Status of Open Recommendations: Improving Operations of Federal Departments and Agencies

Published by the Government Accountability Office on 1997-01-24.

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

               United States General Accounting Office

GAO            Annual Report to the Chairmen and
               Ranking Minority Members, Senate and
               House Committees on Appropriations

January 1997
               STATUS OF OPEN
               Improving Operations
               of Federal
               Departments and

                G       A            O
                            1921 - 1996

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

      Comptroller General
      of the United States


      January 24, 1997

      The Honorable Ted Stevens
      Committee on Appropriations
      United States Senate

      The Honorable Robert C. Byrd
      Ranking Minority Member
      Committee on Appropriations
      United States Senate

      The Honorable Robert L. Livingston
      Committee on Appropriations
      House of Representatives

      The Honorable David R. Obey
      Ranking Minority Member
      Committee on Appropriations
      House of Representatives

      This is our annual report on the status of open recommendations resulting from the General
      Accounting Office’s (GAO) audits, evaluations, and other review work in federal departments
      and agencies. To encourage prompt, responsive actions on our recommendations, we
      systematically followup on them and annually report on their status.

      We are sending copies of this report to the Office of Management and Budget and federal
      departments and agencies so that they may respond to inquiries about these issues during
      appropriations and oversight hearings. We are also sending copies to Chairs and Ranking
      Minority Members of all House and Senate committees and subcommittees to better inform
      them of our open recommendations.

      James F. Hinchman
      Acting Comptroller General
      of the United States

           Page 2   GAO/OP-97-1

          Each year, GAO’s work contributes to many legislative and executive
          branch actions that result in significant financial savings and other
          improvements in government operations. Some, but not all, are identified
          through GAO’s system for periodically following up to determine the status
          of actions taken on the recommendations made in its audit and evaluation
          reports. About 70 percent of the recommendations made over the past 5
          years have been implemented.

          This report includes summaries highlighting the impact of GAO’s work and
          associated key open recommendations—those recommendations which
          have not been fully implemented. It also includes a set of computer
          diskettes with details on all open recommendations. This information
          should help congressional and agency leaders prepare for upcoming
          appropriations and oversight activities and stimulate further actions to
          achieve the desired improvements in government operations.

          The diskettes have several menu options to help users find information
          easily. For example, a user may search for an open recommendation by
          using product numbers, titles, dates, names of federal entities,
          congressional committees, or any other word or phrase that may appear in
          the report. Instructions for operating the electronic edition have been
          enclosed with the diskettes and are also in appendix I of this publication.

          The name and the telephone number of the GAO manager to contact for
          information or assistance about a product is included in the diskettes.
          Information or questions not related to a specific product or
          recommendation should be referred to GAO’s Office of Congressional
          Relations on 202/512-4400.

          Copies of complete GAO printed products may be ordered by calling
          202/512-6000 or by facsimile at 301/258-4066.

          For information on how to access GAO reports on the INTERNET, visit
          GAO’s World Wide Web Home Page at:


          Page 3                                                          GAO/OP-97-1

Preface                                                                                          3

Chapter 1                                                                                        8
                        Defense Acquisitions Issue Area (Budget Function 050)                    8
Improving National      Defense Management Issue Area (Budget Function 050)                     11
Security and            International Relations and Trade Issue Area (Budget Function           13
International Affairs   Military Operations and Capabilities Issue Area (Budget Function        18
Programs                   050)
                        National Security Analysis Issue Area (Budget Function 050)             22
                        Special Studies and Evaluations (Budget Function 090)                   25

Chapter 2                                                                                       27
                        Energy, Resources and Science Issue Area (Budget Functions              27
Improving Resources,      250, 270, 300)
Community, and          Environmental Protection Issue Area (Budget Function 300)               36
                        Food and Agriculture Issue Area (Budget Function 350)                   41
Economic                Housing and Community Development Issue Area (Budget                    45
Development               Functions 370, 450)
Programs                Transportation and Telecommunications Issue Area (Budget                49
                          Function 400)

Chapter 3                                                                                       56
                        Education and Employment Issue Area (Budget Function 500)               56
Improving Human         Veterans’ Affairs and Military Health Care Issue Area (Budget           63
Resource Programs         Functions 050, 550, 700 & 753)
                        Health Financing Systems and Health Services Quality & Public           68
                          Health Issue Areas (Budget Functions 550 and 570)
                        Income Security Issue Area (Budget Functions 600, 650)                  78

Chapter 4                                                                                       83
                        Administration of Justice Issue Area (Budget Function 750)              83
Improving Justice and   Federal Management and Workforce Issue Area (Budget                     90
General Government         Function 800)
                        Financial Institutions and Markets Issue Area (Budget Function          95
Programs                   800)
                        Government Business Operations Issues (Budget Function 800)             99
                        Tax Policy and Administration Issue Area (Budget Function 800)         103
                        Information Resources Management—Internal Revenue Service              111
                           Issue Area (Budget Function 990)

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Chapter 5                                                                                  114
                     Budget Issue Area (Budget Function 990)                               114
Financial and        Civil Audits Issue Area (Budget Function 990)                         121
Information          Corporate Audits and Standards Issue Area (Budget Function            125
Management           Defense Financial Audit Issue Area (Budget Function 990)              129
Programs             Audit Oversight and Liaison Issue Area (Budget Function 990)          135
                     Information Resources Management Issue Areas (Budget                  137
                        Function 990)

Appendix I                                                                                 150
                     Introduction                                                          150
Status of Open       How to Install                                                        150
Recommendations: A   How to Start                                                          150
                     How to Search—Report Details                                          151
Users Quick          How to Search—Issue Area Summary                                      153
Reference for the    How to Print Your Search Results                                      154
Electronic Edition   Exiting the Program                                                   154

Figures              Figure 1 Main Menu                                                    151
                     Figure 2 Report Details Menu                                          153


                     ADP        automatic data processing
                     AFDC       Aid to Families With Dependent Children
                     AID        Agency for International Development
                     AOUSC      Administrative Office of the U.S. Courts
                     ATF        Bureau of Alcohol, Tobacco, and Fire Arms
                     BIF        Bank Insurance Fund
                     CBO        Congressional Budget Office
                     CDC        Centers for Disease Control
                     CDR        continuing disability reviews
                     CFO        Chief Financial Officers
                     CIO        Chief Information Officer
                     CPA        certified public accountant
                     CTR        cooperative threat reduction
                     DEA        Drug Enforcement Agency
                     DFAS       Defense Finance and Accounting Service
                     DI         Disability Insurance
                     DLA        Defense Logistics Agency
                     DOD        Department of Defense

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DOE        Department of Energy
DOL        Department of Labor
DOT        Department of Transportation
EEOC       Equal Employment Opportunity Commission
EPA        Environmental Protection Agency
FAA        Federal Aviation Administration
FASAB      Financial Accounting Standards Advisory Board
FBI        Federal Bureau of Investigation
FDA        Food and Drug Administration
FDIC       Federal Deposit Insurance Corporation
FEMA       Federal Emergency Management Agency
FHA        Federal Housing Administration
FHWA       Federal Highway Administration
FRA        Federal Railroad Administration
FRF        Federal Savings and Loan Insurance Resolution Fund
FTA        Federal Transit Administration
GAO        General Accounting Office
GNMA       Government National Mortgage Association
GPRA       Government Performance and Results Act
GSA        General Services Administration
HCFA       Health Care Financing Administration
HHS        Department of Health and Human Services
HMO        health maintenance organizations
HUD        Department of Housing and Urban Development
IG         Inspector General
INS        Immigration and Naturalization Service
IRM        information resources management
IRS        Internal Revenue Service
IT         Information Technology
JOBS       Job Opportunities and Basic Skills Training Program
JTPA       Job Training Partnership Act
MRI        magnetic resonance imaging
NASA       National Aeronautics and Space Administration
NHSC       National Health Service Corporation
NHTSA      National Highway Traffic Safety Administration
NIH        National Institutes of Health
NPR        National Performance Review
NSF        National Science Foundation
NSLDS      National Student Loan Data System
OBRA       Omnibus Budget Reconciliation Act of 1993
OCC        Office of the Controller of the Currency

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OCSE       Office of Child Support Enforcement
OIG        Office of the Inspector General
OMB        Office of Management and Budget
OPM        Office of Personnel Management
OSHA       Occupational Safety and Health Administration
PASS       self-supporting program
RTC        Resolution Trust Corporation
SAIF       Savings Association Insurance Fund
SAMSA      Substance Abuse and Mental Health Services Administration
SBA        Small Business Administration
SEC        Securities and Exchange Commission
SES        Senior Executive Service
SRO        self-regulating organizations
SSA        Social Security Administration
SSI        Supplemental Security Income
STARS      Standard Accounting and Reporting System
TSM        Tax Systems Modernization
TVA        Tennessee Valley Authority
USDA       United States Department of Agriculture
USPS       United States Postal Service
USTF       Uniformed Services Treatment Facilities
VA         Department of Veterans Affairs

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                       GAO   Contact: Louis Rodrigues, 202/512-4841
Defense Acquisitions
Issue Area (Budget
Function 050)
Impact of GAO’s Work   The Department of Defense’s (DOD) planned acquisitions and
                       modernization of weapon systems will require a significant investment
                       over the next several years and will have to be done under the pressure of
                       reduced budgets. DOD and defense industries have undertaken efforts to
                       streamline and simplify acquisition processes with the goal to reduce
                       acquisition costs and at the same time ensure technological leadership and
                       a strong, competitive industrial and technology base. Similar efforts are
                       underway for National Aeronautics and Space Administration programs.

                       During fiscal year 1996, we evaluated the development and production of
                       individual systems and their associated budgets to determine the extent to
                       which the systems are needed in the current environment and are being
                       acquired efficiently and effectively. We evaluated the degree to which
                       acquisition reforms are being implemented and are contributing to
                       reduced costs while enhancing U.S. competitiveness and technological
                       leadership. We also began a series of jobs to determine best acquisition
                       practices and have reviewed several aspects of the acquisition
                       infrastructure. In addition, to assist the Senate and House Appropriations
                       Committees, the Senate Armed Services Committee, and the House
                       National Security Committee, we did specific budget analyses that
                       identified about $3.7 billion in potential reductions and rescissions in the
                       fiscal year 1997 and prior-year budgets for procurement and for research,
                       development, test, and evaluation.

                       We continued our reviews of major weapon systems such as the B-2,
                       F/A-18E/F, C-17, and F-22 aircraft and unmanned aerial vehicles. We also
                       continued our work on DOD’s development of space systems.

                       On many occasions, we provided the Congress with information on these
                       reviews to assist in its oversight of these programs. For example, we
                       identified $22 million in specific reductions in the C-17 budget for initial
                       spare parts, and we found that DOD could reduce its planned C-17 purchase
                       and still meet airlift needs. With this reduction, DOD could reduce costs as
                       much as $7.5 billion.

                       During our work on unmanned aerial vehicles, we found that the Hunter
                       system had poor system reliability and performance problems and did not

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                  meet performance requirements. As a result of our findings, DOD cancelled
                  the Hunter system and reduced costs by $1 billion. Also, as a result of our
                  work on space systems, the Congress restricted DOD from procuring
                  additional Titan IV launch vehicles, which resulted in cost reductions of
                  $2 billion.

                  Our work on the federal acquisition infrastructure resulted in a
                  recommendation to reduce the number of personnel involved in
                  acquisition functions by 25 percent over 5 years. When implemented, this
                  reduction will reduce the workforce associated with DOD’s acquisition
                  organizations by approximately 90,000 and provide cumulative cost
                  reductions of $5.5 billion over 5 years.

Key Open          In August 1994, we reported that nine contractors had unresolved payment
Recommendations   discrepancies totaling about $118 million—$30.3 million in overpayments
                  and $87.7 million in underpayments. These overpayments and
                  underpayments result in significant unnecessary costs to the government.
                  Overpayments increase the government’s interest costs because funds are
                  needlessly disbursed, and underpayments increase costs because of the
                  interest to be paid on overdue amounts. We recommended that DOD make
                  available contract, financing, and audit resources to identify, verify, and
                  correct payment discrepancies identified in contractors’ records.

