 portfolio has three basic problems: high subsidy costs, high exposure to insurance loss, and the poor physical condition of some properties. HUD has proposed portfolio reengineering to correct these problems. GAO’s analysis found that although HUD’s portfolio reengineering proposal would decrease subsidy costs over the long term, it would also generate $6-7 billion in claims against the Federal Housing Administration’s insurance fund over the next 10 years. (RCED-97-7) DEPARTMENT OF ENERGY: ODPO~~TUNITY TO IMPROVE MANAGEMENT OF MAJORSYSTEM ACQUISITIONS This report identifies four key factors affecting the Department of Energy’s (DOE) ability to complete’its largest and most significant projects, called major system acquisitions (MS& within originally estimated cost and time schedules. Although there are no quick, easy solutions, DOE initiatives in contract reform, strategic systems and life-cycle asset management, strategic planning, information resources management planning, and financial planning may result in better management of MSAs. (RCED-97-17) BANK OVERSIGHT STRUCTURE: U.S. AND FOREIGN EXPERIENCE pvz4~OFFERLESSONS FORMODERNIZINGU.S. STRUCTURE During the congressional debate on U.S. banking regulation and the modernization of its oversight structure, questions were raised about how other countries structure and carry out their various bank regulation and central bank activities. This report discusses banking oversight in Canada, France, Germany, Japan, and the United Kingdom, and highlights characteristics of other nations that could be replicated here. (GGD-97-23) BUDGET ISSUES: BUDGETING FOR FEDERAL CAPITAL Requiring that budget authority for the full cost of acquisitions be provided before an acquisition is made allows the Congress to better control capital spending. But agency officials see such initial funding as problematic because it requires the full cost of an asset to be absorbed in an agency’s annual budget, although the benefits may accrue over many years. This report describes how five federal organipations plan and budget for capital assets, and their experiences with the budget process. (AIMD-97-5) / EXPORT CONTROLS: SENSITIVE MACHINE TOOL EXPORTS TO CHINA Machine tools for manufacturing parts for commercial passenger aircraft in China were diverted to a facility that produces fighter aircraft and cruise missiles for the People’s Liberation Army. The Department of Commerce had approved. this export in lY94 after a review process that raised concerns over possible misuse of this export. Commerce amended the licenses, and the diverted equipment was relocated to a commercial aircraft facility in Shanghai, before it could be misused. Commerce did not begin its investigation until 6 months after the reported diver- sion. The Department of Justice is conducting a criminal investigation. (NSm-97-4) DECEMBER 1996 AIRPORT AND AIRWAY TRUST FUND: ISSUESRAISED BY PROPOSALTO REPLACE THE AIRLINE TICKET TAX This report examines a user-fee alternative proposed by a coalition of the 7 largest U.S. airlines that would replace the lo-percent tax on domestic airline tickets paid by all air travelers. The coalition proposal favors large airlines that operate hub-and-spoke systems at the expense of the low-fare and smah airlines, which tend to offer direct, point-to-point service. By shifting most of the estimated $600 million financial burden from one segment of the industry to another, the coalition proposal could have substantial implications for domestic competition. (RCED-97-23) SKILLED NURSING FACILITIES: APPROVALPROCESSFOR CERTAIN SERWCESMAY RESULT IN HIGHER MEDICARE COSTS This report ‘discussesthe growth in costs of skilled nursing facilities, which provide posthospital care for those needing a higher level of care than that which can be provided at home. Medicare payments to these facilities have grown rapidly, from $456 million in the early 1980s to nearly $11 billion in 1996. One cause of this huge cost increase is the growth of exceptions to routine cost limits. GAO recom- mends that Medicare revise the current exception process to differentiate nursing homes that provide atypical services from those that simply have higher costs. (HEHS-97- 18) AIR FORCE DEPOT MAINTENANCE: PRIVATIZATION-IN-PLACE PLANS ARE COSTLYWHILE EXCESSCAPACITY EXISTS GAO found that plans to privatize-in-place the depot maintenance workloads at the Sacramento, California, and San Antonio, Texas, air logistics centers would result in costly excess capacity at the remaining Air Force depots and violate the public-private competition requirements of federal law. Over $200 million could be saved annually by transferring the repair and maintenance work to other depots. Subsequent to the issuance of this report, the Department of Defense acknowledged that competition was required and began to use public-private competitions for repair and maintenance work at Sacramento and San Antonio. (NSIAD-97-13) EXPORT-IMPORT BANK: OPTIONS FOR~ACHIEWNG POSSIBLH:: BUDGET REDUCTIONS, .,I . GAO identifies two options for reducing the Export-Import Bank’s subsidy costs while remaining competitive: raising fees and reducing program risks. These options would not require ,- legislative change in the Ba&‘s charter, but would need to be considered svithin the full context of their trade and foreign policyimplica- tions. Raising exposure fees, which are genera&lower than those of other nations’ export credit’agencies, would be the least disruptive option. (NSIAD-97-7) ’ .’ ,., 1 ’ ENERGY SECURITYZ EVALUATING U.S. VULNERABILITY !ro dig SUPPLYDISRUPTIONS AND OPTIONS FOR MITIGATING THEIR EFFECTS This report assessesthe effectiveness of the 1995 -National Energy Policy ,l?lan in reducing the vulnerability of the U.S. economy to oil .supply disruptions armprice shocks (oil shocks). It estimates the economic benefits of importing oil, and com- pares these benefits with economic costs of past disruptions. It also p,rovides the views of oil experts ar$industry analysts on effective strategies for dealing with the economy’s vulnerability to oil shocks. (RGED-97-6) . FOREIGN PHYSICIANS: EXCHANGE VISITOR PROGRAM BECOMING MAJOR ROUTE TO PRACTICING IN U.S., UNDERSERVED AREAS Placing enough physicians in underserved areas remains a long-standing problem in the United States. To combat it, a growing number of underserved locations are receiving waivers of visa requirements to attract non-U.S. citizens who have just completed their graduate medical education in the United States. The growing use of these waivers is not without controversy. While the Department of Health and Human Services does not support that waivers be used as a means to address medical underset-vice in the United States, communities that need physicians say that they cannot recruit qualified doctors without them. (HEHS-97-26) CHILD SUPPORT ENFORCEMENT: EARLY RESULTSON COMPARAFHJIIY OF PRIVATIZED AND PUBLIC OFFICES. Fifteen states have turned to full-service privatization of child support enforcement as a way to improve performance and handle growing caseloads. In three compari- sons of performance, fully privatized of&es performed at least as well as or, in some instances, better than public programs in locating noncustodial parents, establishing paternity and support orders, and collecting support owed. However, privatized offices were not always as cost-effective as public offices. (HEHS-97-4) ARMY RANGER TRAINING: SAFETY IMPROVEMENTS NEED TO BEINSTITUTIONALIZED Army ranger training develops skills in infantry, airborne, air assault, platoon, mountaineering, and waterborne operations. It is conducted in difficult terrain and under mental and physical stresses that are intended to approach those found’in combat. The Army has improved safety following the February 1995accident that resulted in the hypothermia deaths of four trainees. To sustain these safety improve- ments, GAO believes that corrective actions need to be institutionalized and periodi- cally inspected by units outside the chain of command. (NSIAD-97-29) : FDA’s MAMMOGRAPHY INSPECTIONS: WHILE SOME NEEDATTENTION,FACILITYCOMPLIANCEIs GROWING PROBLEMS Inspections of mammography facilities appear to be progressing well. However, GAO found that the Food and Drug Administration (FDA) needed to strengthen equipment inspection procedures and institute follow-up reviews of clinics where problems of image quality were found, to ensure that violations are promptly and adequately corrected. At GAO’s recommendation, FDA has taken action to estab- lish procedures, guidance, and training to ensure that mammography facilities are in compliance with quality standards. (HEHS-97-25) MILITARY ATTRITION: DOD COULD SAWMILLIONSBY BETTERSCREENING E&LISTEDPERSONNEL About one-third of enlistees in the military services fail to complete their first tours of duty. Thousands of recruits are separated in the first G months because the services fail to screen applicants for disqualifying medical conditions or for preservice drug use. Thousands of recruits are separated because they are not physically prepared for basic training, and are judged to lack motivation. By reducing attri- tion, it is estimated that long-term cost savings in the range of $15-39 million could be realized. (NSIAD-97-39) MEDICAL DEVICE REPORTING: IMPROVEMENTS NEEDEDIN FDA’s SYSTEM FORMONITORINGPROBLEMS WITH APPROVED DEVICES Although the amount of information reported to the Food and Drug Administra- tion (FDA) about medical device problems has increased dramatically since the Safe Medical Devices Act was enacted, FDA does not systematically ensure that reported problems receive prompt attention and appropriate resolution. As a result, FDA’s adverse event reporting system is not providing sufficient early warnings about problem medical devices, as the law intended. Feedback to users and manufacturers ‘could be helpful, yet FDA does not routinely communicate the results of problems and corrective actions. (HEHS-97-21) AIR TRAFFIC CONTROL: IMPROVEDCOSTINFORMATION NEEDEDTO MAKE BILLION DOLLAR MODERNIZATIONINVESTMENT DECISIONS Weak cost-estimating processes and accounting practices undermine the ability of the Federal Aviation Administration and the Congress to make informed air traf& control (ATC) modernization decisions-especially critical when making multimillion-dollar investments in mission-critical ATC systems. GAO recom- mended that FAA implement a cost-accounting capability and define specific, agencywide processes for cost estimating, to incorporate, among other items, a historical database, audit trails, calibrated cost models, and structured approaches for estimating software size and complexity. (AIMD-9 7-20) HIGH-RISKSERIES ., : ., t /c.. ,: Begun in 1990, this is GAO’s third series of reports on federal programs considered to be high risk because of vulnerab~lities to waste, fraud, abuse, and mismanage- ment. This 14-volume series,focuses on 25 areas that are.costing the government billions of dollars, including 5 newly added areas-the Year 2000 problem,‘infor- mation security, defense infrastructure, supplemental securityincome, and the, 2000 decennial census., GAO has made hundreds ofrecommendations to,he$ improve these high-risk situations, which have at their core a lack of fundamental account- ability, GAO ha+orked closely with the Congress in its efforts to address high-risk probiems through oversight hearings and’legislative initiatives, High-risk areas range from poor financial management at the Department of Defense-which lacks accurate financial information to manage an annual budget of about $250 billion and over $1 trillion in assets worldwide-to the Internal Revenue Service, which attempts to handle over a billion tax returns annually with anti- quated information systems and outdated b.usiness processes. (HR-37-l through 14) , I I MANAGING FOR RESULTS:,USING GI?RATO ASIST ’ CONGRESSIONALAND FXECUT~ BRANCH D,ECISIONI+AKING ., ’ 0 Testimony ofjames I? Hinchman, Acting.Comptroller Geizeral of tbk “. United States Congress can use the Government Performance and Results Act to bbta+ the vital information it needs to better make important, difficult decisions. Consultation ’ about strategic planning provides a useful o,pportunity for the Congress and the executive branch to work together to help ensure that agency missions are focused, goals are results-oriented, and strategies and ,fimding projections are appropriate and reasonable. The Results Act’s strategic planning process is a powerful vehicle for clarifying congressional expectations and expanding the focus on results over process. (T-GGD-97-43) i BLOOD SUPPLY: FDA OVERSIGHT AND REMAINING ISSUESOF SAFETY While the blood supply is very safe, no amount of federal regulation can entirely eliminate blood-transfusion risks because of human error, technological limitations of state-of-the-art tests, and the biological nature of the product itself. GAO did, however, find areas in which the Food and Drug Administration (FDA) could act to further improve the safety of the blood supply. For example, unlicensed facilities- those that do not sell or exchange blood across state lines-are not required to report errors or accidents, although they collect 10 percent of the U.S. blood supply. Without full reporting, FDA cannot monitor or control quality in the entire industry. (PEMD-97:l) HOUSING AND URBAN DEVELOPMENT: POTENTIAL IMPLICATIONS OF LEGISLATION PROPOSINGTO DISMANTLE HUD A legislative proposal to dismantle the Department of Housing and Urban Develop- ment (HUD), introduced in the 104th Congress, would fundamentally change the federal role in housing and community development by transferring some of HUD’s functions to other federal agencies, the states, or the private sector, and eliminating other functions altogether. The proposal could have far-reaching effects on renters, communities, and would-be home buyers. (RCED-97-36) EMPLOYMENT-BASED HEALTH INSURANCE: COSTS INCREASEAND FAMILYCOVERAGEDECREASES As the cost of health insurance has escalated, many employers have restructured the benefits they offer. Starting in the late 1980s to 1994, increases in employers’ costs to provide health insurance to employees and their families have outpaced inflation-with costs jumping 18 percent in 1 year alone. Some employers dropped health insurance coverage entirely-particularly small employers-shifting the full burden to employees. More commonly, however, employers increased the amount employees had to contribute, particularly for family coverage. (HEHS-97-35) SOCIAL SECURITY ADMINISTRATION:. SIGNIFICANT CHALLENGESAWAIT NEW COMMISSIONER The Social Security Administration (SSA) faces dramatic challenges. It needs to take a more active role in the public policy debate on the future financing and structure of social security. SSA must refocus its disability income programs, emphasizing return to work. In the area of combating fraud and abuse, it must protect taxpayer dollars and dispel perceptions that SSA is not making cost-effective and efficient use of taxpayer funds. It must manage its technology investments, including its Year 2000 conversion. As an agency that touches the lives of virtually all Americans, ,: SSA’s success in meeting these challenges is critical. (HEHS-97-53) YEAR 2000 CO.MPUTING CRISIS: AN ASSESSMENTGUIDE Many government computer systems, designed 20 to 25 years ago, contain millions of lines of software code, all of Which need to be examined for date-coding prob- lems. This assessment guide provides a structured approach to help organizations