                  In our work on the F-22 aircraft, we found that the program involves a high
                  degree of concurrency despite the degree of inherent technical risk. The
                  F-22 will enter production well before commencement of initial
                  operational test and evaluation. We recommended that the Air Force
                  reduce the degree of concurrency and limit low-rate initial production to
                  six to eight aircraft a year. (GAO/NSIAD-95-59)

                  Our work on the F/A-18E/F program showed that (1) the operational
                  deficiencies in the F/A-18C/Ds the Navy cited in justifying the F/A-18E/F
                  either have not materialized as projected or could be corrected with
                  nonstructural changes to the C/D and (2) the next generation fighter
                  aircraft’s—Joint Strike Fighter—operational capabilities were projected to
                  be equal or superior to the F/A-18E/F at a lower unit cost. We
                  recommended DOD fully examine the alternatives to the E/F program.

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In March 1996, we reported that the inconsistent selection of a particular
instrument (e.g., cooperative agreements or other transactions) and
treatment of specific clauses could increase confusion for government and
industry users and could hinder their effective use to support or acquire
research. We recommended DOD ensure that its revised guidance on the
use of cooperative agreements and other transactions promote increased
consistency among DOD components on the selection and structure of
these instruments. (GAO/NSIAD-96-11)

See also chapter 5, Financial and Information Management Programs,
Defense Financial Audit Issue Area.

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                       GAO   Contact: David R. Warren, 202/512-8412
Defense Management
Issue Area (Budget
Function 050)
Impact of GAO’s Work   DOD  managers face many challenges as they strive to streamline
                       operations, control cost growth in high interest programs, manage existing
                       infrastructures, and accomplish their missions.

                       Our overall strategy for Defense Management issues is to identify
                       innovative, efficient, and cost-effective approaches to improve DOD
                       management and reduce infrastructure costs. We focus on encouraging the
                       reengineering and streamlining of Defense operations through new
                       processes and best management practices and, where appropriate, the
                       privatization of functions and activities. Our goal is to identify
                       opportunities to save money, achieve management efficiencies, and
                       improve results.

                       Although DOD recognizes the need to reengineer and streamline its
                       operations and infrastructure, it must make cultural changes to overcome
                       long-standing problems and to decrease costs, particularly in the areas of
                       inventory management and installation support activities. Infrastructure
                       costs accounted for $160 billion (59 percent) of DOD’s fiscal year 1994
                       budget. However, DOD anticipates that it will achieve savings and
                       efficiencies through the base closure process and that additional
                       infrastructure savings and efficiencies could be achieved through the
                       further consolidation of functions. Our work has shown that best practices
                       in the private sector often serve as excellent models for change.

                       In fiscal year 1996, we assessed the transition of former military bases to
                       civilian use, depot maintenance workloads, inventory management, and
                       opportunities to save money and achieve management efficiencies by
                       implementing best management practices. We also addressed DOD’s
                       unfunded liabilities, including environmental cleanup costs at bases being
                       closed and the disposal of the chemical weapons stockpile.

Key Open               To achieve management improvements, operational efficiencies, and
Recommendations        dollar savings, DOD needs to take action on the following key

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As part of our best practices work, we recommended that the Navy,
working with the Defense Logistics Agency (DLA), develop a demonstration
project to determine the extent to which the Navy could apply best
practices to its logistics operations, using the specific practices highlighted
in our report. We recommended that the practices be tested in an
integrated manner to maximize the interrelationship that many of these
practices have with one another, to quantify the costs and benefits, and to
serve as a means to identify and alleviate barriers or obstacles that may
inhibit their expansion. (GAO/NSIAD-96-156)

To build on Air Force reengineering efforts and achieve major logistics
system improvements, we recommended that top-level DOD managers
support and lead Air Force reengineering efforts to ensure success.

To enhance its reengineering efforts, we recommended that the Air Force
incorporate additional leading-edge logistics concepts into the Lean
Logistics Program, report on its strategy to adopt these leading practices,
and expand the reengineering program Air Force-wide. We recommended
that the Secretary of Defense use our report to set forth actions and
milestones to alleviate any barriers or obstacles, provide the appropriate
resources, and ensure collaboration between the Air Force and other DOD
components. We recommended that once these steps are taken, the Air
Force institutionalize a reengineering effort that is consistent with
successful private sector reengineering efforts. (GAO/NSIAD-96-5)

We recommended that the Secretary of Defense direct that defense
transportation reengineering efforts simultaneously address process and
organizational structure improvements. (GAO/NSIAD-96-60)

See also chapter 5, Financial and Information Management Programs,
Defense Financial Audit Issue Area.

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                       GAO   Contact: Benjamin Nelson, 202/512-4128
Relations and Trade
Issue Area (Budget
Function 150)
Impact of GAO’s Work   Managing foreign policy interests efficiently at a time of overall
                       discretionary spending reductions continues to be a dominant theme of
                       our work. Global change and federal budget constraints required
                       reassessments of the extent to which foreign affairs agencies, policies, and
                       programs serve U.S. security, political, economic, and other interests. To
                       assist the Congress in its oversight responsibilities and make a significant
                       impact on major international relations and trade issues, we conducted
                       extensive work on the structure, functions, and size of the U.S.
                       government and international organizations that receive U.S. funding. We
                       also reviewed the progress and costs of U.S. programs and activities in
                       selected regions around the world and the management and effectiveness
                       of policies and programs targeting key U.S. objectives.

                       We conducted several extensive reviews at the foreign affairs agencies and
                       suggested cost reduction options that could be considered if funding is
                       reduced. We pointed out that the U.S. Information Agency has undertaken
                       significant reforms to accommodate reduced appropriations but could
                       make additional cuts and continue to protect U.S. interests, if fiscal
                       conditions require. For example, the agency could reduce its overseas
                       presence and activities, the size of exchange programs, and the scope of
                       international broadcasting. Some of these activities may no longer retain
                       the importance they had when they were first funded decades ago. We
                       reported that the State Department had done relatively little to implement
                       reforms and was not prepared to cope with potential funding reductions.
                       Given the likely decline in discretionary spending in the federal budget and
                       the various proposals for reductions in State’s budget, we concluded that
                       State needed to (1) plan how it could become a smaller, more efficient,
                       and less expensive organization and (2) conduct a fundamental rethinking
                       of functions, locations, and practices to determine what is essential and
                       affordable to support U.S. interests. In addition, we reported that State
                       could generate millions of dollars of proceeds by selling unneeded real
                       estate at its overseas locations. We have identified several management
                       tools that could help State adjust to today’s fiscal conditions. At the
                       Agency for International Development (AID), we examined reform efforts

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and analyzed current and planned uses of operating expenses to assist
congressional deliberations on funding.

In the multilateral arena, we examined the World Bank’s role in enhancing
the flow of international private investment capital to developing
countries, the extent to which Bank projects achieved their developmental
objectives, the Bank’s progress in reforming its operations to improve
effectiveness, and the extent to which the Bank supported U.S. foreign
policy goals. This study provided critical information to help the policy
debate and assist the Congress in deciding to what extent continued U.S.
participation in the World Bank serves U.S. interests. We also assessed
U.S. involvement in many other international organizations and U.S.
participation in multilateral peacekeeping efforts in Bosnia, Cambodia,
Haiti, and elsewhere. This work has been useful to Congress in its
oversight, helping form the basis for hearings on the situation in Bosnia
and a resolution regarding human rights in Cambodia.

In the trade area, we reviewed U.S. programs to advance U.S. interests
through export promotion and better market access. We reported that the
interagency Trade Promotion Coordinating Committee had made some
progress in its efforts to coordinate federal export promotion and
financing activities, establish governmentwide export promotion
priorities, and develop a unified export promotion budget. We suggested
ways to strengthen the Coordinating Committee’s most visible output—a
nationwide network of export assistance centers to provide one-stop
services to exporters. We also provided to the Congress critical
information and analyses on foreign trade practices and multilateral trade
agreements that affect U.S. businesses’ ability to compete in world
markets. For example, we reported on the potential ability of foreign State
trading enterprises to enjoy unfair advantages in competition with U.S.
firms. We also monitored the many issues associated with implementation
of the World Trade Organization to ensure that the economic gains
expected by the United States were being achieved in agricultural, service,
and other areas. We proposed to the Congress various actions to improve
its oversight and increase the transparency of actions taken by the U.S.
Committee for the Implementation of Textile Agreements in administering
the U.S. textile program. We also reviewed the nature and extent of
counterfeiting of U.S. currency abroad. This review served as a basis for
hearings on U.S. enforcement efforts. Finally, we evaluated the 1994-95
Mexican financial crisis, including its origins, the advice U.S. government
and International Monetary Fund officials provided to Mexico, the

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multilateral financial assistance provided to Mexico, and Mexico’s initial
recovery efforts.

In the arms control area, we examined efforts to reduce the threat from
weapons of mass destruction through the dismantling of nuclear weapons
in the former Soviet Union, better international accountability for nuclear
materials, and effective export controls. Acting on a suggestion in our 1995
report on DOD’s Cooperative Threat Reduction (CTR) Program, the
Congress cut funding by $31 million because of the questionable need for
the full amount requested by the executive branch. The Congress and DOD
also acted on our 1994 recommendation concerning the need for a
long-range CTR planning process. DOD agreed to our 1996 recommendations
that should further improve CTR planning and prevent DOD from obligating
funds for constructing a multimillion-dollar chemical weapon destruction
plant in Russia until costs are better defined. DOD has also agreed to our
recommendations that should improve the quality of DOD’s annual CTR
audit report to Congress. Using our 1996 report, the Congress passed
legislation designed to strengthen nuclear material control systems in
Russia, counter the smuggling of nuclear materials, and establish response
teams to deal with terrorist attacks involving weapons of mass

In the international drug control area, we issued a series of reports and
testimonies on the nature of the drug threat to the United States, the U.S.
international drug control strategy and programs designed to address this
threat, the adequacy of drug sources’ and transit nations’ drug control
efforts, and major obstacles that prevent effective implementation of U.S.

We reported on U.S. efforts to control heroin coming from Southeast Asia,
U.S. interdiction activities in the Caribbean, and U.S. counternarcotics
programs in Mexico. Our work provided critical assistance to
congressional committees that were attempting to determine the overall
effectiveness of the U.S. international drug control strategy. Our products
assisted the Congress in returning the U.S. overall drug control policy to
the forefront of debate, and they received extensive media coverage.

We provided detailed information on U.S. programs in the former Soviet
Union, including our observations on the effectiveness of assistance
projects. As a result of our recommendations, the Agency for International
Development plans to (1) focus future projects on the achievement of
systemic Russian government reforms, (2) obtain more support for

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                  projects from the Russian government, and (3) improve project
                  implementation in Russia by stationing contractors there.

                  We also responded to requests of congressional committees and members
                  with information and observations on a wide range of issues, including
                  U.S. broadcasts to Cuba, travel by executive branch officials, controls over
                  funds provided for the benefit of the Palestinian Authority, and food
                  supplies in Sub-Saharan Africa.