review the adequacy of their planning for the Year 2000. It is imperative that public- and private-sector entities identify their critical’computer systems, develop conversion strategies and plans; and dedicate sufficient resources to replacing or converting and testing systems and programs in time to ensure that such systems will be prepared for the next century. (AIMD-10.1.14) ASSESSING RISKS AND, RETURNS: A GUIDE FOR EVALUATING FEDERAL AGENCIES’ IT ~VESTMENT DECISIONMAKING This guide provides a structure for assessing how well a federal agency is selecting,. and managing its information technology (IT) resources and identifying specific, areas for improvement. It assessesan organization from three perspectives: the processesit uses’in selecting, managing, and evaluating, IT investments; the cost, benefit, and risk data it uses in making IT decisions; and the decisions that result from using these processes and data. The guide focuses on common elements necessary for successful management of IT. investments. (AIMD-10.1.13) COOPERAZ’IVEPURCHASING: EFFECTS ARE LIKELYTO VARY AMONG GOVERNMENTS AND BUSINESSES TThe potential effects of the cooperative purchasing program, which would allow state and local governments to purchase items through federal supply schedules, are variable. Since participation would be voluntary, state and local governments would use federal schedules only if they perceived benefits, such as lower prices. State contracting laws and preferences to purchase from in-state sellers may limit the extent of these benefits. This report also noted that the potential effects on industry, including small businesses, are likely to vary. (GGD-97-33) DEFENSE HEALTH PROGRAM: FUTURECOSTSARELIKELYTO BEGREATERTHANESTIMATED Key assumptions that the DeRartment of Defense (DOD) made in estimating future health program costs are unrealistic. D’OD assumed that no cost growth would be attributable to advances in medical technology and the intensity of treatment. Technological advances such as CAT scans, MRIs, organ transplants, and new drug treatments increase costs. These costs are often compounded when new procedures increase the intensity of treatment. DOD also assumed- unrealistically-that savings could be achieved through a new emphasis on utilization management. (NSIAD-97-83BR) TELEMEDICINE: FEDERALSTRATEGY Is NEEDEDTO GUIDE INVESTMENTS Telemedicine can improve, and perhaps change significantly, how health care is provided in the future. Nine federal departments and agencies have invested heavily in telemedicine. The Department of Defense, the largest federal investor, is considered the leader in developing this technology. Opportunities exist for federal agencies to share lessons learned and exchange technology, but a governmentwide strategy is needed to establish near- and long-term national goals and objectives to ensure the cost-effective development and use of telemedicine. (NSIAD/HEHS-97-67) DRUG CONTROL: LONG-STANDING PROBLEMS HINDER U.S. INTERNATIONAL EFFORTS Illegal drug use continues to be a serious health problem in the United States. Over. the past 10 years, the United States has spent about $20 billion on international drug control and interdiction efforts in trying to reduce the supply of illegal drugs. Despite this activity, illegal drugs still flood this country. A key reason for the lack of success in counternarcotics action is that international drug cartels have become sophisticated, multibillion-dollar industries that quickly adapt,to new U.S. drug control strategies. As success is achieved in one area, drug-trafficking’organizations change tactics, thwarting American progress? (NSIAD-97-75) FORCE STRUCTURE: ARMY SUPPORT FORCESCAN MEET TWO-CONFLICT STRATEGYWITH SOME RISKS / The Army believes it can deploy sufficient support forces to meet the requirements of two nearly simultaneous major regional conflicts with moderate risk. Lacking adequate active-duty forces, the Army must rely on reserve.forces that require additional timeto deploy and would arrive late. High reliance on reserves for a second conflict may entail risk if the,second one occurs without warning, or if ‘mobilization is delayed. In this risk assessment, the Army used many favorable assumptions that understated risks. It assumed, for example, immediate deployment and ready accessto overseas ‘ports and airfields. (NSIAD-97-66) ‘, MARCH 1997 CHEMICAL WEAPONS AND MATERIEL: KEYFACTORS AFFECTINGDISPOSAL COSTSAND SCHEDULE Testimony of Henry L. Hinton, Jr., Assistant Comptraller General, National Security and International Affairs Division While there is general agreement about the need to destroy the chemical stockpile, progress has been slow due to a lack of consensus among the federal, state, and local governments as to how such destruction should take place. It now appears that disposal will cost more than the estimated $24 billion and take longer than currently planned. Key factors affecting the destruction program include public concern over the safety of incineration, compliance with environmental laws, and the introduc- tion of alternative disposal technologies. (T-NSIAD-97-118) TAX CREDITS: OPPORTUNITIES TO IMPROVEOVERSIGHTOF THE LOW-INCOMEHOUSINGPROGRAM The low-income housing tax credit program gives developers and investors incen- tives to provide affordable rental housing for low-income households. The program is jointly administered by the Internal Revenue Service (IRS) and the states. While the program has stimulated low-income housing,development and generally meets the requirements of the Internal Revenue Code, the procedures that some states and IRS use for oversight should be improved. GAO makes several recommendations, including that IRS ensures independent verification of information submitted by developers and that the program be subject to audits under the Single Audit Act. (GGD/RCED-97-55) SUPERFUND: TIMES TO COMPLETE THE ASSESSMEN?AND _ CLEANUPOF HAZARDOUS-%kTE SITES ’ : The time taken to evaluate hazardous waste sites for inclusion in the Superfund program and to complete their cleanup once they have been identified has increased. The Environmental Protection Agency (EPA) takes almost.10 years to evaluatesites for placement on the National Priorities List-the nation’s ,worst hazardous waste sites. Increasing completion times are a concern because many listing and cleanup activities remain‘in the Superfund program. According to EPA, cleanups are taking longer because projects are more complex. (RCEDi97-20) FOOD-RELATED SERVICES: OPWRTLJNITIES EXIST TO @COVER COSTS BY ,CJURGING BENEFICIARIES The federal gqvernment ‘spent nearly $1 .G billion in fiscal year 19 9 5 to provide food-related services such as inspecting, testing, grading, and approving agricultural I commodities and products. Some companies benefiting from these services paid user fees for the cost of the services, while in other cases no user fees were charged. The government could increase collections by, charging the full cost of inspection services and by applying,fees consistently. Charging,for regulatory compliance inspections, such as meat and poultry inspections, would produce the most revenue. (RCED+Y7-57) -, FEDERAL POWER: ISSUESRELATED TO THE DIVESTITURE OF FEDERAL HYDROPOWER RESOURCES A divestiture of the.federal government’s hydropower assets would consider many factors, such as how to balance the multiple uses of water, how to protect the environment, and how to regulate power generation after the sale. Further, the sale’s objectives-f or instance, to reduce or eliminate the government’s presence in an activity that may be viewed as best left to the private sector or to improve the government’s fiscal position-will help to determine subsequent decisions, such as what specific assets to sell, what conditions and liabilities to transfer with those assets, and what sales method to use. (RCED-9 7-48) FOOD STAMPS: SUBSTANTIAL OVERPAWENTS RESULT FROM PRISONERS COUNTED AS HOUSEHOLD MEMBERS Despite federal regulations prohibiting inmates of correctional institutions from participating in the food stamp program, GAO used computerized records to identify over 12,000inmates in California, Florida, New York, and Texas who were included in households receiving food stamps. Households in these jurisdic- tions, which account for about a third of food stamp program participation nationwide, improperly collected an estimated $3.5 million in food stamp benefits. Prisoner participation goes undetected because local agencies generally do not verify the information on household membership provided by food stamp applicants. (RCED-97-54) MEDICAID FRAUD AND ABUSE: STRONGERACTION NEEDED TO REMOVEEXCLUDED PROVIDERS FROM FEDERALHEALTH When providers of health services defraud federal or state health care programs or give poor quality care, they can be excluded from participation in Medicare, Medicaid, and other federal health programs. The process for excluding providers has operated successfully. Yet GAO found cases in which unacceptable providers in one state’s Medicaid program continue to provide Medicare or Medicaid services in other states. This could be corrected by better tracking of exclusion referrals from the states, better staff training to reduce inconsistencies and improve timeliness, and improved outreach to states. (HEHS-97-63) - : AIR TRAFFIC,CONTROL: IMMATURESOFW~ ACQUISITION. PROCESSES INCREASEFM SYSTEMACQUISITIONRISKS The Federal Aviation Administration (FAA) is modernizing the air traffic control (ATC) systems needed to ensure safe, eficient air travel. Because computer software is the ‘most expensive and complex component of the ATC systems, FAA must use defined, disciplined processes when acquiring software. FAA’s processes are ad hoc and sometimes chaotic. To address this situation, GAO recommended specific actions, including more rigorous software-acquisition processes, tightened account- ability, formalized planning based on evaluation resuits, ,and adequate resource, allocation. (AIMD-97<47) UNITED NATIONS: LIMITATIONSIN LEADINGMISSIONS REQUIRING~FORCE TO~RESTORE PEACE ”j The United Nations’ record in effectively carrying out missions requiring the use of force has been mixed. This is because the United Nations cannot, command re- sources and troops, hke sovereign nations, an,d its core principles-neutrality, impart&y, and seeking consent of warring parties for, U.N. actions-are ill-suited for missions that may ‘require force to restore peace and order. A single nation or coahtion’of nations with sufficient military capability and commitment may be more suited to lead s,uch missions, especiahy where vital U.S., national interests are _: at mke. (NSIp;D-97-34) 1 APRIL 1997 INTERCITY PASSENGERRAIL: AMTRAK’SFINANCIALCRISIS THREATENS CONTINUEDVIABILI~ Testimony of Phyllis l? Scbeinberg,A ssociateDirector, Transportation Issues, Resources,Community, and Economic Development Division Amtrak’s financial future has been staked on the ability to eliminate federal operat- ing support by 2002 by increasing revenues, controlling costs, and providing customers with high-quality service. Amtrak faces significant challenges in accom- plishing these goals, and due to its precarious financial condition, it is likely to require federal financial support-both operating and capital-well into the future. (T-RCED-97- 147) MEDICARE HMOs: HCFA CAN PROMPTLY ELIMINATEHUNDREDS OF MILLIONSIN EXCESS PAYMENTS Contrary to expectations, studies have found that enrolling senior citizens in managed care plans costs more than their particifiation in the traditional fee-for-service Medicare. Recent legislation significantly changes the way Medicare sets HMO rates and slows the growth of future payments. However, the new rate-setting method contains certain inaccuracies that led to excess HMO payments under the previous rate-setting method. In this report, GAO recommends an equitable and easy-to-implement approach that could help reduce these excess payments. (HEHS-97-16) CROP INSURANCE: OPPORTUNITIES EXISTTO REDUCE GOVERNMENT COSTSFORPRIVATE-SECTOR DELIWRY Federal crop insurance protects farmers against financial losses caused by droughts, floods, hurricanes, and other natural disasters. Private insurance companies sell, service, and share in the risk of federal crop insurance policies, and receive an expense reimbursement that covers their administrative costs. In this report GAO recommends that the expense reimbursement be reduced to reflect the appropriate and reasonable costs of selling and servicing crop insurance, and identifies different approaches to expense reimbursements that offer opportunities for additional cost savings. (RCED-97-70) U.N. PEACEKEEPING: STATUS OF LONG-STANDING OPERATIONS AND U.S. INTERESTSIN SUPPORTING THEM Eight long-standing U.N. peacekeeping operations are deployed in conflicts that ! have defied diplomatic resolution-sometimes for decades-and have become costly, open-ended commitments. To date these operations have cost about $6 billion-over one-third of total U.N. spending on peacekeeping over the past 50 years. Despite their cost and limited success in carrying out their mandates, the State Department supports continuing .these operations indefinitely, given the potential harm to U.S. foreign policy interests if the underlying conflictsresumed. (NSIAD-97-59) C0NTRAC.T MANAGEMENT: FIXING DOD’s PAYMENT PROBLEMSIs IMPERATIVE .T _,,i ‘. * To achieve cost-effective control over its payment process, the Department of ” .: Defense (DOD) needs to act. Otherwise, it continues to risk hundreds of millions of dollars in potential overpayments and other financial management and account- ing control problems. Improving its payment system will not be an easy or quick undertaking, and will require continued top management attention and support for many years. DOD could benefit from examining best practices of commercial organizations that have reengineered, their contract payment processes. (NSIAD-97-37) ., STATISTICAL AGENCIES: CONSOLIDATION AND QUALITY ISSUES Testimony by L. Nye Stevens,Director, Federal Management and Workforce hues, General Government Division In studying consolidation of the various U.S. statistical agencies, GAO compared the U.S. system with Statistics Canada and found that the centralized Canadian system has more flexibility to set and change priorities, better access to all govern- ment administrative records, and less burden on data users and providers. Yet disadvantages to consolidation exist as well. GAO also found that while U.S. statistical agencies generally adhere to professional standards, concerns about the quality of statistical data and their possible effects on the consumer price index and the upcoming decennial census may well be valid. (T-GGD-97-78) DEFENSE IRIvJ: INVESTMENTS AT RISKFORDOD COMPUTER CENTEW The Department of Defense recognizes the need to reduce the operating costs of its computer centers through consolidation, modernization, and outsourcing, but it has not yet established policies and procedures for making such decisions. GAO recommends that Defense develop a departmentwide plan to define such policies and procedures, including establishing targets for how many computer centers it needs, defining how operations should be consolidated, and identifying the opti- mum numbers and skill mix of operations staff at each location. Without better defined management principles to guide this decisionmaking, Defense at best will achieve optimization at the component level only, foregoing investment optimiza- tion for the Department as a whole. (AIMD-97-39) FOREST SERVICEDECISIONMAKING: A FRAMEWORK FOR IMPROVINGPERF~R~JANCE The decisionmaking process used by the Forest Service is costly and time-consuming; further, the agency often fails to achieve its planned objectives. In GAO’s examination of Forest Service decisionmaking, it found the inefficiency and ineffectiveness to be the result of a lack of attention to the process and lack of accountability for performance. To correct this and improve the agency’s ability to deliver what is expected and promised, the Forest Service, in consultation with the Congress, needs to establish long-term strategic goals and clearly define mission priorities. (RCED-97-71) DOD. HIGH-RISK AREAS: ELIMINATING UNDERLYING CAUSES WILL AVOID BILLIONSOFDOLLARSIN WASTE i ‘. lktimony of Hen y L. Hinton, Jr., Assistht Comp@oller General, Nationhl Security atid InterndtionalAffairs Division I , GAO has identified six Degartment of Defense programs and operations’as high’risk because of vulnerabilities to waste, fraud, abuse, and mismanagement, and has made hundreds of recommendations to correct problems. Defense has begun correctmg ‘problems in,each of the six high-risk areas,,but eliminating the risks altogether will require that underlying causes be addressed-which has not yet been done. Top-level management within the Department needs to be given the authority and flexibility to achieve positive outcomes and held accountable for results. (T-NSIAD/AIMD-97- 143) NUCLEAR REGULATION: PREVENTING PROBLEM PLANTS REQUIRESMORE EFFECTIVE NRC,ACTION. The Nuclear Regulatory Commission (NRC) is tasked with ensuring that the ~ nation’s 110 commercial nuclear power plants operate safely. To do so; NRC needs to take aggressive enforcement’action and hold owners of nuclear plants accountable for correcting safety problems on a timely basis. Addressing safety issues.at an early stage is key, because they are then easier and less costly to fix. Only by ensuring that nuclear power plants address safety deficiencies promptly and have high-quality management in place will NRC protect public safety from the dangers of such facilities. (RCED-97-145) 1ki HOMEOWNERSHIP: OFREDUCINGFHA’s POTENTIALEFFECTS INSURANCE COVERAGE FORHOME MORTGAGES The Federal Housing Administration (FHA) insures lenders against nearly all losses from foreclosures on single-family homes insured by the Department of Housing and Urban Development. The Department of Veterans Affairs (VA) also operates a single-family mortgage guaranty program. Unlike FHA, VA does not fully cover losses; its lenders assume more risk. If the FHA program were to become more similar to that of VA, it is likely that interest rates would rise and the volume of lending fall. As a result, it could become more difficult for low-income, first-time, and minority borrowers- who tend to be regarded as higher risks-to obtain home financing. (RCED-97-93) WELFARE REFORM: STATES’ EARLYEXPERIENCES WITH BENEFIT TERMINATION Terminating a family’s Aid to Families With Dependent Children benefit represents the loss of a significant source of monthly income. At the time of GAO’s review, states had seldom used such benefit termination provisions. Failure to comply with work requirements is the most significant reason for termination. Recipients’ reasons for not complying include wanting to stay at home with their children and an unwillingness to perform community service or work for low wages. (HEHS-97-74) SURFACE COMBATANTS: NAVYFACESCHALLENGES SUSTAINING ITS CURRENTPROGRAM Surface combatants-cruisers, destroyers, and frigates-represent over one-third of the Navy’s war-fighting fleet. The Navy currently spends about $3 billion each year to modernize its surface combatant force, a significant portion of the Navy’s annual funding for new ships. This report discusses the Navy’s basis for its current and planned surface combatant force, its plans to sustain the current force size into the next century, and key factors that could affect future force requirements. (NSIAD-97-57) DEFENSE DEPOT MAINT,ENANCE: UN@RTMNTIES AND ,. CHALLENGESDOD FACES ZN RESTRUCTURINGITS DEPOT. MAINTENANCE PROGRAM ’ “, Zstimony of Da&d I?. Warreli, ‘Director, Defenseilhaagement Issues, National $ecurity and Internationh Aff+irs pivision Waste and inefficiency in the Department of Defense’s logistics system, including management of its $13-billion depot maintenance program, is one of the reasons GAO identified Defense infrastructure,activities as a high-risk area: Privatization of depot maintenance is an option, .but one that should be approached carefully, allowing for evaluation of economic and readiness needs. If not carefully carried out, privatizing depot maintenance could exacerbate existing capacity problems. (T-NSIAD-97-112) BOSNIA PEACE OPERATION: PROGRESSTOWARDACHIEVING THE DAYTON AGREEMENT’S GOm NATOlled forces have created and sustained an environment that allows the peace process to move, forward and Bosnians to return to. normal life. The cease-fire has held, general security has improved, and some progress has been made in establish- ,’. ing political and economrc institutions. The transition to an effective multiethnic government has not occurred, however, because political leaders of Bosnia’s three major ethnic groups have not embraced political and social reconciliation. Based on the current state of political and social change in Bosnia, some sort of international military force will likely be needed there for many years to deter an outbreak of hostilities while Bosnians continue the reconciliation process. (NSIAD-97-132) , -! w I MEDICARE TRANSACTION SYSTEM: SUCCESS DEPENDS UPON CORRECTING CRITICALMANAGERIAL AND TECHNICAL WEAKNESSES Medicare expects to process over 1 billion claims and pay $288 billion in benefits per year by 2000. To handle this expected increase, the Health Care Financing Administration (HCFA) planned to develop a unified claims processing system-the I Medicare Transaction System (MTS). However, critical weaknesses placed the project at great risk of costing over $1 billion without obtaining intended benefits. GAO recommended that HCFA complete.appropriate analyses before continuing MTS development. HCFA ultimately terminated the MTS contract after spending over 3 years and about $80 million. (AIMD-97-78) VETERANS BENEFITS COMPUTER SYSTEMS: RISKS OF VBKs YEAR-2000 EFFORTS Correcting the Year 2000 computer challenge is crucial if the Veterans Benefits Administration is to provide uninterrupted benefits and services to veterans and their dependents. Success will require a proactive strategy, whose linchpin must be completing the inventory and assessment of its information systems. To accomplish this and reduce risk, GAO made 10 recommendations-all of which were agreed to by the Department of Veterans Affairs. These included strengthening Year 2000 program management, prioritizing competing information technology projects, and developing contingency plans. (AIMD-97-79) AGRICULTURAL INSPECTION: IMPROVEMENTSNEEDEDTO MINIMIZE THREATOFFOREIGNPESTS AND DISEASES The rapid growth in international trade and travel has dramatically increased the amount of cargo and number of passengers entering the United States. While the emphasis on facilitating trade and customer service is pressuring agricultural inspec- tors to speed the flow of passengers and trade, inspectors struggle to keep pace with increased workloads. In addition to visual inspections, x-ray technology and contraband-detector dogs are being used to pinpoint prohibited agricultural prod- ucts from entering the country. (RCED-97-102) DEFENSE HEALTH CARE: MEDICAL SURVEILLANCEIMPROVED SINCE GULF WAR, BUT MIXED RESULTSIN BOSNIA The Department of Defense has taken steps to overcome the medical surveillance problems experienced during the Gulf War. Its record in implementing its medical surveillance plan in Bosnia for Operation Joint Endeavor has been mixed. Failures to assessall servicemembers’ health in theater and after return to their home units and to document medical care provided in theater raise serious questions about Defense’s ability to implement adequate medical surveillance should another high-conflict deployment such as the Gulf War occur. (NSIAD-97-136) AUTOMATED TELLER MACHINES: BANKSREPORTED THAT USE OF SURCHARGEFEES HAS INCREASED About three-quarters of all banks in the United States operate automated teller machines (ATM). More than half of the ATMs operated by banks have a surcharge fee, and the average fee more than tripled from the end of 1995 to February 1997. About one-third of banks that operate ATMs impose surcharges on non-account holders. Of ATMs with surcharges, the most typical fee is $1 .OO, although fees range as high as $3.00. (GGD-97-90) COURTHOUSE CONSTRUCTION: ~ I BETTER COURTROOM USE DATA COULD ENHANCE FACILITY PLANNING AND DECISIONMAKING Building a courtroom is expensive. Depending on location, a typical trial courtroom could cost from $640,000 to $1.3 million. While the federal judiciary has embarked on a multibillion-dollar courthouse construction initiative, the Congress has become increasingly concerned that courtrooms are not fully utilized and that more courtrooms than are actually needed are being built. GAO’s analysis of actual courtroom usage suggests many opportunities for reducing the cost of courthouse construction. (GGD-97-39) EARNED INCOME CREDIT: CLAIMANTS’CREDIT PARTICIPATION AND INCOME PATTERNS, TAXYEARS1990 THROUGH 1994 This report provides information on participation in the earned income credit (EIC) over a 5-year period. The EIC is a refundable tax credit available to low-income, working taxpayers. For tax years 1990 through 1994, GAO analyzes EIC claimants’ patterns of claiming the credit, changes in income in the years following an EIC claim, and income and filing status once the EIC is no longer being’claimed. The number of taxpayers claiming the EIC and the cost of the credit has increased steadily; this cost growth reflects the impact of expansion of EIC benefits. (GGD-97-69) GULF W;9R ILLNESSES:’ IMPROVEDMONITORING CLINICAL. OF PROGRESS AND REEXAMINATION OF RESEARCH EMPHASIS ARENEEDED GAO.‘s review found that neither the Department of Defense nor Veterans Affairs is currently able to determine whether ill Gulf War veterans are any better or worse today than when they were first examined., While the ongoing epidemiological research will provide descriptive data on veterans’ illnesses, formidable methodologi- cal problems are likely to prevent researchers from providing precise, accurate, and conclusive answers regarding the causes of the veterans’ illnesses. Evidence, to support off&l conclusions on stress, leishmaniasis, and exposure to chemical agents , was weak or subject to alternative interpretations. (NSIAD-97-163) MJiDICA&E: ,NEED,TOHOLD HOME HET~ AGENCIESMORE,, ACCOUNTABLE FORINAPPROPRIATE BILLINGS Ten years ago, over 60 percent of home health claims were reviewed by Medicare claims-processing contractors. Today, despite the steady and rapid growth in home health expenditures, Medicare contractors review only 2 percent of all claims in this category. In this report, GAO suggests an approach that would identify and penal- ize providers who habitually bill Medicare inappropriately. Home care providers found to have excessively high billing errors would be required to pay the cost of follow-up audit work. (HEHS-97-108) SUPPLEMENTAL SECURITY INCOME:, TIMELYDATACOULD ,I PREVENT‘MILLIONS IN OVEFWA~ENTS TO NURSNG HOME RESIDENTS j In 19 9 5 about 1.8 million individuals in nursing homes whose care was being paid by Medicaid.continued to receive Supplemental Security Income (SSI) benefits, contrary to law. The Social Security Administration (SSA), which administers SSI, ’ estimates that overpayments to individuals in nursing homes may exceed $100 million annually. Actions to detect or prevent these overpayments have had little success, primarily because SSA relies on recipient self-reporting. To remedy this, SSA could obtain nursing home admissions data electronically from the states. (HEHS-97-62) CHILD SUPPORT ENFORCEMENT: STRONGLEADERSHIP REQUIREDTO MAXIMIZEBENEFITS OFAUTOMATEDSYSTEMS Welfare reform will reduce public assistance benefits, making it more important that automated child support enforcement systems work to help offset the loss in benefits to custodial parents. Since 1980 the federal government spent over $2 billion to help states develop such enforcement systems, yet a majority of state systems do not meet federal requirements. GAO recommended that the Department of Health and Human Services take steps to ensure that critical systems development milestones are attained before proceeding with development. (AIMD-97-72) CHEMICAL WEAPONS STOCKPILE: CHANGESNEEDEDIN THE MANAGEMENT OFTHE EMERGENCY PREPAREDNESS PROGRAM After 9 years and funding of over $43 1million, communities surrounding chemical stockpile storage sites still lack items critical to responding to an emergency. Progress has been slow because the Department of the Army and the Federal Emergency Management Agency-agencies charged with responsibility for emer- gency response in the event of an accident-disagree as to their respective roles and responsibilities. GAO recommends that unless these disagreements can be quickly resolved, the Army assume full control for emergency preparedness for chemical weapons stockpiles. (NSIAD-97-91) PROPRIETARY SCHOOLS: MILLIONS SPENTTO TRAIN STUDENTS FOROVERSUPPLIED OCCUPATIONS Under the Higher Education Act, the federal government spends billions of student financial aid dollars to help fund occupational training at proprietary schools. About $3 billion in student aid, primarily subsidized loans, financed this training for fiscal year 1995. Millions of dollars went to students who trained in fields with a surplus labor supply, such as barbering and cosmetology, legal assistant, respiratory therapy, and appliance repair. Information on employment of recent graduates and future demand for certain occupations should help students make informed career-training decisions. (HEHS-97-104) OPERATION DESERT STORM: EVALUATION & THE AIR CAMPAIGN Air power clearly achieved many of Desert Storm’s objectives, but fell short of fully achieving others. Many postwar claims made by the Department of Defense and manufacturers about weapon system performance were overstated, misleading, inconsistent with the best available data, or unverifiable. For example, the F- 117 bomb hit rate ranged between 41 and 60 percent-considered highly effective, but still less than the 80-percent rate reported after the war by Defense and the primary contractor. (NSIAD-97-134) INTERNATIONAL AVIATION: COMPETITION .ISSUESIN THE U.S.