Key Open          In 1994, we recommended that the State Department develop a fully
Recommendations   integrated, objective, quantifiable methodology to help ensure a sound
                  basis for allocating personnel in line with U.S. interests overseas. State
                  hopes to have sufficiently developed such a methodology for use in
                  formulating its budget submission for fiscal year 1998. Because stationing
                  staff overseas is costly, State must be able to ensure that it stations no
                  more staff than are needed at each of its 252 overseas posts. The budget
                  austerity State faces reenforces the importance of implementing this
                  recommendation. (GAO/NSIAD-94-228)

                  In 1996, we recommended that the Secretary of State take a number of
                  actions to better identify unneeded properties, sell or otherwise dispose of
                  these properties, and ensure optimal use of the sale proceeds. For
                  example, we recommended that the Secretary establish an independent
                  panel to make recommendations regarding the sale of excess real estate to
                  reduce the current inventory of property. Actions have not been taken on
                  these recommendations. However, consistent with our recommendation,
                  the Senate Appropriations Committee has directed State to establish an
                  advisory board on real property management to review properties
                  proposed for sale and submit its recommendations to the Under Secretary
                  for Management. (GAO/NSIAD-96-36)

                  In 1995, we recommended that the Congress terminate the Agency for
                  International Development’s Housing Guaranty Program. The Congress
                  included language to terminate the program in its 1996 foreign assistance
                  authorization legislation, but the President vetoed the bill. (GAO/NSIAD-95-108)

                  In 1996, we recommended that the Director, Office of National Drug
                  Control Policy, develop a regional action plan focused on the Caribbean
                  transit zone for cocaine coming to the United States. This plan should
                  determine resources and staffing needed and delineate a comprehensive
                  strategy to improve host nation capabilities and commitment to

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counternarcotics interdiction. The Office of National Drug Control Policy
is considering our recommendation as part of an ongoing evaluation of the
entire drug control strategy. (GAO/NSIAD-96-119)

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                         GAO   Contact: Mark Gebicke, 202/512-5140
Military Operations
and Capabilities Issue
Area (Budget
Function 050)
Impact of GAO’s Work     During fiscal year 1996, we completed several reviews on military
                         operational budget issues, identifying areas where program savings were
                         possible or improved management practices were needed. We also
                         provided important trend data regarding the readiness of U.S. military
                         forces, pointing out some continuing limitations in the data; highlighted
                         areas where improvements in operational capabilities were needed; and
                         continued to examine personnel management issues related to DOD’s

                         During our review of DOD’s operations and maintenance budget requests,
                         we found that proposed uses of the requested funding might not always
                         reflect how funds received are obligated. For example, we found that the
                         Army has historically requested more funds than it obligates for its combat
                         forces and often obligated more for infrastructure and management
                         activities than it requested. We identified similar trends in Air Force
                         operations and maintenance funding. In two reviews of the services’
                         budgeting for spare and repair parts, we found weaknesses in the services’
                         policies and procedures for determining requirements and budgets for
                         spare parts. These weaknesses were leading to erroneous estimates of
                         inventory requirements, causing budget requests to be overstated. For
                         example, we found that the Air Force and Navy budgeted $132 million
                         more than needed for aviation spare parts. During our review of retention
                         bonuses paid to service members, we found that DOD needed to be more
                         involved in directing and overseeing (1) retention bonuses, to minimize
                         their award to soldiers in skill areas already having high retention rates,
                         and (2) separation incentives, to minimize their award to soldiers in the
                         same skill areas as those being awarded retention bonuses.

                         We identified significant funding and other problems associated with DOD’s
                         management of its ammunition stockpile—problems that if left unattended
                         will get worse. The ammunition stockpile is worth about $80 billion; about
                         $31 billion is excess—including $22 billion that was still usable. Much of
                         the ammunition exceeds the services’ needs in varying quantities, some
                         over 50 times their stated needs. While there are shortages of some
                         specific ammunition types, overall the services generally have enough

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ammunition to meet their wartime and peacetime requirements. The
services could share their excess ammunition, avoiding $19 million in
ammunition purchases annually. The condition of some ammunition is
unknown because of delays in inspections and testing, which are
important to ensure that war reserve items are usable, and properly
classified as to condition and safety. At the same time, the volume of
stockpiled ammunition awaiting disposal continues to grow due to an
inability to meet existing demands for disposal.

In our examination of readiness indicator data developed by the military
services from January 1990 to March 1995, we found that the percentage of
military units with the ability to undertake all or major portions of their
assigned missions remained generally stable during that time. However,
readiness declined below service goals in 20 percent of the units we
examined; drops in five of these units were for fairly short periods of time
due to participation in contingency operations. In remaining units,
readiness reductions were caused primarily by personnel or equipment
shortages and difficulty in obtaining training in certain occupations. An
update of that data for selected units for the period April 1995 to
March 1996 found an improvement of 12 percent over the prior period,
with 92 percent of the units meeting service goals for readiness.

A separate report, dealing with the increased frequency of personnel being
deployed for contingency operations in recent years, noted that the
services’ traditional readiness reporting data does not capture all of the
factors DOD considers critical to a comprehensive readiness analysis, such
as operating tempo and personnel morale. DOD lacks adequate guidance
and definitions associated with deployments to accurately and
consistently track and measure the extent of increased deployments on
individuals or the impact on readiness. A clear policy is needed to guide
management of frequently deployed units.

During our work examining chemical and biological defense issues, we
found that units designated for early deployment today continue to face
many of the same problems experienced by U.S. forces during the Gulf
War. DOD activities undertaken since the war are improving the readiness
of U.S. forces to operate in a chemically or biologically contaminated
environment. However, equipment, training, and medical shortcomings
persist and require greater emphasis to reduce the potential for needless
casualties and a degradation of US. war-fighting capability.

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                  The Gulf War highlighted major weaknesses in the Navy’s capability to
                  detect and disarm enemy mines. Critical areas in the Navy’s mine
                  countermeasures capabilities remain unmet, and the Navy is pursuing
                  several different projects to address these areas. However, it has not
                  established clear priorities among all of its mine warfare programs to
                  sustain the development and procurement of its most needed systems.
                  Consequently, the Navy has experienced delays in delivering new systems
                  to provide necessary capabilities. A long-range plan is needed to identify
                  the gaps and limitations in the Navy’s mine countermeasures capabilities
                  and establish priorities among the competing projects and programs,
                  including those in research and development.

                  We have maintained a focus on DOD’s personnel reductions during its
                  downsizing. As the downsizing has progressed, some concerns have been
                  registered about the impact of civilian downsizing on mission
                  accomplishment and readiness. During our 1996 review of civilian
                  downsizing, we found that while the downsizing had some impact on
                  operations, such as the amount of time it takes to accomplish some work,
                  it had not adversely affected military readiness at the installations we
                  visited. However, some concerns were voiced that future civilian
                  reductions could adversely affect military readiness if the process is not
                  managed carefully.

                  The Office of the Secretary of Defense and the military services continue
                  to have differences of opinion about wartime medical personnel
                  requirements, and their respective studies produce conflicting
                  requirements. Further study to resolve the issue has been delayed due to
                  lack of agreement over study assumptions. Meanwhile, absent any change
                  in requirements, overall DOD active duty end strengths are expected to
                  decline by twice the rate of decline in medical forces from fiscal year 1987
                  to fiscal year 1999.

Key Open          We reported in October 1994 that substantial savings and other
Recommendations   operational benefits could accrue if DOD were to identify and replace
                  military support positions with civilians. We identified major differences
                  among the services in the percentage of positions in specific support fields
                  that were filled by civilians. In a mandated report to the Congress, DOD
                  reported on an occupational analysis of its workforce and concluded, as
                  we did, that civilians could be used for many positions. However, DOD does
                  not plan to make such conversions until the downsizing is completed on
                  the grounds that it would be counterproductive to increase civilian

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positions while the total workforce continues to decline. We believe that
our recommendation remains valid and should be acted upon by DOD. We
are nearing completion of additional work that identifies several thousand
officer positions in the Army, Navy, and Air Force that civilians may be
able to fill at lower cost and potentially greater long-term productivity
because of less frequent personnel rotations involving civilian personnel.

We made several recommendations to the Secretary of Defense to address
the weaknesses we identified in 1996 in the chemical and biological
defense area. Among them was a recommendation that the Secretary
reevaluate the priority and emphasis given to this area throughout DOD.
Also included was a recommendation that the Secretary consider
modifying the services’ readiness reporting requirements so that unit
reports would more directly capture the units’ chemical and biological
readiness status and more accurately reflect shortcomings in their abilities
to meet existing chemical and biological training standards.

We have also made several recommendations to the Secretary of Defense
to address the need for more complete data on the impact of frequent
deployments on personnel and units. Among them was a recommendation
that the Secretary identify key indicators to provide the best measures of
deployments’ impact on personnel readiness. Also included was a
recommendation that the Secretary of Defense issue regulations to guide
the services’ management of personnel tempo by defining minimum data
that each service must collect and maintain on the subject.

See also chapter 5, Financial and Information Management Programs,
Defense Financial Audit Issue Area.

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                        GAO   Contact: Richard A. Davis, 202/512-3504
National Security
Analysis Issue Area
(Budget Function 050)
Impact of GAO’s Work    DOD  faces difficult policy, programmatic, and budgetary decisions as it
                        seeks to support the national security strategy in a world characterized by
                        diverse and changing threats. To meet this challenge, DOD must maintain
                        its forces in a high state of readiness and capability and must continue to
                        modernize in a time of tight budgets and shrinking military end strength.
                        Our reports and testimonies have been used extensively by the Congress
                        in its oversight of budget, force structure, modernization, peacekeeping,
                        and intelligence issues.

                        To help the Congress evaluate the defense budget, we analyzed DOD’s
                        Future Years Defense Program and reported that anticipated
                        infrastructure savings were unlikely to materialize. This conclusion is
                        critical, since the Secretary of Defense has stated that infrastructure
                        savings would be used to pay for billions in projected costs for force
                        modernization initiatives. We also warned the Congress of potential
                        increases in infrastructure costs from 1997 to 2001 and identified
                        infrastructure activities that could be consolidated and streamlined to gain
                        more efficiency.

                        Building on our work from prior years, we suggested less costly ways to
                        manage the military force structure. For example, we suggested that the
                        Army use or convert National Guard forces to support units to meet
                        shortfalls. DOD agreed with our suggestion, and the Secretary of the Army
                        is taking actions to reduce the shortfall of support spaces.

                        We also helped the Congress evaluate DOD’s downsizing plans by analyzing
                        assumptions underlying certain force structure decisions. For example, we
                        examined the key assumptions underlying DOD’s NIMBLE DANCER war
                        game that assessed the ability of the Bottom-Up Review force to execute
                        the stated military strategy. We reported that DOD continues to use many of
                        the same favorable assumptions contained in guidance implementing the
                        Bottom-up-Review. We further reported that, although DOD had planned to
                        test the sufficiency of certain key assumptions, this type of analysis in
                        some cases was not done, and in other cases its scope was limited.

                        We assisted the Congress in its efforts to evaluate DOD’s modernization
                        plans, focusing principally on aviation modernization and affordability

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                  issues. In the area of airpower, we reported that DOD has not sufficiently
                  assessed joint mission requirements and aggregate capabilities and is
                  therefore not well-positioned to determine the need for and priority of
                  planned investments. Consequently, major force structure and planning
                  decisions have been made without complete analysis of the services’
                  combined requirements and capabilities. We also reported that DOD’s
                  current process for assessing joint warfighting capabilities has had little
                  impact on identifying unneeded overlaps and duplication in existing
                  capabilities or in weighing the relative merits of alternative ways to
                  recapitalize U.S. airpower forces.

                  We continued to provide the Congress with first-hand reporting on U.S.
                  participation in peacekeeping missions. The Congress used this
                  information to mandate that DOD report its justification for understating
                  manning requirements for highly deployable support units. Our work on
                  the costs of contingency operations led DOD to reduce its reprogramming
                  request for Bosnia and other contingency operations by more than
                  $130 million.

                  Finally, our work on the National Intelligence Estimate regarding the
                  foreign missile threat to the United States contributed to the congressional
                  debate, and as a result, the Fiscal Year 1997 Defense Authorization Act
                  established an independent commission to undertake further evaluation of
                  this crucial topic.

Key Open          A key recommendation stemming from our work on combat airpower
Recommendations   capabilities calls for the Secretary of Defense, along with the Chairman of
                  the Joint Chiefs of Staff, to develop an assessment process that yields
                  more comprehensive information in key mission areas. (GAO/NSIAD-96-177)

                  In our report dealing with the Air Force’s bomber aircraft, we
                  recommended that the Secretary of Defense consider options to retire or
                  reduce the B-1B bomber force as part of DOD’s ongoing study to determine
                  the most cost-effective mix of systems needed for deep attack missions.
                  Reducing the size of DOD’s B-1 bomber force could provide DOD with as
                  much as $5.9 billion in cost reductions over the next 5 years.