-U.K. MARKET Testimony of John H. Anderson, Jx, Director, Transportation Issues,Resources,, Community, and Economic Development Division The current bilateral aviation agreement between the ,United States and the United Kingdom places substantial limits on competition.. As a result, consumers in both countries, have more limited service options and likely pay higher fares than they would in a more competitive environment. Only two U.S. airlines-American and United-may currently serve London’s Heathrow Airport. Capacity constraints exist at Heathrow, and planned construction of a new terminal has been delayed, ,ftuther postponing resolution of this issue for U.S. carriers. (T-RCED-97~103) JULY 1997 YEAR 2000 COMPUTING CRISIS: TIME Is RUNNING OUT FOR FEDERAL AGENCIES TO PREPARE FORTHE NEW MILLENNIUM TestimonyofJoel C. Willemssen, Director, Information Resource Management,Accountingand Information ManagementDivision While federal agencies have made progress addressing the Year 2000 computer problem, they must speed up their pace to avoid widespread problems. Most agencies will not complete systems conversion or replacement until late 1999, leaving little margin of error for unexpected delays. If systems that millions of Americans rely on for benefits and services fail, the ensuing delays could be disas- trous. Since the nonmonetary cost of systems failure can be very high, agencies must prepare contingency plans so benefits and services can continue to be provided even if systems are not Year 2000 compliant in time. (T-AIMD-97-129) CRIMINAL ALIENS: INS’ EFFORTSTo IDENTIFYAND REMOVE ALIENSNEED To BE IMPROVED IMPRISONED Testimonyof NormanJ. Rabkin, Director, Administration ofJusticeIssues, GeneralGovernmentDivision Through its Institutional Hearing Program, the Justice Department seeks to place incarcerated criminal aliens in deportation hearings so they can be readily deported upon their release from prison. The Immigration and Naturalization Service is not, however, fully utilizing this program and fails to identify many deportable criminal aliens before their release from prison. As a result, nearly 2,000 criminal aliens, including some aggravated felons, were released into U.S. communities during a G-month period in 1995. Some were rearrested for crimes that included felonies. (T-GGD-97-154) 2000 CENSU% PROGRESSMADE ON DESIGN, BUT .RISKSREMAIN Required by the Constitution to reapportion seats in the House of Representatives, the decennial census will be the nation’s most comprehensive and expensive statistical data-gathering program. GAO has repeatedly raised concerns about the need for the Census Bureau to consult with the Congress when making final decisions on design and funding of the 2000 census. The census has been designated one of GAO’s high-risk areas because design delays could jeopardize the outcome, waste billions of dollars, and produce a flawed result. (GGD-97-142) ,,; MILITARY BASES: LESSONSLEARNED FROM PRIOR BASE CLOSURE ROIJNDS ,’ .b Lessons have been learned from prior base realignment and closure (BRAC) rounds ’ that can be used to improve the BRAC process should future rounds be authorized. These lessons’relate to’ the amount of savings and up-front costs associated tiith closing bases, and the economic impact on communities confronted with the ‘loss of jobs. Savings from base closures are expected to be substantial. However, net savings were not ,generated as quickly as initially estimated because they were offset, by high closing and environmental cleanup costs. (NSIAD-97-15 1) .’ 1 ., ‘COMBATING TERRORISM: STATUS OF.DOD EFFORTSTO .. PROTECT ITS FOR&~ OVERSEAS American forces are better protected today from terrorist attacks. Security improve- ments are most evident in areas in which the risk of terrorism is the greatest, such as in Turkey and the Middle East. The Department of Defense has a number of initiatives aimed at combating terrorism, but it still lacks a comprehensive, consistent approach using common standards. This lack of prescriptive, measurable standards leaves commanders without an objective basis for determining if antiterrorism measures are sufficient. (NSIAD-97-207) U.S. COMMISSION ON CML RIGHTS: AGENCY LACKS BASIC MANAGEMENT CONTROLS GAO’s overall assessment of the U.S. Commission on Civil Rights suggests that its operations lack order, control, and coordination. Management is unaware of how federal funds appropriated to carry out its mission are being used. Projects embody a key component of the Commission’s operations, yet project management is haphazard. No overall standard exists for assessing project timeliness. Finally, the lack of project documentation and coordination among of&es that disseminate reports seriously hampers the Commission’s ability to produce, issue, and dissemi- nate reports. (HEHS-97-125) MEDICARE HOME HEALTH AGENCIES: CERTIFICATION PROCESSIs INEFFECTIVE IN EXCLUDING PROBLEM AGENCIES Testimony of Leslie G. Aronovitz, Associate Director, Health Financing and SystemsIssues,Health, Education, and Human ServicesDivision It is very easy to become a Medicare certified home health agency. The require- ments are minimal, and the Health Care Financing Administration approves nearly all agencies seeking certification. While many home health agencies are drawn to the program with the intent of providing quality care, some are attracted by the relative ease with which they can become certified and participate in this lucrative, growing industry. Once certified, these agencies can remain active with little fear of losing their certification, even if repeatedly found to be providing substandard care. (T-HEHS-97- 1SO) HOUSING PRESERVAT ON: POLICIES AND ADMINISTRATIVE PROBLEMSINCREASECOSTSAND HINDER PROGRAM OPERATIONS In creating the preservation program, the Congress wanted to keep multifamily housing affordable for lower-income families. Many of the preservation program’s problems are due to its complexity and the frequent changes that have been made in program requirements. These problems are compounded by policies of the Depart- ment of Housing and Urban Development and internal control weaknesses. To strengthen the preservation program, GAO recommends a systematic reassessment of policies and internal controls; this would ensure that funds are being spent wisely and in accordance with legislative requirements. (RCED-97-169) ENVIRON&lENTAL PROTECTION: CHALLENGESFACING FI?!!s EFFORTSTO REINVENT ENVIRONMENTAL REGULATION The,Environmental Protection Agency maintains that what it terms its reinvention initiatives will reduce paperwork and eliminate obsolete rules, make it easier for businesses to comply with environmental laws, use innovation and flexibility to achieve better environmental protection, and/or engage communities in partnerships to protect the environment. Yet, unless the agency can achieve agreement among its internal and external stakeholders, it will continue to face significant challenges. (RCED-97-155) AUGUST 1997 MANAGING FOR RESULTS: .USING THE RESULTSACT TO ADDRESS MISSION FRAGMENTATION AND PROGRAM OVERLAP As summarized in this report, GAO work has documented widespread fragmenta- tion and overlap covering nearly a dozen federal mission areas and involving over 30 programs and most departments and agencies. As the Government Performance and Results Act shifts the focus from inputs to results, each of its key stages-defining missions and desired outcomes, measuring performance, and using performance information-should present new opportunities for addressing crosscutting federal activities. (AIMD-97-146) SOCIAL SECURITY DISABILITY: SSAMUST HOLD ITSELF ACCOUNTABLE FOR CONTINUED IMPROVEMENT IN DECISIONMAKING This report evaluates the Social Security Administration’s (SSA) decisionmaking process for disability determinations. Each year, about 2.5 million people apply to SSA for disability benefits. The state agencies that conduct disability determinations for SSA award benefits to 35 percent of initial applicants. Yet administrative law judges typically award benefits to two-thirds of applicants who appeal the initial negative decision. Such inconsistent decisions are costly and time-consuming. As a result, SSA is redesigning the disability determination process to produce more consistent decisionmaking. (HEHS-97- 102) DEFENSE HEALTH CARE: TRICARE RESOURCESHARING PROGRAM FAILING TO ACHIEVE EXPECTED SAVINGS The goal of TRICARE, the Department of Defense’s (DOD) managed care pro- gram, is to improve the military community’s access to health care while maintain- ing quality and controlling costs. A potential cost-saving feature is resource sharing, in which a civilian health care provider supplements the capacity of a military hospital or clinic by providing civilian personnel, equipment, or supplies. DOD expected resource sharing to save $700 million over 5 years, but GAO estimates that it will realize only 5 percent of that amount. (HEHS-97-130) B-2 BOMBER: COST AND OPERATIONAL ISSUES Y The total cost of the Air Force’s B-2 bomber appears to have stabilized, although costs could increase if more performance deficiencies are identified. The aircraft are more sensitive to climate and moisture than expected. Operational testing shows that the aircraft also need frequent and lengthy maintenance. The Air Force has said that it is unlikely that such operational issues will be resolved, even with improved materials and repair processes. Therefore, if B-2sare to be used, some form of aircraft sheltering will be a requirement. (NSIAD-97-18 1) SEPTEMBER 1997 , MANAGING FOR RESULTS: CRITICAL ISSUESFOR IMPROVING FEDERALAGENCIES’ STRATEGIC PLANS The Government Performance and Results Act seeks to shift the focus of govern- ment decisionmaking and accountability away from a preoccupation with process activities-such as grants and inspections-to a focus on the results of those activities -such as real gains in employability, safety, responsiveness, or program quality. GAO reviewed draft strategic plans of 27 cabinet departments and agen- cies, and found that many lacked sufficient information to serve as a basis for guiding agencies and helping the Congress make informed decisions about activities and programs. (GGD-97-180) NUCLEAR NONPROLIFERATION AND SAFETY: CONCERNS WITH THE INTERNATIONAL ATOMIC ENERGY AGENCY’S TECHNICAL COOPERATION PROGRAM The United States is a leading financial donor to the International Atomic Energy Agency’s (IAEA) technical cooperation program, which provides equipment, expert services, and training to countries that intend to upgrade and establish nuclear facilities. Contrary to U.S. policy goals, IAEA has provided technical assistance to Cuba, Iran, and North Korea-all countries for which concerns exist about nuclear proliferation and threats to nuclear safety. In this report GAO recommends that the State Department systematically review all proposed technical assistance projects and, where projects are inconsistent with U.S. nuclear nonproliferation and safety goals, make U.S. objections known. (RCED-97-192) COMBATING TERRORISM: FEDERAL AGENCIES’ EFFORTSTO IMPLEMENT NATIONAL POLICY AND STRATEGY The threat of terrorist attacks against American citizens and property both at home and abroad is a high-priority concern, both from national security and criminal perspectives. This report provides information on national policy and strategy to combat terrorism, and federal agencies’ rorlesand responsibilities in implementing them. It discusses programs and activities to prevent and deter terrorism, to re- spond to terrorist threats, and to manage the consequences of a terrorist act, espe- cially one involving weapons of mass destruction, (NSIAD-97-254) NORTH AMERICAN FREE TRADE AGREEMENT: IMPACTS AND IMPLEMENTATION Testimony of]ayEtta Z. Hecker, Associate Director, International Relations and Trade hues, National Security and International Affairs Division It is difficult to evaluate the impact of NAFTA since 19 94 because the agreement’s provisions are generally being phased in over a 10; to 15year period. It is clear, however, that U.S. trade with Mexico and Canada has accelerated. Even though estimates of NAFTA’s impact on aggregate employment diverge widely-ranging from a gain of 160,000 jobs to a loss of 420,000 jobs-the agreement cannot be expected to substantially alter overall U.S. employment levels, which are determined largely by demographic conditions and macroeconomic factors such as monetary policy. (T-NSIAD-97-256) SPACESTATION: C&T CONTROL PROBLEMSARE WORSENING NASA and its international partners-Japan, Canada, the European Space Agency, and Russia-are together building the International Space Station. The partners are to provide station hardware and crew, and are expected to share operating costs and use of the station. Russia’s ability to honor its financial commitments is a serious concern. Another concern is that the cost and schedule performance of the Boeing Corporation, the prime contractor, has continued to decline virtually unabated. In order to make informed decisions, the Congress will need NASA’s complete and current information on the program’s cost and schedule, and on likely future risks. (NSIAD-97-213) AIRCRAFT ACQUISITION: AFFORDABILITY OF DOD’s INVESTMENT STRATEGY The Department of Defense needs to reorient its aircraft investment strategy to recognize the reality of a constrained overall defense budget for the foreseeable future. Instead of continuing to initiate aircraft procurement programs that are based on optimistic assumptions about available funding, Defense should determine how much procurement funding can realistically be expected and structure its aircraft investment strategy within those levels. (NSIAD-97-88) BALLISTIC MISSILE DEFENSE: IMPROVEMENTSNEEDED IN THAAD ACQUISITION PLANNING The Theater High Altitude Area Defense (THAAD) program is an $1 g-billion ground-based weapon system designed to protect U.S. forces, population centers, and industrial facilities from theater missile attack. Because all four attempts at target intercept have failed, THAAD is currently undergoing a program review and evaluation. GAO suggested that the Secretary of Defense use this opportunity to delay low-rate initial production of the THAAD system until after sufficient testing provides assurances that key performance requirements can be met. (NSIAD-97-188) INVENTORY MANAGEMENT: VULNERABILITY OF SENSITMZ DEFENSE MATERIAL TO THEFT This report reviews the Department of Defense’s oversight of its inventory of handheld category 1 (highly explosive and extremely lethal) missiles and rockets. Despite progress toward better oversight of handheld missiles, some weaknesses remain. Until the Department takes additional steps to further improve physical security and ensure accurate reporting of its inventory of missiles and rockets, vulnerabilities to theft from military arsenals will remain. (NSIAD-97- 175) FEDERAL ELECTRICITY ACTIVITIES: THE FEDERAL GOVERNMENT’S NET COST .AND POTENTIAL FOR FUTURE LOSSES The federal government incurs net costs of over a billion dollars annually to support the electricity-related activities of the Rural Utilities Service (RUS) and the power marketing administrations (PMAs); the GAO-estimated cost was $2.5 billion for fiscal year 1996. The financial difficulties faced by RUS borrowers, the PMAs, and the Tennessee Valley Authority create,the risk of further losses given the federal government’s $84 billion of direct and indirect financial involvement in these entities. The onset of competition in the electricity industry heightens this risk. (AND-97- 110) BUDGET ISSUES: BUDGETING FOR FEDERAL INSURANCE PROGRAMS Cash-based budgeting does not adequately reflect the government’s cost or the economic impact of federal insurance programs; this is because costs are recognized when claims are paid rather than when the underwriting commitment is made. In any given year, the cost of the, government’s ins,urance commitments may be under- stated or overstated because the time between receipt of program collections, the occurrence of an insured event, and the final payment of a claim can extend,over many years. Despite significant implementation challenges, accrual-based budgeting is.an alternative method which could improve cost recognition. The magnitude of federal insurance commitments-approximately $5 trillion in fiscal year 1995-and the