                  To ensure that planned investments are both fully justified and affordable,
                  we recommended that the Secretary of Defense (1) direct the Air Force to
                  develop and use sound criteria when justifying current inventories and

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future procurement requirements for backup aircraft, (2) prioritize funding
for combat airpower interdiction assets to acquire those capabilities that
contribute most to meeting joint operating requirements, and (3) conduct
cross-service assessments to prioritize joint close support mission needs
before making funding decisions on future force enhancements.
(GAO/NSIAD-95-180, GAO/NSIAD-96-72, GAO/NSIAD-96-45)

To improve the use of military personnel, we recommended that the Army
reexamine whether high priority support units should continue to be
staffed in peacetime at less than their fully authorized strength. We also
recommended that the Army consider making greater use of reserve forces
to meet the personnel needs of some Army active force units.
Implementation of these recommendations would provide additional
personnel spaces to round out active divisions and add more reserve
support units to the Army’s force. (GAO/NSIAD-95-51, GAO/NSIAD-93-80)

See also chapter 5, Financial and Information Management Programs,
Defense Financial Audit Issue Area.

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                       Contact: Kwaicheung Chan, 202/512-3092
Special Studies and
Evaluations (Budget
Function 090)
Impact of GAO’s Work   Congressional committees require evaluative information on federal
                       government programs and issues, and they look to the congressional
                       agencies, including GAO, to provide it. Sound program evaluations are also
                       valuable tools for better management in government. To help improve the
                       quality of evaluative information available to the Congress and to federal
                       agencies, we evaluate various agencies’ programs, usually at the request of
                       congressional committees. These studies generally fall into one of three
                       areas - (1) program effectiveness or quality, (2) government evaluation
                       capability and performance, (3) methodology development and review.
                       Our report on Operation Desert Storm was one such evaluation.

Key Open               Our report addressed the possibility that U.S. veterans of the Persian Gulf
Recommendations        War may be experiencing reproductive dysfunction as a result of their
                       service in the war. Steps taken before, during and after the war did not
                       identify various potential reproductive toxins we found to be present
                       during the war, and the activities undertaken to monitor servicemen and
                       servicewomen for reproductive dysfunction after the war have major
                       shortcomings. Therefore, we recommended that the Secretary of Defense
                       undertake actions to make additional scientific inquiry into possible
                       causes of the problem, collect additional baseline data to help identify the
                       existence of potential current and future problems and develop
                       procedures to better inform and protect U.S. servicemen and
                       servicewomen in the future. (GAO/PEMD-94-30)

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                           GAO   Contact: Victor S. Rezendes, 202/512-3841
Energy, Resources
and Science Issue
Area (Budget
Functions 250, 270,
Impact of GAO’s Work       This issue area reviews programs of a broad and diverse group of agencies
                           ranging from the Department of Energy (DOE) and related agencies, such
                           as the Nuclear Regulatory Commission and the Tennessee Valley Authority
                           (TVA); to various land management and natural resources agencies,
                           including the Department of the Interior, the Forest Service within the
                           Department of Agriculture, the National Marine Fisheries Service, and the
                           Army Corps of Engineers; and to an array of science and
                           technology-related agencies, such as the National Science Foundation, the
                           Department of Commerce’s National Institute of Standards and
                           Technology, Patent and Trademark Office, and National Oceanic and
                           Atmospheric Administration. Spending outlays for these agencies total
                           well over $40 billion a year and generate revenues to the Treasury
                           exceeding $10 billion. But, more importantly, the activities of these
                           agencies pose significant implications for our nation’s security,
                           environment, and economic well-being.

                           Our primary objective is to assist the Congress in examining the role of
                           government in this broad area of responsibility, with particular emphasis
                           on finding ways to promote a more efficient and cost-effective
                           government. Our efforts this past year have gone a long way in
                           contributing to this objective and many of our key open recommendations
                           are intended to help focus the debate on some difficult choices that still
                           need to be made.

                           Examples of our contributions this past year include helping the Congress:

                       •   consider how to restructure the DOE, as well as frame the debate for the
                           broader restructuring of government,

                       •   better ensure that the government will receive a fair price in the planned
                           sales of the U.S. Enrichment Corporation and the Naval Petroleum
                           Reserves at Elk Hills,

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•   deliberate on the potential privatization of DOE’s five power marketing

•   continue in its search for finding an acceptable alternative for disposing of
    nuclear waste,

•   become aware of the construction status and safety implications of Cuban
    nuclear reactors as part of its deliberations on the need for economic
    sanctions over Cuba,

•   determine the need for aid to the Former Soviet Union based on our report
    on the need to improve controls over nuclear materials,

•   leverage use of “carry-over” balances and find other ways to reduce DOE’s,
    Nuclear Regulatory Commission’s and Commerce’s budgets by over
    $1.1 billion,

•   introduce legislation implementing our recommendations related to
    hardrock mining on federal lands, below-cost timber sales, and federal
    water subsidies—which, if enacted, would generate up to $300 million a
    year in increased revenues or decreased spending,

•   consider the implications of borrowing from a federal fund set up for
    reforestation to cover the costs of fighting forest fires, and

•   enact legislation creating greater incentives for federal scientists to patent
    their inventions and transfer technology to the private sector.

    Other recommendations led to administrative actions to improve
    government programs. For example, based on our work:

•   the Nuclear Regulatory Commission improved its oversight of nuclear

•   an interagency committee has been formed to reach consensus and adopt
    consistent guidance and standards on acceptable levels of radiation risk to
    workers and the public,

•   DOE took action to ensure the independence of its environmental, safety,
    and health functions at its nuclear facilities,

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                          •   the Forest Service and Bureau of Land Management implemented a new
                              fee system that ensures a fairer return for use of their communication sites
                              by private parties.

                          •   a White House task force identified barriers to governmentwide
                              implementation of ecosystem management and took specific steps to
                              address them,

                          •   the Bureau of Land Management issued new procedures to better target
                              parties whose oil and gas lease holdings are approaching or exceeding
                              federal acreage limitations,

                          •   the Department of Agriculture improved animal damage control program
                              guidance for protecting livestock from predators, and

                          •   the National Park Service took aggressive action to correct erroneous
                              financial information and made significant progress in its financial

Key Open
Nuclear Weapons Complex       In March 1995, we recommended that in order to enable DOE to target its
Cleanup                       limited resources on cleaning up the sites that represent the greatest risks,
                              the Secretary of Energy (1) set national priorities for cleaning up the
                              Department’s contaminated sites using data gathered during DOE’s ongoing
                              risk evaluation as a starting point, and (2) initiate discussions with
                              regulators to renegotiate milestones that no longer reflect national
                              priorities. Faced with increasingly limited resources, DOE is reevaluating its
                              cleanup priorities, although a complete reordering based on risk to public
                              health and safety has not been completed. DOE has, however, begun to
                              renegotiate agreements with its regulators in the face of new budget
                              realities. (GAO/RCED-95-1)

National Laboratories         In January 1995, we recommended that the Secretary of Energy evaluate
                              alternatives for managing the laboratories that more fully support the
                              achievement of clear and coordinated missions, including strengthening
                              the Department’s Office of Laboratory Management. If DOE is unable to
                              refocus the laboratories’ missions and develop a management approach
                              consistent with these new missions, we suggested that the Congress may
                              wish to consider alternatives to the present DOE-Laboratory relationship.

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                              Such alternatives might include placing the laboratories under the control
                              of different agencies or creating a separate structure for the sole purpose
                              of developing a consensus on the laboratories’ missions. DOE’s Laboratory
                              Operations Board has begun to develop a strategic vision for the national
                              labs as well as an action plan to implement most of the recommendations
                              made by the Galvin Task Force, an independent panel created by DOE to
                              recommend better ways to manage the national labs. Many of the Task
                              Force’s recommendations address issues raised in our report. Meanwhile,
                              various bills have been introduced in the Congress calling for restructuring
                              the laboratories. (GAO/RCED-95-10)

Nuclear Cleanup               In August 1994, we suggested that the Congress consider amending the
                              Comprehensive Environmental Response, Compensation, and Liability Act
                              to provide more specific direction about incorporating future land uses
                              when determining cleanup levels and selecting remedial actions. Various
                              bills, which included provisions for land use, were introduced in the 104th
                              Congress. (GAO/RCED-94-144)

Contracting for Laboratory    To realize cost savings inherent in centrally procured laboratory analyses
Analyses                      and to eliminate other related inefficiencies resulting from decentralized
                              procurement, in May 1995, we recommended that DOE centralize its
                              procurement of commonly-used laboratory analyses for environmental
                              contaminants in the cleanup of its nuclear facilities. In doing so, the
                              department should also identify and eliminate contractor resources that
                              will no longer be needed under a centralized procurement system. In early
                              1996, the Assistant Secretary for Environmental Management issued an
                              order directing that management of laboratory analysis programs at DOE
                              field offices be consolidated at either one federal or contractor
                              organization. This action, while a positive step, would result in centralizing
                              fragmented programs at the field office level rather than more
                              comprehensively at the department level as we had intended. DOE officials
                              were not aware of the status of action to centralize activities at the field
                              level and have yet to determine the savings to be gained from such
                              centralization. (GAO/RCED-95-118)

Safety of Nuclear Materials   In April 1993, we reported that the Nuclear Regulatory Commission should
                              establish specific criteria and procedures for suspending or revoking
                              agreements whereby states, rather than the Nuclear Regulatory
                              Commission, regulate and monitor radioactive materials within their
                              borders (agreement-state programs). The purpose was to eliminate the
                              inconsistent way in which the Commission was evaluating the
                              effectiveness of its two nuclear materials programs in achieving the goal of

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                         adequately protecting the public from radiation. In June 1995, the
                         Commission approved a Final Statement of Principles and Policy for the
                         agreement-state program and requested submittal of implementing
                         procedures for final commission approval by late 1996. (GAO/RCED-93-90)

Nuclear Regulation       In May 1994, we reported that the Nuclear Regulatory Commission should
                         determine what actions may be needed to better control the spread of
                         radioactivity-contaminated sludge, ash, and related by-products from
                         sewage treatment plants that receive radioactive materials from Nuclear
                         Regulatory Commission licensees. The Commission is working with the
                         Environmental Protection Agency (EPA) and other interested parties to
                         develop a national approach to ensuring the protection of treatment
                         workers and the public. EPA plans to conduct a pilot survey in the fall of
                         1996 to assess the extent of the radioactive contamination. The Nuclear
                         Regulatory Commission and EPA plan to issue draft guidance in 1997
                         regarding the acceptable levels of radioactivity in sludge and ash.

Contract Management      In August 1994, we recommended that DOE, in contracting with the
                         University of California for the management of three national laboratories,
                         (1) adopt standard contract clauses where there is not a sound basis for
                         deviating from them, (2) require advance DOE approval for
                         University-sponsored research projects at the laboratories, and (3) ensure
                         that fees paid to contractors for increased financial risks are cost-effective
                         by developing criteria for measuring their costs and benefits. DOE has
                         reviewed the non-standard clauses in the contracts with the University of
                         California and has identified the relevant changes that are needed. On
                         May 15, 1996, the Secretary of Energy announced a 5-year extension of the
                         University’s management contracts with Lawrence Livermore, Lawrence
                         Berkeley, and Los Alamos National Laboratories. Accordingly, DOE is in the
                         process of negotiating changes for the new contracts. Modifications have
                         also been made to the contracts requiring that information regarding
                         university-sponsored research be submitted to DOE for review. DOE is also
                         developing a new fee policy for profit and nonprofit management and
                         operating contractors which relates fees to anticipated risk. The new
                         policy is scheduled to be submitted to the Office of Management and
                         Budget (OMB) for rulemaking by early 1997. (GAO/RCED-94-202)

Nuclear Waste Disposal   In September 1991, we recommended that DOE plan for the increasing
                         likelihood that it might not be able to accept utilities’ nuclear waste for
                         storage or disposal beginning in 1998. We also suggested that the Congress
                         explore whether additional legislation is desirable to address the

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                                 likelihood that DOE will be unable to begin accepting the waste by that
                                 year. Recently, a federal circuit court of appeals ruled that DOE is obligated
                                 to begin accepting nuclear waste in 1998. Also, the Congress has been
                                 considering legislative proposals that would, among other things,
                                 authorize and require DOE to store utilities’ nuclear waste at a federal
                                 facility until DOE completes a facility for permanent disposal of the waste.

Uranium Enrichment               In September 1995, we recommended that the Congress require the
                                 Secretary of the Treasury, not the Board of Directors of the United States
                                 Enrichment Corporation, take the lead role on behalf of the Nation’s
                                 taxpayers throughout the privatization process for the Enrichment
                                 Corporation. Our September 1995 report also suggested that the Secretary
                                 of Treasury consider options to ensure that the government obtains a fair
                                 price for the corporation if it is privatized. In April 1996, the Congress
                                 passed legislation requiring the Secretary to lead the privatization process.
                                 Corporation officials told us in August 1996 that the administration is
                                 considering these issues prior to beginning the privatization process.

Nuclear Weapons Stockpile        In July 1996, we recommended that the DOE develop contingency plans at
Surveillance                     its various facilities for dismantling and testing nuclear weapons
                                 components in the event that a testing facility is shut down for an
                                 extended period of time. In the absence of underground testing, the
                                 stockpile surveillance program, which includes flight tests as well as
                                 testing of weapons components, provides one of the few ways of ensuring
                                 the reliability and safety of weapons in the Nation’s nuclear weapons
                                 stockpile. However, if one or more of the testing facilities is shut down for
                                 an extended period of time, the Department has no plan to carry out these
                                 functions. Contingency plans that delineate where testing functions would
                                 be transferred and how the transfer should proceed would minimize the
                                 impact of any shutdown. (GAO/RCED-96-216)

Technology Investment            In June 1996, we recommended that the Secretary of Energy develop and
                                 implement a Department-wide policy for requiring repayment of the
                                 federal investment in successfully commercialized cost-shared
                                 technologies. The policy should provide criteria and flexibility for
                                 determining which programs and projects are appropriate for repayment.

Peer Review of Grant Proposals   We examined grant selection in three federal agencies that use peer review
                                 - the National Institutes of Health, the National Science Foundation (NSF)

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                          and the National Endowment for the Humanities. We found that the rating
                          of grant proposals was related to gender at all the agencies and to race at
                          the NSF Foundation. We also found at all the agencies that an applicant’s
                          track record was related to scores. Of the recommendations we made, one
                          in particular has not been addressed: the agencies should increase the
                          monitoring of discrimination, including tests comparing blind to
                          conventional reviews, to ensure that gender, race and ethnic
                          discrimination are not affecting scores provided by peer reviewers.

Fair Market Value         We reported that the Forest Service is not receiving fair market value for
                          right-of-way fees on Forest Service lands and has little assurance that it is
                          collecting fair market fees from ski area operators. We recommended that
                          appropriate fee systems be implemented in both cases. Both the Forest
                          Service and major industry groups, representing private companies that
                          have rights-of-way to operate powerlines, pipelines, and communications
                          lines across Forest Service lands, agree on the need for a new fee system.
                          However, a system has not yet been developed. The Forest Service has
                          proposed a new system charging fees for skiing activities based on
                          site-specific appraisals. However, bills introduced in both the House and
                          the Senate would not ensure that the government receives ski fees based
                          on fair market value. (GAO/RCED-96-84, GAO/RCED-93-107)

Below-Cost Timber Sales   In April 1991 testimony, we stated that the federal government was not
                          recovering timber sale preparation and administration expenses, resulting
                          in below-cost timber sales, and recommended that the Forest Service
                          recover these expenses. We also made three additional recommendations
                          for protecting the federal government’s financial interests. The Chief of the
                          Forest Service is scheduled to make recommendations to the Under
                          Secretary of Agriculture early in 1997. (GAO/T-RCED-91-42)

National Park Service     While the Park Service has a long-standing tradition of providing housing
Employee Housing          to some of its employees, the backlog of housing repair, rehabilitation, and
                          replacement needs, currently estimated at more than $500 million, and a
                          tight federal budget dictate that the Park Service examine options to deal
                          with its housing needs. In an August 1994 report, we made
                          recommendations that, if implemented, would (1) better define the Park
                          Service’s housing needs and identify opportunities for reducing its
                          inventory and (2) obtain nonfederal funds to help the Park Service meet its
                          housing needs. The Park Service has assessed its housing needs at 44 park
                          units and plans similar assessments at other units. In addition, the Park
                          Service is currently reviewing the scope of its employee housing program

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                             and is exploring ways to increase private sector involvement at eight units
                             and has drafted legislation that would allow it to lease land to developers
                             to construct housing. (GAO/RCED-94-284)

Oil and Gas Royalties        The federal government receives royalties from offshore oil and gas leases,
                             calculated using the volume and price of the oil and gas sold and a royalty
                             rate. It is essential that oil and gas production be verified to help ensure
                             accurate determination of royalties. In an August 1990 report we
                             concluded that Interior’s Minerals Management Service had been slow in
                             verifying offshore oil and gas production, and we recommended that the
                             agency implement an ongoing production verification program. The
                             Service conducted a pilot program and now plans to develop regulations
                             for a permanent program, with a target for issuance of mid-1997.

Offshore Oil and Gas Lease   Interior’s Minerals Management Service is responsible for protecting the
Abandonments                 federal government from incurring offshore oil and gas lease abandonment
                             expenses that are the responsibility of the lessee companies. However, as
                             of March 1993, leases in the Gulf of Mexico with $4.4 billion in estimated
                             abandonment costs were covered by only $68 million in bonds posted by
                             the companies. In August 1993, the Service increased bond amounts but
                             did not set a time limit for posting the higher bonds. In a May 1994 report
                             we recommended that the Service set a time limit for obtaining new bond
                             amounts. The Service is developing regulations to do this, with a target for
                             issuance of 1997. (GAO/RCED-94-82)

Federal Water Subsidies      Water subsidies, in which rights to use water are bought and sold, are seen
                             by many resource economists as a mechanism for reallocating scarce
                             water to new users by allowing those who place the highest economic
                             value on the water to purchase it. At the same time, such transactions may
                             allow Interior’s Bureau of Reclamation to share in the profits, thereby
                             reducing the costs to the government of providing the subsidized water. In
                             a May 1994 report, we (1) identified several matters for the Congress to
                             consider if it decides to further encourage water transfers and
                             (2) recommended several actions that the Secretaries of the Army and the
                             Interior could take to clarify guidance on approving water transfers to
                             more clearly outline the requirements that must be met. (GAO/RCED-94-35)

                             In a September 1994 report, we (1) recommended that the Bureau examine
                             ways in which federal revenues may be increased while retaining
                             incentives for water transfers and (2) identified a matter for the Congress
                             to consider that would allow the Bureau greater flexibility in recovering

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the costs of federal water projects. Interior has directed the Bureau to
adopt the recommendations in both our May 1994 and September 1994
reports. The Army intends to issue guidelines on the basis of the Bureau’s
policies, procedures, and requirements adopted in response to the
recommendations in our May 1994 report. (GAO/RCED-94-164)

As we pointed out in our May 1994 report, another option for improving
efficiency and encouraging conservation is increasing the water rates paid
by federal water users. In an April 1994 report on the impact of higher
irrigation rates on farmers in the Central Valley Project in California, we
stated that if irrigators paid full-cost rates for water, federal revenues
would be significantly increased. We also listed several factors that the
Congress may wish to consider if it decides to pursue the issue of
increasing the irrigation rates. The Congress has not acted on this issue to
date. (GAO/RCED-94-8)

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                        GAO   Contact: Peter F. Guerrero, 202/512-6111
Protection Issue Area
(Budget Function 300)
Impact of GAO’s Work    Protecting the environment remains a priority for the nation. This issue
                        first came to the forefront in the 1970s when the country faced acute
                        environmental problems, such as seriously polluted waterways, increasing
                        air pollution levels, and the open dumping and burning of wastes. Since
                        then, the quality of the nation’s air, water, and other resources has
                        improved, despite increases in both population and levels of economic
                        activity. These improvements, however, have imposed high and growing

                        Annual environmental compliance costs that were $64 billion in 1973 have
                        grown to $119 billion in 1993 and are expected to continue to increase to
                        almost 3 percent of the nation’s Gross Domestic Product. As a result, there
                        is growing interest in finding more cost-effective ways to achieve
                        environmental protection. This goal is especially challenging in light of the
                        remaining unmet environmental protection needs, many of which will be
                        very costly to remedy.

                        EPA’s role for its first 25 years involved the development of standards and
                        regulations to be used by states to carry out federal environmental laws.
                        EPA has historically provided close oversight of state implementation of
                        these laws to ensure they are properly carried out. However, as states
                        increased their capacity to enforce environmental laws, EPA has been
                        accused of not sufficiently tailoring its oversight, leading to state
                        complaints that they are being micromanaged by EPA. This situation is
                        further exacerbated as states and local governments are being asked to
                        bear proportionately more of the costs associated with these programs. At
                        the same time, industry has generally recognized that good environmental
                        practices result in production efficiencies, reduced liabilities, and
                        consumer approval. The confluence of these events has fostered a call for
                        the adoption of an incentive- and performance-based approach to
                        environmental protection to replace what is commonly called “command
                        and control” regulation. At the same time, the federal government has
                        emerged as a major polluter in its own right. Liabilities for cleaning up
                        federal hazardous waste sites could total in the hundreds of billions of

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                  Our work has highlighted our nation’s recurring environmental problems
                  and recommended ways in which the Congress and EPA can effectively
                  address those concerns. In an effort to seek a more realistic balance
                  between environmental expectations and available resources, we have
                  continued to recommend that EPA incorporate strategic planning to help
                  ensure that its limited resources are targeted to high-risk environmental
                  and public health problems. For example, we reported that EPA’s priorities
                  for taking cleanup actions in the Superfund program were not set in
                  accordance with the environmental risks posed by those sites. To better
                  measure program success, we recommended that the agency develop
                  performance indicators that are based on environmental outcomes rather
                  than activities taken by the agency. Finally, our work over the past several
                  years has stressed the need to adequately fund those programs that
                  address high risks to the public and to adopt more cost-effective methods
                  of achieving environmental results through alternatives and supplements
                  to traditional regulatory approaches, such as pollution taxes, pollutant
                  trading, public disclosure of emissions, and pollution prevention. EPA has
                  started to implement these key recommendations—several of which will
                  require years to fully put in place. Also, EPA and the Congress appear
                  increasingly open to alternatives to traditional regulatory approaches as
                  the key environmental statutes go through the reauthorization process.

Key Open
Air Quality       The Clean Air Act Amendments of 1990 established ambitious milestones
                  for protecting and enhancing the quality of the nation’s air. A key step in
                  meeting these milestones—translating the act’s statutory mandates into
                  workable rules and regulations—requires the EPA to develop and issue
                  rules at an unprecedented rate. At the time of the act’s passage, EPA’s
                  rulemaking process averaged more than 3 years, and some rules took as
                  many as 9 years to complete. To expedite its clean air rulemaking, EPA has
                  made a number of changes to its internal review process. However,
                  despite these efforts, EPA acknowledges that it has missed over 60 percent
                  of its statutory deadlines imposed by the 1990 act. Exacerbating this
                  situation is the fact that the agency does not have a system for identifying
                  problems in its rulemaking process or assessing the effectiveness of its
                  streamlining initiatives. We recommended that EPA implement a tracking
                  system that would yield key information to monitor and evaluate the
                  agency’s clean air rulemaking process. In response, EPA has modified
                  several of its existing information systems to allow manually tracking of

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                             the time and resources allocated to agency rulemaking. As a long-term
                             solution, the agency plans to develop a new resource management system
                             that will track implementation progress and resource demands for
                             rulemaking and other activities. EPA expects the system to be in place by
                             the end of fiscal year 1997. (GAO/RCED-95-70)

Clean Water                  In 1992, we reported that a tremendous gap exists between the need for
                             wastewater treatment facilities and the resources available in the State
                             Water Pollution Control Revolving Fund Program to meet those needs.
                             States estimate that the state revolving funds will meet only a small
                             percentage of their needs and will pose particular problems for small
                             communities. As a result, we recommended that EPA develop a long-term
                             strategy to help state and local governments close this gap. EPA is
                             considering options to address the needs for small communities. In
                             addition, the Congress is currently considering this issue but has not yet
                             enacted legislation. (GAO/RCED-92-35)

                             In 1992, we also reported that pollutant trading could be an economical
                             supplement to traditional regulatory programs designed to address water
                             pollution problems. However, we found that trading had been limited to
                             date and attributed this largely to the uncertainties surrounding its legal
                             status under the Clean Water Act. Accordingly, we suggested the Congress
                             consider amending the act to explicitly authorize trading. (GAO/RCED-92-153)

Toxic Substances             We made a number of recommendations in 1994 to help strengthen EPA’s
                             ability to regulate toxic chemicals. Under the Toxic Substances Control
                             Act, EPA can limit or prohibit the manufacture, distribution, and use of
                             toxic chemicals. However, EPA has issued only a few regulations under the
                             act because the act’s legal standards are very high, and the burden of proof
                             is essentially on EPA. EPA has reviewed the risks of only 2 percent of some
                             62,000 chemicals and must use cumbersome procedures to acquire test
                             data. New chemicals are marketed without EPA having sufficient data to
                             fully assess potential risks. EPA also believes that industry has made
                             excessive claims of confidential business information for data submitted
                             under the act’s provisions. Among other things, we suggested the Congress
                             consider improving EPA’s ability to conduct chemical reviews by requiring
                             industry to submit additional data on new chemicals and by shifting to
                             industry some of the burden for compiling data on existing chemicals.