risk for significant future costs, make this an important area for congressional consideration. (AIMD-97- 16) TAX ADMINISTRATION: TAXPAYERRIGHTS AND BURDENS DURING AUDITS OF THEIR TAXRETURNS Testimony ofJames R. White, Associate Director, Tzx Policy and Administnation Issues,General Government Division Taxpayers, tax professionals, and the Congress have criticized the Internal Revenue Service (IRS) for treating taxpayers improperly and imposing unnecessary burdens during taxpayer audits. Criticisms have focused on revenue agents subjecting compliant taxpayers to unnecessary audits, wasting taxpayers’ time by asking for irrelevant documents, and treating taxpayers unprofessionally and even abusively. IRS recently developed a survey to determine taxpayer satisfaction with the audit process; GAO believes that the survey’s usefulness will need to be evaluated. (T-GGD-97-186) FOREIGN BANKS: INTERNAL CONTROL AND AUDIT WEAKNESSES IN U.S. BRANCHES In 1995 one of the largest multinational banks in the world reported that it had incurred over $1 billion in losses from illegal securities trading at one of its New York branches over an 1 l-year period. Concerned about possible risks to the US. financial system, the Congress asked GAO to assessinternal control and audit weaknesses at U.S. branches of foreign banks. Lack of adequate segregation of duties in trading and/or electronic funds transfer activities-considered one of the most serious internal control weaknesses-was identified at nearly one third of U.S. branches of foreign banks. (GGD-97- 18 1) VIE W .OF r RA l-u DNS AND cr. AL M ANA< 1 M E INT This overview’includes A commitment to quality is the single most important principle governing a description of GAO and its GAO’s work. GAO highly values its mission, staff and the diversity and the skills a discussion of GAO’s performance they bring to serve the Congress and measures, a summary of quality control efforts and a description of GAO’s external Audit Advisory Committee, management’s assessment of internal controls and report on financial systems, and GAO’s Work by Category a description of the scope of the (Percent of Work) audit of GAO’s 1997 principal statements. Immediately following the overview are GAO’s principal statements for. fiscal years 1997 and 1996, the report of the -72 Audit Advisory Committee, and the independent auditors’ report. GAO AND ITS MISSION 28 ELI2 22 The General Accounting Offrice seeks to 17 encourage honest, efficient management and full accountability throughout the federal government. It serves the public - 199519961997 199519961997 interest by providing the Congress, other FiscalYears FiscalYears policymakers, and the public with Congressional GAO-initiated* accurate information, unbiased analysis, *Note: Initiated under basic legislative responsibility. and objective recommendations on the use of public resources. the public. GAO staff concentrate on environment, aviation security, defense specific issues that enable them to procurement, education and employ- become highly knowledgeable about the ment, transportation, tax administra- agencies and programs they audit. By tion, income security, housing, and maintaining expertise in key areas of many others. interest, GAO can respond quickly and comprehensively to requests from the While audits, evaluations, and investi- Congress. gations are the most visible aspects of GAO’s work and absorb the largest As shown on the chart on the preceding share of its resources, GAO has other page, about 83 percent of GAO’s work important functions. GAO prescribes during fiscal year 1997 was done at the accounting standards for the entire specific request of the Congress. GAO federal government in conjunction with is required to do work requested by the Offrce of Management and Budget committees; as a matter of policy, GAO (OMB) and the Department of the assigns equal status to requests from Treasury, and issues generally accepted committee chairs and ranking minority auditing standards for all levels of members. Also, to the extent possible, government entities. Finally, GAO GAO responds to requests from issues legal decisions on matters individual members. Finally, GAO involving government revenues and undertakes assignments independently expenditures, and on protests against in accordance with its basic legislative the award of federal government responsibilities. Details on cost and contracts. staff days of GAO audits, evaluations, and investigations for the past 3 fiscal GAO’SKEY PERFORMANCE years can be found in the Supplement to the Comptroller General’s annual MEASURES report. GAO monitors performance with a GAO’s audit work is managed through view toward continuously improving five audit divisions. The issues exam- efficiency and effectiveness. GAO’s key ined by GAO span the breadth of performance measures fall into two national concerns, including health care groups: (1) GAO’s service to the financing, financial management and Congress and the results of its work, as accountability, law enforcement, measured by financial benefits to the banking, information technology, government, other improvements in national security, energy and the government operations, the percentage of GAO recommendations implemented, the number of testimony revenue enhancements, all of which statements delivered, and overall product can be documented as either directly ’ output; and (2) the efficiency and attributable to or significantly influ- effectiveness of GAO’s work processes, as enced by GAO’s work. Although measured by the duration and cost of financial benefits fluctuate from year to jobs and timeliness in delivering work year, GAO seeks to identify significant results. GAO’s performance in all of financial benefits annually. In fiscal these key measures improved during year 1997, GAO’s work contributed to fiscal year 1997. legislative and executive actions that resulted in almost $21 billion in FINANCIAL BENEFITS measurable financial benefits. During the last 5 years, financial benefits GAO recommendations and audit totaled $88 billion-nearly $44 for findings frequently contribute to signifi- every dollar appropriated for GAO. cant financial benefits to taxpayers. These include budget reductions, costs IMPROVEMENTS IN GOVERNMENT avoided, appropriation deferrals, and OPERATIONS AND SERVICES Many of GAO’s recommendations and audit findings result in or contribute to improvements in the effectiveness and efficiency of government operations and services, although their impact Financial Benefits cannot always be quantified in mon- by Year etary terms. GAO documents these (Dollars in Billions) improvements with two performance measures. 20.9 First, GAO monitors corrective actions 19.5 taken and program improvements I 17.3 made in response to either a GAO 15.8 recommendation or an audit finding. GAO documented over 390 of these accomplishments in 1997, an increase of 45 percent from last year. The I accomplishments that result in finan- cial benefits that GAO can quantify are excluded from the chart that follows because they are reflected in the financial benefits performance measure. : 11995 1996 1997 Fiscal Years Second, GAO follows up on its recom- mented within 4 years. The time mendations to determine whether they needed to implement the recommenda- have been implemented. If past tions depends on the passage of imple- experience is a good indication, over 70 menting legislation, the pace at which percent of the key recommendations agencies take corrective action, and the GAO made in 1997 will be imple- scope of the corrective action recom- mended. Actions Taken as a Result of GAO Recommendations or Audit Findings 400 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 FiscalYears CONGRESSIONALTESTIMONY testified 182 times before 84 congres- sional committees and subcommittees. Responding to congressional requests for ,.. testimony is one of GAO’s most important PRODUCT OUTPUT services. Although the number of testi- mony appearances varies from year to year, In fiscal year 19 9 7, GAO produced congressional requests for GAO testimony 1,337 audit and evaluation products, are an indicator of the agency’s contribu- including 1,006 reports to, the Congress tion to the legislative process. In support- and agency of&&, 149 formal con- ing Congress this year, 65 GAO witnesses gressional briefings, and I82 Testimony ‘Products ~, s Delivered Issued 246 1.322 1,305 I 1,252 18: i 1993 1994 1995 1996 1997 993 1994 1995 1996 1997 Fiscal Years FiscaI Years congressional testimony statements. with which it is done. Accordingly, in This represents an increase of about 2 June 1996 GAO reengineered its percent over last year. process for doing audits and producing reports in order to reduce job duration DURATION AND COST OF JOBS AND and cost, and improve timeliness TIMELINESS relative to agreed-upon commitments. Nineteen ninety-seven was the first full GAO recognizes that success requires year under GAO’s reengineered job continuous improvement in both the process. During 1997 GAO’s perfor- quality of its work and the efficiency mance as measured against all three key verage Duration werage Cost of Timeliness of All f GAO Jobs iA0 Jobs External Products Months) Dollars in Thousands) (Percent on Time) -244 - 257 7.7 -224 219 r-l-i IIm 6.7 67 169 56 43 40 993 1994 1995 1996 1997 ,996 1997 1993 1994 1995 1996 1997 Fiscal Years FiscaI Years HscaI Years efficiency measures-duration, cost, and regulations relevant to GAO’s opera- timeliness-improved significantly. The tions. The Committee consists of the chart on the preceding page shows’the following three distinguished average duration and cost of jobs, as well individuals: as GAO’s timeliness in delivering the results of its work. SheldonS. Cohen (Chairman) is a CPA and a practicing attorney in Washington, D.C.; former’ QUALITY AND INTERNAL CONTROL Commissioner and ChiefCounsel j of the Internal Revenue Service; Quality is the hallmark of GAO’s work. and Secretary and Trustee of the To ensure that GAO maintains a high National Academy of Public level of quality, management maintains a Administration. quality control program and seeks advice and evaluation from both internal and Alan B. Levensonis a practicing external sources. attorney in Washington, DC., and a former senior official at the Through an internal Quality Control Securities and Exchange Assessment Program, GAO ensures that its Commission. quality control policies and procedures are providing reasonable assurances that its Katherine D. Ortegais a CPA, audit and evaluation work conforms with former Treasurer of the United the applicable professional requirements, States, former Commissioner of including generally accepted government the Copyright Royalty Tribunal, auditing standards. and former member of the President’s Advisory Committee on AUDITADVISORYCOMMITTEE Small and Minority Business. The Comptroller General established an MANAGEMENTRJP~RT~NINTERNAL external group in 1992 to advise GAO on CONTROLS ,. its internal financial operations and controls. The Audit Advisory Committee GAO is committed to fulfilling the discusses, reviews, and reports to the internal control objectives of the Comptroller General on the effectiveness Federal Managers’ Financial Integrity of GAO’s financial reporting and audit Act (FMFIA) of i982. Although GAO processes, internal controls over financial is not subject to. FMFIA, it has elected operations, and processes to ensure to comply with its requirements. compliance with applicable laws and GAO’s internal control structure is designed to provide reasonable assur- effective internal controls in the federal ance that government. On the basis of this assessment, GAO believes that it has an I#4 obligations and costs are in effective internal control structure in ..-* compliance with applicable laws place as of September 30, 1997. and regulations; a funds, property, and other assets GAO’s independent auditors have are safeguarded against loss from provided unauthorized acquisition, use, or disposition; and gj an opinion on GAO’s assertion on ;g revenues and expenditures the internal control structure, and applicable to GAO’s operations are fzd report citing any material a properly recorded and accounted conflicts between the for to enable GAO to prepare more-comprehensive GAO report accounts and reliable financial on internal controls, dated reports and maintain accountability December 12, 1997, voluntarily over its assets. I prepared under FMFIA, and the results of their examination of GAO management assessescompliance GAO’s assertion. with its controls through a series of comprehensive internal reviews, apply- The independent auditors’ opinion can ing the evaluation criteria in OMB’s be found on page 77. guidance (Circular A-123, Management Accountability and Control, and MANAGEMENTREPORTON FINANCIAL Circular A- 127, Financial Management SYSTEMS Systems) for implementing FMFIA. The results of these reviews are dis- cussed with GAO’s Audit Advisory GAO is committed to fulfilling the Committee, and action is taken objectives of the Federal Financial promptly to correct deficiencies as they Management Improvement Act are identified. It should be noted that (FFMIA) of 1996. Although not any internal control structure has subject to FFMIA, GAO has elected to inherent limitations, including the comply with its requirements. GAO possibility of circumvention or overrid- believes that it has implemented and ing of controls. maintained financial systems that comply substantially with federal GAO has assessedits internal ‘control financial management systems require- structure as of September 30, 1997, ments, applicable federal accounting based on criteria mentioned above for standards, and the United States Government Standard General Ledger at preparation of its fiscal year 1996 the transaction level as of September 30, principal statements, believing that 1997, and for the year then ended. doing so provided the user with GAO made this assessment based upon information of greater relevance to the criteria established under FFMIA, and government environment. OMB Memorandum dated September 9, 1997, Implementation The audit of the statements was Guidance for the Federal Financial performed by the independent auditors Management Improvement Act of 1996. Clifton Gunderson L.L.C. The independent auditors’ report on the GAO’s independent auditors have I principal statements, internal controls, provided an opinion on GAO’s asser- financial systems, and compliance with tion on its financial systems. The certain laws and regulations accompa- independent auditors’ opinion can be nies the principal statements. found on page 77. GAO’s 1997 hINCIl?AL STATEMENTS troller General for Operations The accompanying principal statements summarize GAO’s financial position, show the net cost of operations and the changes in net position during fiscal years 1997 and 1996, provide informa- Xistant Comptroller General for tion on budgetary resources, and Planning and Reporting reconcile the difference between accrual-based financial accounting and obligation-based budgetary accounting. GAO’s 1997 principal statements’have been prepared in accordance with the Acting Comptroller General of the requirements of the Chief Financial United States Officers Act of 1990, federal accounting standards, and OMB.Rulletin 97-01, Form and Content of Agency Financial Statements. The provisions of this bulletin are effective in their entirety for the preparation of financial statements for the fiscal year ending September 30, 1998. However, GAO implemented the provisions of this bulletin with the PRINCIPAL STATEMENTS U.S. GENERAL ACCOUNTING OFFICE STATEMENTS OF FINANCIAL POSITION As OF SEPTEMBER 30, 1997 AND 1996 Dollars in Thousands 1.937 1936 Assets Entity Assets Intragoverfimental Funds with the U.S. Treasury $63,003 $65,562 Accounts receivable 2,009 1,354 Governmental Accounts receivable 22 33 Travel advances 6 18 Supplies 304 244 Property and equipment, net 68,261 70,39 1 Total entity assets 133,605 137,602 Total Assets $133.605 $137.602 Liabilities Liabilities Covered by Budgetary Resources Intragovernmental Accounts payable $3,381 $4,932 Governmental Salariesand benefits 12,749 11,919 Employee travel 788 947 Accounts payable 10,463 10,139 Total liabilities covered by budgetary resoukes 27,38 1 27,937 Liabilities Not Covered by Budgetary Resources Governmental Accrued annual leave 25,302 26,360 Workers’ compensation 11,685 9,948 Comptrollers General retirement plan 2,531 2,546 Severancepay 6 563 Capital leases 288 278 Total liabilities not covered by budgetary resources 39,812 39,695 Total Liabilities $67,193 $67,632 Net Position Unexpended appropriations $37,659 $39,030 Cumulative results of operations 28,753 30,940 Total Net Position 66,412 69,970 Total Liabilities and Net Position $133.605 $137.602 The accompanying notes are an integral part of these statements. U.S. GENERAL ACCOUNTING OFFICE STATEMENTS OF NET COST FOR FISCALYEARS ENDED SEPTEMBER 30,197 AND 1996 Dollars in Thousand 1997 1936 Net Costsby ProgramArea Financial Audits, Systems,Information Management and Technology Issues $85,010 $80,836 Less reimbursable services (3,102) (3,534) Net program cost 81,908 77,302 National Defense, Security and International, Relations, and Other Related Issues 81,771 87,058 Less reimbursable services (34) (146) Net program cost 81,737 86,912 Energy, Agriculture, Environment, Housing, .’ Transportation, and NaturalResources Issues 64,264 : 74,635 Less reimbursable services (47) Net program cost -z-E > 74,588 Education and Employmenr, Health Care and Income Security Issues 56,008 61,741 Less reimbursable services 0 - Net program cost .1 56,004 61,741 Justice, Tax Policy, Financial Institutions, and General Management Issues 52,028 58,314 Less reimbursable services Net program cost * 58,314 - Legal Services 22,825 27,480 Less reimbursable services (15) (149) Net program cost 22,810 27,331 Special Investigations and Investigative Support 4,589 5,586 Less reimbursable services - (83) Net program cost 4,589 5,503 , Senior management and staff 3,405 3,949 Lessreimbursable servicesnot attributable to programs (1,589) (512)’ Net Cost of Operations $364,970 $395,128 The accompanying notes are an integral part of these statements. . U.S. GENERAL ACCOUNTING OFFICE STATEMENTS OF CHANGES IN NET POSITION FOR FISCALYEARSENDED SEPTEMBER 30,1997 AND 1996 Dolkmsin Thomands 1997 1996 Net Cost of Operations $364,970 $395,128 Financing Sources (other than reimbursable services) Appropriations used 340,670 383,962 Pension and other retirement benefit costspaid by OPM and imputed to GAO 22,032 23,739 Other costsimputed to GAO 178 - Intragovernmental transfer of property and equipment (97) (573) Total Financing Sources 362,783 407,128 Net Results of Operations (2,187) 12,000 Prior Period Adjustments - - Net Change in Cumulative Results of Operations (2,187) 12,000 Net Decrease in Unexpended Appropriations 0,371) (12,203) Change in Net Position (3,558) (203) Net Position - Beginning of Fiscal Year 69,970 70,173 Net Position - End of Fiscal Year $66,412 $69,970 The accompanying notes are an integral part of these statements. U.S. GENERAL ACCOUNTING OFFICE STATEMENTSOF BUDGETARY RESOURCES ‘, FOR FISCALYEARSENDED SEPTEMBER’~~, 1997 AND 1996 ! Dollars in Thousmch 1997 1996 BudgetaryResources MadeAvailable Current year appropriations $332,520 ./‘, ,$374,406 Transfers of budget authority, net 9,148 (661) Unobligated appropriations, beginning of fiscal year 11,964 i4,083 Reimbursable services 4,930 j 4,47 1 Cost sharing and pass-through CPA contract reimbursements 9;3\14 4,519 Total Budtzetarv Resources MadeAvailable $368,476 $396,818 Statusof BudgetaryResources Obligations incurred ’ ’ $350,232 $382,868 Unobligated, appropriations, end of fiscal year 15,874 11,964 Lapsed budget authority 2,370 1,986 Total,Statusof BudgetaryResources $368,476 $396,818 Outlays Obligations incurred $35O,i32 : $382,868 I Less: Reimbursable services (4,930) (4,471)’ Cost sharing and pass-through CPA contracts reimbtirsements .’ (9,914) (4,519) Obligated balance, net - beginning of fiscal year 53,598 80,354 Less: Obligated balance, net - end of fiscal year (47,119) (53,598) Total Outlays $341,857 $400,634 The accompanying notes are an integral part of these’statements. U.S. GENERAL ACCOUNTING OFFICE STATEMENTS OF FINANCING FOR FISCAL YEARSENDED SEPTEMBER 30, 1997 AND 1996 Dollars in Thousad 1997 1996 Obligations tid Nonbudgetary Resources Obligations incurred $350,232 $382,868 Less: Reimbursable services (4,930) (4,471) Cost sharing and pass-through CPA contracts reimbursements (9,914) (4,5 19) Financing imputed from OPM for pension and other retirement benefit cost subsidies 22,032 23,739 Other imputed financing 178 Intragovernmental transfer of property and equipment (97) 773) Total obligations as adjusted, and nonbudgetary resources 357,501 397,044 Resources That Do Not Fund Net Cost of Operations Net decreasein unliquidated obligations 5,281 10,084 Costs capitalized on the balance sheet (12,251) (24,874) Expensesto be funded by future appropriations (Appropriations provided to reduce unfunded liabilities) ‘107 ww Total iesources that do not fund net cost of operations (6,863) (15,670) Cost That Do Not Require Resources Depreciation 14,332 13,754 Net Cost of Operations $364,970 $395,128 The accompanying notes are an integral part of these statements. S TO P ‘I II?K AL I L EMEI\ 4 S T 1 .’ Note 1. Summary of Significant Accounting Policies Reporting Entity The accompanying principal stat&ems .’ present the financial position, net cost of operations, changes in net position, budgetary resources, and financing of&e United States Gerieral Accounti& Offke (GAO), an age.“? of the legislative bra$ch of the federal government. The financial activity presented relates primarily to the execution of GAO’s congressioklly approved budget. GAO’s budget consists of an a,pnual appropriation covering salaries and expenses and a building expenditure fund. The principal statenients, except for pension and other retirement benefit costs paid by the Office &Personnel Management (OPM) and imputed to GAO, do not include the effects of centrally administered assets and liabilities related to the federal government as a whole, such as interest on the federal debt, which may in part be attributable to GAO; they also do not include activity related to GAO’s ‘trust function described’in Note i0. Ba$s of Accounting Under the authority of the Chief Financial Offkers (CFO) Act of 1990, GAO partici: pated with the Office of Management and Budget (OMB) and the Department of the Treasury in the establishment of the Federal Accounting Standards Advisory Board (FASAB). FASAB’s purpose’ is to consider and recommend accounting principles,. standards, and requirements to GAO, Treasury, and OMB. The Comptroller General, the Secretary of the Treasury, and the Director of OMB (the three principals of FASAB) decide upon new principles, standards, and requirements after considering FASAB’s recommendations. The resulting standards are concurrently issued by GAO and OMB. GAO prepared its principal statements based upon the f?ll?w+g hierarchy of account- ing principles and standards: the accounting principles, standards, and requiretients approved by the I three principals and issued by GAO and OMB; interpretations related to the standards issued by OMB in accordance with OMB Circular A-134, Financial Accounting Principles and Standards; and form and content requirements for financial statements included in OMB Bulletin 97-01 (Form and Content of Agency Financial Statements). These principles differ from budgetary reporting principles. The differences relate principally to the capitalization and depreciation of property and equipment, as well as the recognition of other long-term assets and liabilities in the accompanying principal statements. Also, for purposes of the principal statements, budgetary appropriations are realized as a financing source as accrued expenses are recognized. Basis of Presentation GAO’s 19 97 principal statements have been prepared in accordance with the require- ments of the CFO Act of 1990, federal accounting standards, and OMB Bulletin 97-01. The provisions of this bulletin, which incorporates federal accounting standards recommended by FASAB and issued by’GA0 and OMB, are effective in their entirety for the preparation of financial statements for the fiscal year ending September 30, 199 8. However, GAO implemented the provisions of this bulletin with the preparation of its -1996 principal statements. Funds With the U.S. Treasury GAO’s receipts and disbursements are processed by the U.S. Treasury. Funds with the U.S. Treasury represent appropriated funds available to pay current liabilities and to finance authorized purchase commitments. Accounts Receivable GAO’s accounts receivable are due principally from federal government corporations and other federal agencies for audit and other reimbursable services. Property and Equipment On October 28, 1988, Public Law loo-545 transferred control of the GAO building and land in Washington, D.C., from the General Services Administration to GAO without a monetary exchange. At the time of transfer, the depreciated value of the building was $15664,000 and the book value of land was $1,191,000. GAO recorded the building and the land as assets’at the values stated above.. The GAO building is listed in the National Register of Historic Places, and has been designated as a heritage asset. Statement of Federal Accounting Standards Nos. 6 and’8 require that heritage assets be reported in a separate stewardship reporting section and not on the ‘Statement of Financial Position (SOFP). GAO removed the building and land from the SOFP with the preparation of its 1396 principal statements. Property and equip- ment costing more than $5,000 is capitalized at cost. Bulk purchases oflesser-value items that aggregate more than $100,000 are also capitalized at cost. These assets are depreciated on a straight-line basis over the estimated useful life of the property, ranging from 2 to 20 years. Liabilities Liabilities represent the amounts that are likely to be paid by GAO as ‘a result of transactions that have already occurred; however, no’liability is paid by GAO absent an appropriation. Liabilities for which an appropriation has not been enacted are, there- fore, classified as liabilities not covered by budgetary resources. Although future appropriations to fund these liabilities are likely and anticipated, it is not certain that appropriations will be enacted to fund these liabilities. Pension and Other Retirement Benefits Statement of Federal Accounting Standards No. 5, Accounting for Liabilities of the Federal Government, requires that GAO recognize its share of the cost of providing future pension benefits to eligible employees over the period of time that services are rendered. The pension expense recognized in the principal statements equals the current service cost for GAO’s employees for the accounting period less the amount contributed by the employees.. The measurement of the service cost requires the use of an actuarial cost method and assumptions, with the factors applied by GAO provided by OPM, the agency that administers the plan. The excess of the recognized,pension expense over the amount contributed by GAO represents the amount being financed directly through the Civil Service Retirement and Disability Fund administered by OPM. This amount is considered imputed financing to GAO. The standard also requires that GAO recognize a current-period expense .for the future cost of post-retirement health benefits, and life insurance for its employees tihile they are still working. This expense is GAO’s Other Retirement Benefit (ORB) expense. GAO accounted for and reported the ORB expense in its principal statements in a -. ! 6j manner similar to that used for pensions, with the exception that employees and GAO do not make current contributions to fund these future benefits. Annual Leave, Sick and Other Leave Annual leave is recognized as an expense and a liability as it is earned; the liability is reduced as leave is taken, The accrued leave liability is principally long-term in nature. Sick leave and other types of leave are expensed asleave is taken. Contingencies GAO has certain claims and lawsuits pending against it. When claims are expected to result in payments, and the payment amounts can be reasonably estimated, appropriate provision is included in the accompanying principal statements. In the opinion of management and legal counsel, the resolution of other claims and lawsuits will not materially affect the financial position or operations of GAO. Reclassifications Certain amounts for 1996 have been reclassified to conform with the 1997 presentation of those amounts. Note 2. Property and Equipment, Net The composition of property and equipment as of September 30, 1997, is as follows: Dollarsin Thousands Chses of Property Acquisition Accumulated Net Book and Equipment VaZue Depreciation Value Buildingimprovements $75,416 $34,738 $40,678 Computer and other equipment, Ad ADP sofnnrare 52,748 26,280 26,468 Leasehold improvements 4,384 4,074 310 Assetsunder capital lease 2,559 1,754 805 Total Property and Equipment $135,107 $66,846 $68,261 The composition of property and equipment as of September 30, 1996, is as follows: .i ‘2, Dolkars in Thousand ,’ Classes of Property Acquisition Acwmulated Net Book and Equipment Value Depreciation WUe Building improvements $67,992 $28,902 $39,090 Computer and other equipment, and ADI? software 50,311' 20,401 29,910 Leasehold improvements 5,305 +,84> 460 Assetsunder capital lease 2,589 1,658 931 Total Property and Equipment $126197 $55,806, $70,391 ( Note 3. Net Position GAO’s operations do not require permanent capital and are not expected’ to generate an operating surplus or deficit. Net Position is composed of two ‘elements-unexpended. appropriations and cumulative results of operations. Unexpended appropriations includes appropriations not yet obligated or expended, i.e., unobligated appropriations and unliquidated obligations, Unobligated appropriations were $15,874,000 as of September 30, 1997, and ,$l 1,964,000. as of September 30, 1996; unliquidated obliga- .tions were $21,785,000 as of September 30, 1997, and $27,OG,G,OOOas of September 30, 19% Cumulative results of operations inchtdes the amounts.accumulated over the years by GAO from its financing sources less its expenses, including donations and transfers of capitalized assets and an amount representing GAO’s liabilities not covered by budgetary resources. The former represents GAO’s investment in capitalized assets, including supplies, net of capital lease liability. Liabilities not covered by budgetary resources represent aggregate amounts of congres- sionally authorized long-term liabilities (annual leave, workers’ compensation, retire- ment benefits for Comptrollers General, and severance pay) that are expected to be funded by future years’ appropriations. Note 