Hazardous Waste Management   Debate over the Superfund program’s reauthorization comes at a time
                             when cost estimates to clean up the nation’s hazardous waste problem are

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                          growing at an alarming rate. The Congressional Budget Office (CBO) has
                          projected that ultimately the nation could need $75 billion to clean up a
                          total of 4,500 nonfederal Superfund sites while the cleanup of
                          contaminated federal facilities is currently costing about $4 billion
                          annually. To encourage the efficient and effective use of limited resources,
                          we suggested the Congress to consider amending the Superfund legislation
                          to underscore the importance of ranking nonfederal hazardous waste sites
                          so that funding is targeted to the worst sites first. Similarly, to facilitate the
                          setting of risk-based priorities for cleaning up federal hazardous waste
                          sites, we suggested the Congress to consider amending the Superfund
                          legislation to require agencies to develop a consistent process for
                          assessing and ranking the relative risks of hazardous waste sites.
                          (GAO/T-RCED-94-274, GAO/RCED-96-150)

                          We also recommended that EPA expedite the issuance of its proposed rule
                          that would broaden the definition of indirect costs that it could recover
                          and increase the program costs that it seeks to recover. Some of the
                          excluded indirect costs include the costs for research and development
                          and for the preliminary work to assess whether a site should be included
                          in the Superfund program. EPA is currently revising its proposed
                          rulemaking. Due to the numerous public comments the proposed rule
                          received, agency officials are considering whether to repropose the
                          rulemaking. (GAO/RCED-94-196)

State/Federal Relations   Most federal environmental programs are designed to be administered at
                          state and local levels. Accordingly, once a state demonstrates that it is
                          capable of implementing an environmental program, EPA authorizes states
                          to implement most of the day-to-day responsibilities. After authorization,
                          EPA regions, with guidance from headquarters, continue to set goals for the
                          states, provide them with financial assistance, and monitor their
                          performance in meeting grant and program requirements. Most states
                          authorized to manage federal environmental programs have been unable
                          to meet some of the requirements to implement these programs. Many
                          states have had difficulty in performing key functions, such as monitoring
                          environmental quality, issuing permits, and enforcing compliance. As a
                          result, states have become increasingly reluctant to accept additional
                          responsibilities associated with recent environmental laws. Resource
                          limitations have been identified as a major factor in the states’ reluctance.
                          Federal funding has not kept pace with these new requirements, and the
                          states have been unable to make up the funding difference. We
                          recommended that EPA work with states to identify how each state’s
                          limited funds can be most efficiently allocated within each program to

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address the state’s highest environmental priorities and take steps to
increase the agency’s flexibility in dealing with states to achieve
improvements in environmental quality. We also recommended actions
that EPA could take to strengthen its working relationships with states. EPA
has a number of initiatives underway to improve its communication with
the states and bring greater flexibility in its oversight of state activities.

See also chapter 5, Financial and Information Management Programs,
Information Resources Management Issue Area.

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                       GAO   Contact: Robert Robinson, 202/512-5138
Food and Agriculture
Issue Area (Budget
Function 350)
Impact of GAO’s Work   United States Department of Agriculture (USDA), the third largest civilian
                       agency in the federal government, has a budget of about $60 billion. The
                       U.S. agricultural industry is vital to the lives of all Americans and millions
                       of people worldwide, generating about $1 trillion in economic activity and
                       accounting for 15 percent of the gross domestic product each year. One in
                       six working Americans has a job related to the food and agriculture
                       economy, and farm exports alone generate about a million jobs. USDA
                       manages a variety of programs designed to assist agricultural producers
                       and rural communities, develop markets, encourage farm production and
                       exports, ensure food safety, and provide consumers with food information
                       and assistance.

                       In 1996, our work was used extensively in the debates surrounding the
                       Federal Agricultural Improvement and Reform Act of 1996 (the 1996 farm
                       bill). As a result, landmark changes have been made in USDA programs. Of
                       particular note are the (1) removal of the link between federal income
                       support payments and farm prices, (2) changes to farm loan programs
                       aimed at reducing the government’s financial risk, and (3) establishment of
                       an interagency working group to evaluate federal rural development
                       efforts. In addition, the President signed new regulations reforming the
                       federal food safety rules for meat and poultry in line with our

Farm Programs          On April 4, 1996, the President signed into law the 1996 farm bill. This
                       legislation authorized a major revamping of federal income and price
                       support programs in a manner consistent with positions we took in
                       numerous reports. Under this legislation, farmers who have long depended
                       on government price and income support programs will make the
                       transition into a more competitive environment in which they will make
                       business decisions in response to market signals and not government
                       program mandates. Our specific recommendations that were followed
                       include reducing the government role in the dairy, rice, and cotton
                       industries and allowing producers time to make adjustments to their
                       investments by phasing out the programs over time. CBO estimates that
                       these farm bill changes will save about $1.3 billion over the next 7 years.

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Credit Reform       Title VI of the 1996 farm bill dramatically altered the farm loan programs’
                    basic lending, servicing, and property management policies, consistent
                    with recommendations we had made in numerous reports. Among other
                    things, the farm bill (1) prohibits new loans to borrowers who were
                    delinquent, (2) limits borrowers who were delinquent on direct loans to
                    one instance of debt forgiveness, (3) prohibits new loans to borrowers
                    who defaulted on past loans, (4) expedites the disposal of farm inventory
                    properties, and (5) requires borrowers to repay part of the interest due as
                    a condition of having their loan payment schedules rewritten. CBO has
                    projected savings from these actions at approximately $69 million over 7

Rural Development   Our reviews of federal rural development efforts identified the need to
                    establish an interagency committee to oversee the federal government’s
                    widely dispersed rural development programs and to find ways to make
                    the programs less burdensome for applicants. The 1996 farm bill directs
                    the Secretary of Agriculture to establish an interagency working group to,
                    among other things, establish policy for, coordinate, make
                    recommendations with respect to, and evaluate the performance of all
                    federal rural development efforts. The bill also directs the Secretary to
                    develop a streamlined, simplified, and uniform application process for a
                    number of rural assistance programs.

Food Safety         In numerous reports and testimonies, we recommended that USDA develop
                    a mandatory Hazard Analysis and Critical Control Point system for
                    ensuring the safety of the U.S. meat and poultry supply. We recommended
                    that such a system should include specific requirements for microbial
                    testing and guidelines for determining when test results warrant actions.
                    On July 6, 1996, the President signed new regulations reforming the federal
                    safety rules for meat and poultry. These rules, which frequently cite our
                    work, include provisions that require every slaughter and processing plant
                    to adopt and carry out a Hazard Analysis and Critical Control Point plan
                    that must be verified by USDA inspectors. In addition, microbial testing for
                    E. coli bacteria is required in slaughter plants. USDA estimated that the
                    implementation of this approach will help reduce the estimated 4,000
                    deaths and 5 million illnesses that result annually from contaminated meat
                    and poultry.

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Key Open
Continuing Concerns With the   As stated in the section above, our work has been instrumental in the
Food Safety System             implementation of the new Hazard Analysis and Critical Control Point
                               approach to food safety. This new program may address many of the
                               problems we identified in our reports, and we will monitor the progress
                               USDA and FDA make in implementing the regulations. In addition, however,
                               we identified some shortcomings in the federal food safety program that
                               need solutions beyond a Hazard Analysis and Critical Control Point-based
                               food inspection program. Specifically, we identified the need for the
                               Congress to (1) create a uniform set of food safety laws that are
                               administered by the current federal food safety agencies, (2) expand the
                               meat and poultry laws to include nontraditional meat and poultry products
                               in the food safety system, and (3) provide the agency with the flexibility to
                               target its inspection resources to the most serious food safety risks.
                               (GAO/RCED-92-152, GAO/T-RCED-93-22, GAO/RCED-94-110)

                               Federal programs designed to ensure that foods are not contaminated with
                               unsafe chemicals also need improvement. While the FDA has prepared a
                               comprehensive strategy for monitoring animal drugs in milk and is in the
                               process of updating its regulations, we will need to monitor their
                               implementation to ensure that they are meeting the goal of making the
                               nation’s milk supply safer. At a broader level, structural weaknesses in the
                               federal government’s programs for monitoring chemical residues and
                               environmental contaminants in all foods still exist.

                               We believe that a uniform set of food safety laws, with consistent
                               standards for chemical residues and contaminants in food and
                               administered by federal agencies with adequate authority to fulfill their
                               oversight responsibilities, would lead to improved effectiveness,
                               efficiency, and uniformity in the federal food safety system.
                               (GAO/RCED-92-209, GAO/RCED-94-192)

Continuing Concerns With the   While the 1996 farm bill addressed many of the concerns we had identified
Peanut Program                 in our report about the peanut program, several issues remain unresolved.
                               Specifically, the Congress reduced the quota support price for peanuts but
                               kept the price above the cost of producing peanuts and above the world
                               market price. Furthermore, the Congress did not address the issue of
                               allowing USDA to purchase peanuts and peanut products for various food
                               assistance programs at the world market price rather than the higher
                               quota support price. It is anticipated that the 105th Congress will debate

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                               the peanut program further and may make more changes to the program.

Continuing Concerns With the   Title VI of the 1996 farm bill revamped the entire farm credit system. One
Farm Credit System             provision of the title directs the Farm Service Agency to use guaranteed
                               loans as an interim step in moving direct loan borrowers to commercial
                               credit without a guarantee. To that end, we recommended that the Farm
                               Service Agency develop plans to ensure that county offices (1) update
                               borrowers’ loan risk assessments promptly and (2) evaluate direct loan
                               borrowers annually for potential graduation to guaranteed loans or
                               commercial credit. The Farm Services Agency is currently writing
                               regulations that are consistent with these recommendations and we will
                               monitor their implementation to ensure that they meet the goal of
                               removing borrowers from the direct loan program expeditiously.

                               See also chapter 5, Financial and Information Management Programs,
                               Information Resources Management Issue Area.

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                       GAO   Contact: Judy A. England-Joseph, 202/512-7631
Housing and
Development Issue
Area (Budget
Functions 370, 450)
Impact of GAO’s Work   The housing and community development issue area reviews federal
                       programs involving over $1 trillion dollars—insuring some $500 billion in
                       loans, and guaranteeing more than $500 billion in outstanding securities
                       for single-family and multifamily housing.

                       The federal government operates more than 300 programs that are aimed
                       at providing decent, affordable housing and healthy, vibrant communities.
                       The Department of Housing and Urban Development (HUD) is the principal
                       federal agency responsible for programs dealing with housing and
                       community development. Other agencies with housing or community
                       development programs include the Federal Housing Administration (FHA);
                       the Department of Veterans Affairs (VA); the Rural Housing and
                       Community Development Services; the Small Business Administration
                       (SBA); and the Federal Emergency Management Agency (FEMA).

                       After decades of costly housing and community development assistance
                       and with future budget needs of over $100 billion for these agencies’
                       programs; the Congress and the administration are considering significant
                       changes in the structure of some of these agencies and their functions.
                       HUD, long plagued with mismanagement and poor service, continues its
                       attempts to overhaul and streamline its operations. As detailed below, this
                       issue area’s work has significantly contributed to congressional debate
                       and decision-making on the future of housing and community
                       development at the federal and state levels. As a result, HUD and the
                       previously identified agencies have taken action to improve the efficiency
                       and effectiveness of housing and community development policies and
                       programs and saved taxpayers money.