4. Net Cost of Operations The Statements of Net Cost show the full and net operating costs of GAO’s major programs. Expenses for salaries and related benefits for fiscal years 1997 and 1996 i amounted to $270,679,000 and $283,125,000, respectively. In fiscal years 1997 and 1996;salaries and related benefits were 74 percent and 72 percent, respectively, of GAO’s net cost of operations. Included in the net cost of operations are pension and other retirement benefit costs paid by OPM and imputed to GAO of $22,032,000 in fiscal year 1997 and $23,739,000 in fiscal year 1996. Revenues from reimbursable services earned by a program area are shown as an offset against the full cost of the program to arrive at its net cost. These revenues consist primarily of billings to federal government corporations for financial statement audits performed by GAO, and to federal agencies for detailed GAO employees performing GAO mission-related work. Earne,d revenues that are insignificant or cannot be associated with a major program area are shown in total. Revenues from reimbursable services for fiscal years 1997 and 1996 amounted to $4,930,000 and $4,471,000, respectively: The net cost of opera- tions represents GAO’s operating costs that must be funded by financing sources other than revenues earned from reimbursable services. These financing sources are presented in the Statements of Changes in Net Position. Note 5. Net Financing Sources GAO’s financing sources, other than reimbursable services, consist of appropriations used and imputed financing, less transfers-out. Appropriations are considered used as a financing source when goods and services are received or benefits are provided. This is true whether the goods, services, and benefits are paid prior to the reporting date or are payable as of that date, and whether the appropriations are used for items that are recorded as expenses or are capitalized. Imputed financing is the offset to the pension and other retirement benefit costs paid by OPM and imputed to GAO that are re- ported on the Statement of Net Cost. Transfers-out represent the book value of capitalized assets transferred from GAO to other federal agencies without reimburse- ment. Note 6. Spending Authority from Budget Transfers and Reimbursements Budgetary resources made available to GAO include spending authority from budget transfers and reimbursements arising from both revenues earned by GAO from provid- ing services to other federal entities for a price (reimbursable services) and cost sharing and pass-through contract arrangements with other federal entities. Fiscal year 1997 budget transfers consist primarily of budget authority transferred-in from the Depart- ment of Health and Human Services for GAO-directed work related to medical savings accounts. Budget transfers in fiscal year 1996 consist of budget authority 4 J transferred-out to executive branch agencies related to the~transfer of GAO’s claims .’ functions. Reimbursements from cost sharing and pass-through contract arrangements consist primarily of collections from other federal entities for the support of the Joint Financial Management Improvement. Program and FASAB, and collections from other federal entities that utilize standing GAO contracts for obtaining accounting and auditing services from CPA firms. The costs and reimbursements for these activitiesare not included in the Statements of Net Cost. ’ Note 7. Leases ; Capital Leases ‘. GAO has entered into several ,noncancelable capital leases under which the ownership ,of the equipment covered under the leases transfers to GAO. when the leases expire. When GAO enters into these leases, the present value of the future lease payments is I capitalized and recorded as a liability. , Operating Leases 1 GAO leases.ofIke space from the GeneralServices Administration and has entered into. various other operating leases for o&e communication and ADP equipment. Gener-, ally, leases are cancelable by either party without penalty, upon 120 days’ notice, and future lease payments are not accrued as liabilities. Lease costs for office space and j equipment for fiscal years 1997 and 1996 amounted to approximately $9,200,000 and $16,700,000, respectively. The decrease in lease costs from fiscal year 19 9 6 to 13 9 7 L 1 resulted primarily from the closing,of audit sites in Washington, D.C., and the result- ing relocation of affected employees into the GAO building., GAO’s estimated future minimum lease payments are as follows: Dollars in Thou-sad FiscalYear end September 30 Total 1998 $7,095 1999 5,674 2000 5,113 2001 4,164 2002 3,837 Thereafter 7,963 Total Estirriated Future Lease P&vwnts $33,846 i Note 8. Retirement andOther Benefits Allpermanent employees participate in the contributory Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS), which became effective January 1, 1987. Temporary employees and,employees participating in FERS are covered under the Federal Insurance Contributions Act (FICA). GAO makes matching contributions to the CSRS, FERS, and FICA and matches employee contributions to the thrift savings component of FERS up to 5 percent of basic pay. The pension expense recognized in GAO’s principal statements for fiscal years 1997 and 1996 amounted to approximately $34,250,000 and $37,324,000, respectively. These amounts include pension costs financed by OPM and imputed to GAO of $14,535,000 and $17,006,000, respectively. To the extent that employees are covered by FICA, the taxes they pay to the program and the ,benefits they will eventually receive are not recognized in GAO’s principal statements. However, the payments to FICA that GAO makes are recognized as operating expenses. These payments amounted to approximately $8,387,000 and $8,847,000 during fiscal years 1997 and 1996, respectively. Similarly, to the extent that GAO employees are covered by the thrift savings component of FERS, GAO payments to the plan are operating expenses. GAO’s costs associated with the thrift savings component of FERS during fiscal years 1997 and 1996 amounted to approximately $3,813,000 and $3,867,000, respectively. ‘1 In addition, all permanent employees are eligible to participate in the contributory Federal Employees Health Benefits Program (FEHBP) and Federal Employees Group Life Insurance Program (FEGLIP) and may continue to participate after retirement. GAO makes matching contributions to the FEHBP and FEGLIP for active employ- ees to pay for their current benefits. GAO’s contributions for active employees are recognized as operating expenses and, during fiscal years 1997 and 1996, amounted to approximately $8,392,000 and $9,002,000, respectively. Using the cost factors supplied by OPM, GAO has also recognized an ORB expense in its principal statements for the future cost of post-retirement health benefits and life insurance for its employees. These costs amounted to approximately $7,497,000 and $6,733,000 during fiscal years 1997 and 1996, respectively, and are financed by OPM and imputed to GAO. Comptrollers General and their surviving beneficiaries who qualify and so elect to participate are paid retirement benefits by GAO under a separate retirement plan. These benefits are funded from current year appropriations and amounted to approximately,$239,500 and $102,300 during fiscal years 1397 and 1996, respectively. Since GAO is responsible for future payments under this plan, the estimated-present value of accumulated plan benefits is recorded as an unfunded liability. The estimated present value of accumulated plan benefits was $2,531,000 as of September 30, 1997, and $2546,000 as of September 30, 1996. Note 9. Workers’ Compensation The Federal Employees’ Compensation Act (FECA) provides income and medical cost protection to covered federal civilian employees injured on the job, employees’who have incurred a work-related occupational disease, and beneficiaries ofemployees whose death is attributable to a job-related injury or occupational disease. Claims incurred for benefits for GAO employees under FECA are administered by the Department of Labor (DOL) and are ultimately paid by GAO. GAO recorded an estimated liability for claims incurred as of September 30, 1997 and 19 9 6 and expected to be paid in future periods. The estimated future liability for such claims was calculated using historical payment data and lo-year Treasury bond interest rate projections published by OMB to project future costs. GAO calculated the estimated future liability using an actuarially based model developed for DOL and modified for use by GAO. The increase in the estimated liability from fiscal year 1996 to 1997 of $1,737,000 resulted primarily from a 20-percent reduction in the interest rate projections used for the fiscal year 1997 calculation. Estimates of this nature are sensitive to changes in interest rates. Lower interest rates result in a higher estimated liability because, if the future.liability were funded, a larger initial investment would be required to provide a given amount of future benefits. Likewise, higher interest rates require a smaller initial investment. Therefore, fluctuations in interest rate projections have an immediate effect on the estimated future liability even if historical payments remain relatively stable. The total liability also includes amounts paid to claimants by DOL as of September 30, 1997 and 1996 of $2,310,000 and $2,154,000, respectively, but not yet reimbursed to DOL by GAO. Note 10. Davis-Bacon Act Trust Function GAO is responsible for administering for the federal government the trust function of the Davis-Bacon Act receipts and payments. GAO maintains this fund to pay claims relating to the Davis-Bacon Act and Contract Work Hours and Safety Standards Act violations. Under these acts, DOL investigates violation allegations to determine if federal contractors owe additional wages to covered employees. If DOL concludes that a violation has occurred, GAO collects the amount owed from the contracting federal agency, deposits the funds into an account with the U.S. Treasury, and remits payment to the employee. GAO is accountable to the Congress and the public for the proper administration of the assets held in the trust. Trust assets under GAO’s administration totaled approximately $4,937,000 on September 30, 1997. These assets are not the assets of GAO or the federal government and are held for distribu- tion to appropriate claimants. During fiscal year 1997, receipts and disbursements in the trust amounted to $894,000 and $1~546,000, respectively. Since the trust assets and related liabilities are not assets and liabilities of GAO, they are not included in the accompanying principal statements. 3-E ASSETS U.S. GENERAL ACCOUNTING OFFICE > * ANNUAL STIW~RDSHIP INFORMP~TION :. As O;F SEPTEMB& $0,. 1397 .; Heritage assets are property, plant, and equipment @P&E) possessing one-or I more of the following characteristics: historical or natural significance; cultural, !. educational, or aesthetic value; or significant architectural characteristics. In general,, the cost of heritage assets is not often relevant or determinable, and the :, * useful life of heritage assets is not reasonably estimable for depreciation purposes. Rather, the most relevant information about heritage assets is their existence and condition. Therefore, heritage assets are required to be reported only in terms of physical units. However, in the case of the GAO building, its value is known as described below. On October 28, 1988, Public Law loo-545 transferred control of the General Accounting Office building and land in Washington, D.C., from the General Services Administration to GAO without a monetary exchange. At the time of transfer, the depreciated value of the building was $15,664,000, and the book value of land was $1,191,000. GAO recorded the building and the land as assets at the values stated above. \ The GAO building is listed in the National Register of Historic Places as a symbol of a new age in federal office design. The building holds historical significance as the first structure erected exclusively for occupancy by the General Accounting Offrce. It is one of the first federal office buildings to be completely air-conditioned and artificially lit; and the first modern, block-type building to be constructed for the federal government. Its construction marked a distinct departure from the “fish-bone”‘type of office building, which used either interior courts or a series of wings branching from a central spine in order to provide both air and light. Statement of Federal Accounting Standards Nos. 6 and 8 requirethat heritage assets be reported in a separate stewardship reporting section and not on the statement of financial position (SOFP). GAO removed the building and land from the SOFP with the preparation of its 1996 principal statements. Since acquiring control of the building, GAO has expended considerable resources for renovation and improvement of the building, including asbestos abatement, major redesign of office space, installation of communication wiring for local area network, upgrading of fire alarm system, and renovation of the parking garage-all to enhance use of the building for operating purposes. The costs of these projects have been capitalized as general l?I?&E and depreciated over their expected useful lives. Building improvement for operational efficiency is expected to continue. Maintenance of the building has been kept on a current basis, and the expense is recognized as incurred. There is no significant deferred.maintenance cost. r OF THE AUDIT, ‘ISORY COMMITTEE The Audit Advisory Committee was established to advise the Comptroller General on the U.S. General Accounting Of&e’s (GAO) financial operations. As part of that responsibility, the Committee meets with agency management and its internal and external auditors to review and discuss GAO’s external financial audit coverage, the effectiveness of GAO’s internal controls over its financial operations, and its compliance with certain laws and regulations that could materially impact GAO’s principal statements. The Committee reviews the findings of internal and external auditors, and GAO’s responses to those findings, to ensure that GAO’s plan for corrective action includes appropriate and timely follow-up measures. In addition, the Committee reviews and comments on drafts of GAO’s annual report, including the principal statements. The Committee met twice during fiscal year 1997, including sessions with the Acting Comptroller General and with GAO’s external auditors. On occasion, the Committee met with the external auditors without GAO management being present. Sheldon S. Cohen Chairman Audit Advisory Committee IND E rPEND E AUDIT REPORT Independent Auditor’s Report Comptroller General of the United States We have audited the General Accounting Office’s Principal Statements, referred to below, as of and for the years ended September 30, 1997 and 1996, and have examined management’s assertions, included in the accompanying management reports on internal controls and iinancial systems, that the General Accounting Office has an effective internal control structure over financial reporting, safeguarding of assetsand compliance with applicable laws and regulations in place as of September 30, 1997 and that the General Accounting Office has implemented and maintained fmancial systems that comply substantially with federal financial management systems requirements, applicable federal accounting standards and the United States Government Standard ,. General Ledger at the transaction level as of September 30,1997 and for the year then ended.’ In our opinion: l The Principal Statements are presented fairly, in all material respects; and l Management’s assertion that the General Accomu.ing Office has an effective internal control structure over financial deporting, safeguarding of assets and compliance with applicable laws and regulations in place as. of September 30, 1997 is fairly stated, in all material respects, based upon criteria established under the Federal Managers Financial Integrity Act of 1982, and the Office’ of Management and Budget Ciicular A-123, Management Accountability and Control. l Management’s assertion that the General Accounting Office has implemented and maintained financial systems that comply substantially with federal financial management systems requirements, applicable federal accounting standards and the ,United States Government Standard General Ledger at the trsnsaction levelas of September 30, 1997 and for the year then ended is fairly stated, in all material respects, based upon criteria established under the Federal Financial Management Improvement Act of 1996 (FFMIA), and the Office of Management and Budget Memorandum dated September 9, 1997, Implementation Guidance for the Federal Financial Mmiagemeizt Improvement Act @?WU) of 1996. We found: l No material conflicts with the General Accounting Office’s report on internal controls dated December 12, 1997, voluntsrily prepared under the Federal Managers’ Financial Integrity Act of 1982; and l No instances of noncompliance with the selected provisions of applicable laws and regulations tested. Each of these conclusions is discussed in more detail below. This report also discussesthe scope of our work. Membrmof Opinion On Principal Statetients In our opinior~ the accompanying Principal Statements including the ‘notes thereto on pages 59 through 73 present fairly, in all material respects, the GeneraLAccounting Office’s: l firiancial position as of September 30,1997 and 1996; l net cost bfoperations; l c)anges in net position; l stat& ofb@g&uy reso@es; ahd ,, ‘ l hnc~gfort+. yearsthen ende$ in co&h&y with federal generally accepted accounting pri&ples,‘as d&&bed in Note 1 to the Pr$icip$ Statemtints.’ Opinion on Management’s Assertion on the Internal Control Structure Over Financial Reporting, Safegkwding vf Assets and Compliance with Applicable Laws and Regulations We $a&:exhi&d ma&geme~t~s.assertipq,included in‘the accompanying management report on inteeal oonvols, ‘&a$ t& &neral Accounting Office has an effective internal control &ructure over finq@l reporting, saf&uard&g of’ assets and compliance with applicable laws and regulations in~place as of September .30, 1997. These internal controls are designed by management to provide reasonable, but not absolute, assurance that the following objectives are met: ” .,’ l obligations and costs are in compliance with applicable laws zindregulations; l funds, proberty and other assetsare safeguarded igainst loss from unauthorized acquisition a’ use, or disposition; and J< l revetlUe and expenditures applicrible to the General Accchn~ ‘&de’s operations are properly recorded and accounted for to enable the General Accounting O&e to prepare accounts and reliable ,$inancialrep@s,and to maintain accountabiity over its assets. In our opinion management’s assertion that the General Acckmting. Office %as an effective internal control structure over financial reporting, safeguarding of asgets and compliance with aljplicable lirws and regulations in place as’of September 30,’ 1997 is fairly stated, in all material respects, based upon critkia established under the Federal Manageis’ Fihancial Integiity Act of 1982 and the Office of Management and Budget Circular A-123, Management &c&ntability and Control, insofar as the objectives stated above pertsin to the prevention or detection of errors and irregularities in amounts that would be material to&e Principal Statements. In addition, we found no material conflicts between the results of our examination and the General Accounting Office’s report on intekl controls dated,Deceqber 12, 1997, volimta+y preptied under the Fedeisil Managers’ Financial Integrity Act of 1982. Opinion on i%Janagement’s Assertion on Financial Systems We have examined management’s assertion, included inthe accompanying management report on financial systems, that the General Accounting Office has implemented and maintained tinancial systems that comply substantially with federal tinancial management systems requirements, applicable federal accounting standards and the United States’ Government Standard General Ledger at the transaction level as of September 30,1997 and for the year then ended. In our opinion management’s assertion that the General Accounting ,Office has implemented and maintained kancial systemsthat comply substantially with federal t@ui&il management systems requirements, applicable federal accounting standards and the United States Government Standard General Ledger at the transaction level as of September 30, 1997 and for the year then ended is fairly stated, in all material respects, based upon criteria established under the Federal Financial Management Improvement Act of 1996 (PPMtA), and the Office of Management and Budget Memorandum dated September 9, 1997, Implementation Guidance for the Federal Financial Management Improvement . ,.Act @TMLj) of 1996. : CompliGce With Laws and Rkgulatidns As part of obtaining reasonable assurance about whether the Principal Statements are free of material misstatement. we performed tests of the General Accounting Office’s compliance with selected provisions of laws and regulations: However, the objective of our audit of the Principal Statements, including our tests of:compliance with selected provisions of applicable.laws and regulations, was not to provide an opinion on overall compliance with such provisions. Accordingly, we do not express such an opinion. _, ‘. The results of our tests disclosed no instances of non-compliance that are required to be reported -2 herein under Government Auditing Stanabrdx This. conclusion with respect to our tests of compliance with selected provisions of applicable laws and regulations is intended solely ,for the information of Congress and the General Accounting Office’s management. However, this report is a matter of public record and its distribution shouldnot belimited. ‘- : c: r ’ -Responsibilities and ,Metliodofogy -1 Management has the responsibility for: l preparing the PrincipaJ Statements m conformity,with federal generally.accepted accounting principles as described in Note 1 to the Principal Statements; I l establishing and maintaining an effective internal control structure; and l complying with applicable laws and regulations. Further, management has elected to comply with ah of the relevant provisions of the Federal Managers’ Finankd Integrity Act of 1982 and the Federal Financial Management Improvement Act of 1996. i Our responsibility is to express an opinion on the Principal Statements, b,asedon our audits and express opinions on management’s assertions (1) .that the General Accounting Office has an effective internal control structure over tinancial reporting, safeguarding of assetsand compliance with applicable laws and regulations, and (2) that the General Accounting Office has implemented and maintained financial systems ‘that comply substantially with federal financial management systems requirements, applicable federal, accounting standards and the U. S. Government Standard General Ledger at the Transaction level; based on our examinations. Accordingly, we planned and performed the audits and examinations to obtain reasonable assurance about whether (1) the Principal Statements are free of material misstatement and are presented in accordance with federal generally accepted accounting principles as described in ,.Note 1 to the Principal Statements, (2) management’s assertion that the General Accounting Office ,has an effective internal control structure over financial reporting, safeguarding of assets and complianke with applicable laws and regulations in place as of September 30, 1997 is fairly stated, in alI material respects, based upon criteria established under the Federal Managers”~Financial Integrity,Act of 1982, and the Office of Management and Budget Circular A-123, Manugement Accountability und Control, and (3) management’s assertion that the General Accounting O&e has implemented and maintained financial systems that comply substantially with federal fjnancial management systems requirements, applicable federal accounting standards and the United States Government Standard General Ledger at the transaction level as of September 30, 1997 and for the year then ended is fairly stated, in all material respects, based upon criteria established under the Federal Financial Management Improvement Act of 1996 (J?FMlA), and the Office of Management and Budget Memorandum dated September 9, 1997, Implementution Guidance for the Federal Financial Management. Improvement Act (l?I?MiX) of 1996. We are also responsible for testing compliance with selected provisions of applicable laws and regulations that may materially affect the Principat Statements. ( In order to fblflll these responsibilities, we l examined on a test basis, evidence supporting the amounts and disclosures in the Principal Statements; . assessedthe accounting principles used and. sign&ant estimatesmade by management; l evaluated the overall presentation of the Principal Statements; T obtained an understanding of the. internal control structure over financial reporting, safeguarding of assetsand compliance with applicable laws and regulations; . tested and evaluated the design and operating effectiveness of relevant internal controls over significant cycles, classesof transactions, and account balances; . tested compliance with selected provisions of the following laws and regulations that ,may materially affect the Principal Statements: - Antideficiency Act; - Fair Labor Standards Act; - Civil Service Retirement Act; - General Accounting Office Personnel Act of 1980; - Federal Employees’ Compensation Act; - Federal Employees’ Health Benefits Act of 1959; - - Federal Employees’ Group Life Insurance Act of 1980: and - Federal Managers’ Financial Integrity Act of 1982; - Federal Financial Management Improvement Act (FFMIA) of 1996. l performed other procedures as we considered necessy in the circumstances; and l compared, at management’s request, the General Accounting Office’s most recent Federal Managers’ Financial Integrity Act of1982 report on internal controls dated December 12, 1997 with the results of our examination of management’s assertion, included in the accompanying management report on internal controls, that the General Accounting Office has an effective internal control structure over financial reporting, safeguarding of assetsand compliance with applicable laws and regulations in place as of September 30, 1997. We did not evaluate the internal controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982, such as those controls relevant to ensuring efficient operations. We limited our work to accounting and other controls necessary to achieve the objectives identified in our opinion on management’s assertion on the internal control structure over financial reporting, safeguarding of assetsand compliance with applicable laws, and regulations. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless ocour and not be detected. We also caution that projecting the results of our examination to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with controls may .deteriorate. Gur audits were conducted in accordance with generally accepted auditing standards; Government Auditing Sfan&ra%, as issued by the Comptroller General of the United States; and OMB Bulletin 93-06, Audit Requiremenfs for Federal Financial Statemenfs. Our examinations of management’s assertions, included in the accompanying management reports on internal controls and financial systems, that the General Accounting Office has an effective internal control structure over financial reporting, safeguarding of assetsand eomplisnoe with applicable laws and regulations in place as of September 30, 1997, and that the General Accounting Office has implemented and maintained financial systems that comply substantially with federal financial management systems requirements, applicable federal accounting standards and the United States Government Standard General Ledger at the transaction level as of September 30, 1997 and for the year then ended, were conducted in accordance with standards established by the American Institute of Certified Public Accountants; Government Auditing Stan&r&, as issued by the Comptroller General of the United States; and OMB Bulletin 93-06, Audit Requirements for Federal Financial Statements. We believe that our audits and examinations provide a reasonable basis for our opinions. Supplemental Information. Our audit was made for the purpose of forming an opinion on the Principal Statements taken as a whole. The accompanying annual stewardship information on pages 74 and 75 is presented for purposes of additional analysis and is not a required part of the Principal Statements but is required supplementary information. Such information has been subjected to the auditing procedures applied in the audit of the Principal Statements and in our opinion, is presented fairly, in sll material respects, in relation to the’principal Statements taken as a whole. Consbtency of Other Information. The Overview of Operations and Financial Management and other supplemental information in “Highlights bf GAO Reports and Testimony” and in “Supplement to the Comptroller General’s 1997 Amtual Report” contain a wide range of data, some of which is not directly related to the Principal Statements. Professional standards require the auditor to read this information and consider whether such information, or the msnner of its presentation, is materially inconsistent with the information or the manner of its presentation appearing in the Principai Statements. Ifbased on such reading the auditor concludes that there is a material inconsistency, the auditor should determine whether the Principal Statements, the report, or the other information require revision. Nothing came to our attention to indicate that this hrformation is materially inconsistent with the Principal Statements. PHOTO INDEX PAGES G & 7 HIGHLIGHTS OF GAO REPORTSAND TESTIM Photo1 James F. Hinchman, Acting Comptroller General of the United States Photo2 Henry L. Hinton, Jr., Assistant Comptroller General, National Security and International Affairs Division Photo3 Lynda D. Willis, Director, Tax Policy and Administration Issues, General Government Division Photo4 William J. Scanlon, Director, Health Financing and SystemsIssues,Health, Education and Human ServicesDivision Photo5 Cynthia M. Fagnoni, Acting Associate Director, Veterans’ Affairs and Military Health Care Issues, Health, Education and Human ServicesDivision Photo6 Gerald L. Dillingham, Associate Director, Transportation Issues,Resources, Community, and Economic Development Division Photo7 Joel C. Willemssen, Director, Information Resource Management, Accounting and Information Management Division
Comptroller General's Annual Report 1997
Published by the Government Accountability Office on 1997-01-01.
Below is a raw (and likely hideous) rendition of the original report. (PDF)