Mortgage Assistance    Much of our work in the multifamily mortgage assistance area focused on
                       helping the Congress evaluate alternatives for improving HUD programs
                       and activities. In the single-family mortgage insurance area, our report on
                       the mortgage assignment program resulted in legislation being enacted
                       that will reduce federal spending by billions of dollars over a 7-year period.

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                     We also reported on the economic value of FHA’s single-family program
                     and on the role of FHA in providing mortgage credit to home buyers.

                     In the multifamily area, we continued to evaluate HUD proposals for
                     reengineering the 8,600 properties that both receive project-based Section
                     8 rental assistance subsidies from HUD and have mortgages insured by the
                     FHA. We also analyzed issues and options for the Congress to consider in
                     revising HUD’s low-income housing preservation program. In addition, we
                     reported on options for revising multifamily housing programs
                     administered by the USDA’s rural housing service. As of September 1996,
                     the Congress had either enacted or was considering legislation in each of
                     these areas.

                     In the single-family mortgage insurance area, we reported that HUD’s
                     mortgage assignment program has not been very successful helping
                     borrowers avoid foreclosure in the long run and operates at a high cost to
                     HUD. Legislation was enacted that eliminated HUD’s mortgage assignment
                     program and provided HUD authority to assist borrowers in default by
                     other means. CBO estimated that this action reduced federal spending by
                     $1.2 billion in fiscal year 1996 and $2 billion in total over a 7-year period.

                     We also completed work on HUD’s management of single-family properties
                     in its inventory and identified ways to decrease the agency’s management
                     costs. We reported that HUD’s Illinois State Office incurred unnecessary
                     expenses because it continued to pay for water and sewer services for
                     vacant properties that were held for months in the inventory before they
                     were sold. Additionally, that office did not pay property taxes on time,
                     which resulted in HUD unnecessarily incurring expenses to recover
                     properties lost for unpaid tax liens. In response to our recommendations,
                     HUD headquarters issued a directive to all field offices to take specific
                     actions to avoid the recurrence of these unnecessary management

Low-Income Housing   Our work on low-income housing issues continued to support the
                     Congress as it tried to formulate, reach consensus on, and pass major
                     legislation to reform public and assisted housing and significantly change
                     the way housing assistance is delivered to eligible families. Through our
                     congressional briefings and testimonies, we raised programmatic and
                     budget issues highlighting the very difficult position the Congress and HUD
                     are in as they try to balance the federal budget and also meet low-income
                     families’ growing needs for shelter. On the basis of our budget work, we
                     recommended that because of HUD’s lack of adequate preparation, the

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                  Congress not adopt costly departmental proposals to award $845 million
                  in bonuses during fiscal year 1997 to housing and community development
                  program participants. In line with GAO’s recommendation, VA and HUD, and
                  Independent Agencies Appropriations Act, Fiscal Year 1997 (H.R.
                  3666) enacted on September 26, 1996, did not appropriate the $845 million.

                  In testimonies this year on HUD’s fiscal year 1997 budget request, we
                  discussed several critical management and budget issues at HUD. These
                  issues included significant and longstanding problems in public housing,
                  the spiraling cost of HUD’s long-term contracts to provide assisted housing,
                  the need for consensus at HUD on reforms in HUD programs, the
                  inadvisability of implementing a performance bonus system without
                  adequate preparation, and HUD’s progress in addressing the management
                  deficiencies we described in our February 1995 high risk report. We
                  concluded that, despite HUD’s promise of reform, reinvention, and
                  transformation aimed at solving the department’s problems, much more
                  remains to be done. HUD is very much an agency in limbo as few of the
                  proposals in HUD’s reinvention blueprint have been adopted. The Congress
                  considered the issues raised in our testimonies as it sought to make
                  needed revisions in HUD programs.

                  In conjunction with our General Government Division, we reported on our
                  approach for reviewing the administration of the Low-Income Housing Tax
                  Credit. This credit, administered jointly by the Internal Revenue Service
                  and the states, was enacted to provide an incentive for the private sector
                  to develop affordable rental housing for lower income individuals and
                  families. This report, provided the Congress with an overview of the
                  federal/state system established for administering the tax credit. As a
                  result, Congress is better informed on the history of the program and its
                  utility in producing affordable housing.

Key Open
Housing Finance   In a June 1995 report, we recommended to the Board of Directors of the
                  Federal Housing Finance Board that any revised regulations for the
                  Affordable Housing Program clearly define and integrate the monitoring
                  and reporting responsibilities of the projects’ sponsors, the members, and
                  the Federal Home Loan Banks. Such action would help ensure that the
                  Federal Home Loan Banks continue to meet their statutory and regulatory

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                           obligations under this program. The Finance Board expects to issue final
                           regulations in early 1997. (GAO/RCED-95-82)

Low-Income Housing         In a July 1994 testimony, we said that we had found deplorable conditions
                           in various low income project-based properties and recommended that the
                           Secretary of HUD (1) promptly identify all properties with severe physical
                           problems and offer affected tenants temporary assistance to relocate to
                           safe and decent housing, (2) systematically notify owners of the problems,
                           and (3) take appropriate enforcement actions against owners not bringing
                           their properties into compliance with housing quality standards. In
                           mid-1997, HUD expects to implement the new Section 8 Management
                           Assessment Program, which could implement our recommendations.

                           In a February 1989 report, we recommended that the Congress establish
                           one low-income rental assistance subsidy program that would provide a
                           unified approach to delivering housing assistance, equalize the benefits to
                           program recipients, and quiet the debate over which program is
                           preferable. Both the House and Senate have introduced legislation to
                           merge current programs. Resolution of these legislative initiatives is not
                           likely to occur until early 1997. (GAO/RCED-89-20)

Lead-Based Paint Hazards   The risk of poisoning from lead-based paint continues to threaten young
                           children living in low-income housing that was constructed before the sale
                           of such paint was banned in 1978. Exposure to lead, even at low levels,
                           may cause serious health, learning, and behavioral problems in
                           children—especially those under the age of 7. In 1993 and 1994 we issued
                           two reports with a number of recommendations to the Secretary of HUD to
                           revise the regulations concerning lead-based paint. The Secretary plans to
                           implement most of our recommendations in early 1997, which, if properly
                           executed, would protect children living in public housing from the hazards
                           of lead-based paint. (GAO/RCED-93-138, GAO/RCED-94-137)

                           See also chapter 5, Financial and Information Management Programs,
                           Information Management Resources Issue Area.

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                               GAO   Contact: John H. Anderson, Jr., 202/512-2834
Transportation and
Issue Area (Budget
Function 400)
Impact of GAO’s Work           Transportation issues significantly affect many aspects of our daily lives.
                               The transportation sector is crucial to maintaining a healthy economy, as
                               well as ensuring our competitiveness in the world markets and serving the
                               expanding demands of our businesses and industries, as well as the
                               American public. Despite the vast federal, state, and local resources that
                               go to maintain this infrastructure, with the forecasted dramatic increase in
                               air travel in the next decade and no slowdown expected in the demand for
                               surface and water transportation, there is concern about the adequacy of
                               the present infrastructure to continue to meet the needs of the traveling
                               public safely.

                               As detailed below, our work has focused on budget, program management,
                               and safety related issues. It has influenced the Congress, the Department
                               of Transportation (DOT) and its agencies to take many actions that should
                               improve transportation safety and the efficiency and the effectiveness of
                               transportation policies and programs.

Aviation Safety and Security   The Federal Aviation Administration (FAA) continues to face the challenge
                               of dealing with the effects of a downsized workforce and a growing
                               aviation industry within the context of continuing to maintain a high level
                               of safety in the U.S. air transport system. High-profile airline crashes in
                               1996 have heightened interest and scrutiny in aviation safety and security
                               issues. Our recommendations have been designed to help FAA and
                               congressional decisionmakers address these challenges.

                               In response to our recommendations, FAA has taken a number of actions
                               to: (1) recruit certification experts in advanced technologies, (2) better
                               define the role of and improve the training of its certification staff,
                               (3) deploy a system that will assess airline risk and assist FAA management
                               in better utilizing inspector resources, (4) gather information on the aging
                               aircraft fleet in order to target inspections, (5) improve its oversight and
                               inspections of foreign carriers, and (6) improve the efficiency of the new
                               airline certification process. In a report and series of testimonies, we
                               highlighted the need for FAA to undertake actions more quickly to protect
                               the flying public from the threat of explosives by, first, assessing specific

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                          vulnerabilities of airports and airlines and, then, quickly developing ways
                          to address the vulnerabilities.

Aviation Infrastructure   FAA continues to struggle with its air traffic control modernization
                          program—new air traffic control systems are being installed and
                          automation equipment is still being acquired. At the same time, FAA’s dual
                          role as regulator and promoter of aviation has come under increased

                          Our work has resulted in savings to the taxpayers. FAA’s fiscal year 1996
                          Facilities and Equipment budget request of $1.9 billion was reduced by
                          $79.9 million as a direct result of GAO’s analysis of DOT’s budget request.
                          Our testimony on concerns regarding the $2.4 billion Initial Sector Suite
                          System component of FAA’s Advanced Automation System led to the suite’s
                          replacement, resulting in reduced funding of $21.7 million in fiscal year
                          1996 and $43.9 million in fiscal year 1997.

                          In responding to other recommendations, FAA issued guidelines and
                          standards for acquiring and upgrading airport access control systems;
                          improved its acquisition guidance to ensure that program sponsors use
                          consistent approaches in selecting projects for inclusion in DOT’s budget
                          request; and issued policies clarifying the criteria for providing
                          grants-in-aid to airports under letters of intent and the Military Assistance
                          Program. Additionally, consistent with our recommendation, a
                          Presidential Decision Directive established DOT as the lead agency for all
                          federal civil Global Positioning System matters including coordination of
                          civil augmentation systems to minimize costs and duplication of effort
                          between agencies.

Surface Safety            Each year 40,000 people die on the nation’s highways and about 1,200 are
                          killed in railway accidents. The societal costs total in the hundreds of
                          billions of dollars. Our work has contributed to the following actions:
                          (1) under contract with the National Highway Traffic Safety
                          Administration (NHTSA), the American Association of Motor Vehicle
                          Administrators published and distributed to the states, a handbook for
                          improving periodic motor vehicle inspection programs; (2) the Congress,
                          in the Swift Rail Development Act of 1994, directed the Federal Railroad
                          Administration (FRA) to complete rulemaking governing passenger car
                          safety by 1999; (3) the Secretary of Transportation launched a campaign to
                          increase seat belt use by encouraging states to pass primary enforcement
                          laws; (4) the NHTSA extended major automobile safety requirements to light
                          trucks and vans as we had recommended in 1978 and 1990; (5) DOT delayed

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                         expanding commercial truck traffic from Mexico until consultations are
                         completed between the U.S. and Mexico to improve safety and security;
                         and (6) FRA required railroads to adopt internal control procedures to
                         enhance the quality of information pertaining to rail equipment, accidents
                         and incidents.

Surface Infrastructure   Our analysis of DOT’s budget request and other work has resulted in
                         significant savings to the taxpayer. Based on our work, Congress reduced
                         DOT’s 1996 budget request by (1) $35 million for the Northeast Corridor
                         Improvement Program, and an additional $10 million for the next
                         generation high-speed rail system; (2) $128.9 million for Intelligent
                         Transportation Systems; (3) $300 million for the Congestion Relief
                         Initiative based on our finding that it was duplicative of other programs;
                         (4) $30 million for the Pennsylvania Station Redevelopment Project; and
                         (5) $42 million for Chicago’s Central Area Circulator project. The latter
                         project was subsequently cancelled which will result in further savings of
                         $148.2 million. Finally, the Congress eliminated the Interstate Commerce
                         Commission and created a Surface Transportation Board within DOT
                         following a model we presented in testimony resulting in savings of
                         $36.6 million.

                         Our work on the costs and financing of the Central Artery/Tunnel project
                         in Boston resulted in the Federal Highway Administration (FHWA) and the
                         state agreeing to GAO’s cost estimate of $10.4 billion and in the FHWA
                         requiring that the state have bonding authority to cover the project’s cost.
                         The FHWA implemented a recommendation that we consider key to
                         protecting the nation’s highway infrastructure. We had recommended that
                         the FHWA issue guidance to states on factors to be considered as part of
                         life-cycle cost analysis, such as setting priorities for projects over
                         multiyear periods; establishing acceptable value ranges, particularly for
                         social and other nontraditional costs like pollution, congestion, and fuel
                         usage; and refining maintenance costs and salvage values. In response to
                         these recommendations, the FHWA published a policy statement on life
                         cycle cost analysis on September 18, 1996.

                         In other actions, the Federal Transit Administration (FTA) implemented
                         several of our recommendations designed to enhance its bi-annual report
                         to the Congress on the nation’s mass transit needs and the FHWA issued
                         guidance that will provide the framework for modifications to the National
                         Highway System. Further, following concerns raised by GAO, Amtrak
                         restructured it operations and developed a strategic business plan
                         designed to increase revenues and reduce costs. We continue to monitor

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                           Amtrak’s progress in meeting its goal of operating self-sufficiency by the
                           year 2002.

Coast Guard                The Congress is looking closely at Coast Guard missions and functions to
                           determine if any can be accomplished more efficiently through reduction,
                           transfer, or privatization. It is also monitoring the agency’s progress in
                           downsizing in a fiscally and organizationally sound manner. Our work has
                           focused on identifying ways to reduce the Coast Guard’s budget consistent
                           with these goals.

                           The Coast Guard acted on a variety of our recommendations, such as
                           reporting annually to the Congress on the progress of demonstration
                           programs involving local citizens in overseeing the environmental impact
                           of various oil related activities in Alaska, improved its performance
                           measurement system to aid in better resource allocation decisions,
                           improved its enforcement of restrictions on the discharge of garbage and
                           plastics from ships, took interim actions to improve management of its
                           cutter inventories, improved its project selection process for its Research,
                           Development, Training and Equipment program, and reported on an
                           Anti-Deficiency Act violations to the Congress and the President.

Key Open                   Although many actions and initiatives have been taken by the Congress,
Recommendations            DOT, and its agencies in response to our recommendations, some important
                           recommendations remain open and warrant priority attention.

Track Safety Inspections   In reporting on the Federal Railroad Administration’s (FRA) Track Safety
                           Inspection Program, we recommended that the FRA provide guidance to
                           track inspectors on options available when excepted track deficiencies
                           constitute an imminent threat of derailment or another safety hazard. Such
                           action would strengthen the current regulations governing the excepted
                           track provision and improve safety on excepted track. DOT agreed to issue
                           revised guidance to its inspectors once the FRA finalizes the new Track
                           Safety Standards. DOT expects to issue revised guidance to its inspectors
                           by December 1997. (GAO/RCED-94-56)

New Aviation Security      To improve aviation security, we recommended that FAA develop a
Technology                 long-term and comprehensive national strategy that combines new
                           technology, procedures, and better training for security personnel. This
                           plan will help focus federal and private sector resources and provide a
                           road map for federal agencies and the airline industry to follow. The
                           current aviation security system has numerous shortcomings that could be

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                               exploited by terrorists. Although a White House Commission on Aviation
                               Safety and Security has recommended a number of short-term
                               improvements, important questions about how new initiatives will be
                               implemented and paid for remain unanswered. New explosives detection
                               technology is not a panacea—a mix of procedures, new technology, and
                               better training will be needed to improve security. This is one of the most
                               complex and challenging issues the aviation community will face over the
                               next decade and could cost billions of dollars. DOT’s plans for
                               implementing this recommendation may be contained in the White House
                               Commission report scheduled to be issued in February 1997.

Global Positioning System      When augmented, the Global Positioning System could provide substantial
                               safety and efficiency benefits for airlines and other users of the National
                               Airspace System. One of the main benefits of the Global Positioning
                               System will be prevention of accidents and the associated casualties—use
                               of the Global Positioning System receivers may have prevented the
                               American Airlines crash in Columbia when the ground-based navigational
                               aids were out of service and the pilot got lost in mountainous terrain.
                               Additionally, airlines will save hundreds of millions through more efficient
                               and direct routings and approaches. Finally, production of the Global
                               Positioning System-related equipment for aircraft and other transportation
                               modes is expected to be an $8 billion per year industry. In May 1995, we
                               recommended that FAA prepare a comprehensive plan for augmenting the
                               Global Positioning System, transitioning to it, and updating the plan
                               regularly. The plan should include, among other things, schedule and cost
                               estimates for developing and implementing the augmentation systems as
                               well as information on the probability that FAA will meet these estimates.
                               FAA completed a public version of a the Global Positioning System
                               Transition Plan in July 1996, and is initiating work on a the Global
                               Positioning System Transition Plan Library which is intended to address
                               other users’ needs. The Library’s completion is expected in July 1997.

Coast Guard’s Vessel Traffic   In reporting on the Coast Guard’s planned procurement of a $260 million
Service System                 to $310 million Vessel Traffic Service system that will guide traffic through
                               busy ports, we recommended that, given the high development costs for
                               the program and the large number of proposed sites that show relatively
                               low net benefits from acquiring new Vessel Traffic Service systems, the
                               Coast Guard determine whether the safety benefits of the Vessel Traffic
                               Service can be achieved more inexpensively. The Coast Guard concurred
                               with our recommendation. In its deliberations on DOT’s fiscal year 1997

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                           budget request, the Congress expressed concern over the expected cost
                           and decided that the Vessel Traffic Service program, as presently
                           configured, should be terminated. To that end, the Congress authorized
                           $1 million in fiscal year 1997 for the Coast Guard to identify minimum user
                           requirements, user fee options, public/private partnerships, and to propose
                           a viable new program. (GAO/RCED-96-83)

Fees for Registering and   A potential option for dealing with limited FAA resources, is to establish
Certifying Aircraft        new user fees or increase existing ones for the services it provides, taking
                           into consideration the government’s costs, the value of the services to the
                           user, and the public policy or interest served. For example, the Congress
                           authorized the collection of $75 million in new user fees during fiscal year
                           1997 on a trial basis—the user fee being tested is for “overflights” of U.S.
                           controlled airspace without taking off from, or landing in, the United
                           States. In 1993, we reported that FAA is not fully recovering the cost of
                           processing aircraft registration applications and estimated, that, by not
                           increasing fees since 1968 to recover costs, FAA had foregone about
                           $6.5 million in additional revenue. In accordance with our
                           recommendations, DOT is processing a Notice of Proposed Rulemaking to
                           increase aircraft registration fees and expects to issue it in late 1997. In
                           1996, we recommended that DOT reevaluate the appropriateness of the
                           Office of the Secretary increasing its fees and FAA establishing fees for
                           services to certify new airlines. DOT concurred and indicated that, as part
                           of FAA’s reform efforts, there is a significant focus on financing reform and
                           funding strategies. (GAO/RCED-96-8, GAO/RCED-93-135}

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                       GAO   Contact: Carlotta Joyner, 202/512-7014
Education and
Employment Issue
Area (Budget
Function 500)
Impact of GAO’s Work   The Education and Employment Issue Area focuses on the nation’s
                       educational efforts—from preschool through higher education
                       programs—and its efforts to develop skilled workers, link potential
                       workers with employment, and ensure basic workplace protection. The
                       quality of life in this country and our ability to compete in the international
                       marketplace are heavily influenced by the nation’s investment in
                       educational and employment programs. The Departments of Education
                       and Labor are the federal agencies with primary responsibility for
                       overseeing this investment. Working with state and local governments, the
                       federal government invests over $60 billion annually to promote access to
                       quality education and to advance opportunities for productive
                       employment under safe and equitable conditions.

                       Our work has alerted the Congress and executive branch agencies to
                       important issues and provided recommendations that have become the
                       foundation for congressional and agency action. Our education finance
                       work led to substantial improvement in the targeting of federal
                       educational funds to children most in need because of poverty or
                       migration, and our work on the condition of school facilities led to federal
                       funding of school infrastructure. Our higher education work has identified
                       ways in which the federal government can minimize student loan defaults
                       and has led to changes in student financial assistance information
                       management systems.

                       With respect to workplace quality, our work describing the magnitude,
                       complexity, and dynamics of current workplace federal regulation, and the
                       need to consider alternatives, has been a valuable source of information as
                       the Congress has considered far-reaching changes in the regulatory
                       strategies for worker protection. Our reports and testimonies on the need
                       to reform and streamline the current system of overlapping employment
                       training programs influenced congressional deliberations that led to House
                       and Senate bills to consolidate such programs.

                       Our work on the AmeriCorps national service program has also been
                       highly influential. Our information on the total resources needed to field

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                        an AmeriCorps participant led to a fiscal year 1996 appropriation for
                        National and Community Service Act programs that was $70 million less
                        than the previous year’s funding and about $400 million less than the
                        amount the administration requested.

                        Highlights of our contributions in preparatory education (preschool,
                        elementary, and secondary education), higher education, work force skills
                        and jobs, and workplace quality follow.

Preparatory Education   Our preparatory education work has focused on ways in which the federal
                        government could be more effective in supporting and encouraging state
                        and local educational efforts. For example, our series of reports on school
                        facilities which documented the lack of necessary infrastructure and
                        technology, was used to support the need for federal funds to assist states.

                        We also recommended that the Secretary of Education work with
                        knowledgeable educators and researchers as well as state, district, and
                        school officials to develop ways to assess the progress of children with
                        special needs, such as those with limited English proficiency and those
                        with disabilities, in achieving high standards. As a result, the Department
                        is working closely with the National Research Council to develop ways to
                        include children with disabilities in new assessments, and the Department
                        is reviewing procedures used to assess the performance of children with
                        limited English proficiency.

                        Our work has also led to improvements in federal program operations. For
                        example, we recommended that the Secretary of Education continue to
                        assess the manner in which federal education programs are reviewed by
                        auditors and, as needed, promote changes in the way the programs are
                        reviewed so that the review process is more consistent with schools’
                        attempts to improve. The Department is revamping its monitoring
                        procedures to include more emphasis on program outcomes. Also, to help
                        ensure the consistency of the Department of Education in its investigation
                        deteterminations, we recommended that the Department develop and
                        issue policy guidance that specifies how the Department’s regional offices
                        should conduct ability-grouping and tracking investigations. The
                        Department has developed such guidance and provided it to its regional
                        investigators and the public, including state and local education agencies.

Higher Education        In the higher education arena, our efforts have primarily involved cost
                        containment and the prevention of fraud and abuse with respect to federal
                        resources used to ensure that eligible students have access to quality

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                             higher education. Our work has led to cost reductions of over $900 million
                             in fiscal years 1995 and 1996 and administrative changes. For example, our
                             testimonies and reports identifying poor financial and information
                             management of student aid programs contributed to the Department of
                             Education’s implementation of administrative improvements. In
                             testimonies and a report, we contributed to the congressional debate
                             about the future of the direct student loan program by identifying the
                             advantages of a properly implemented program.

                             Other reports and testimonies addressed options for college savings for
                             students and their parents, achieving cost reductions through the
                             consolidation of similar programs or the elimination of duplicative ones,
                             and some of the contributing factors and coping strategies connected with
                             the high cost of college. Although the Department has made changes based
                             on our recommendations, federal student financial assistance programs
                             remain vulnerable to fraud, waste, and abuse. For this reason, we are
                             continuing to examine various aspects of these programs as part of GAO’s
                             special focus on high risk federal programs that could result in the loss of
                             substantial amounts of federal resources.

Work Force Skills and Jobs   The focus of this work has been to identify ways in which federal
                             programs can better assist workers to acquire the skills they need to
                             become economically self-sufficient and help employers recruit and hire
                             qualified employees. Both the House and Senate have made extensive use
                             of our reports and testimonies describing multiple employment training
                             programs and recommending the consolidation or elimination of
                             overlapping and duplicative programs. The Senate also used our report on
                             Job Training Partnership Act (JTPA) programs—which found that
                             JTPA-sponsored training did not significantly increase the long term
                             earnings or employment prospects of participants—to support legislation
                             reforming job training and reducing funding for JTPA programs. Our work
                             on Job Corps questioned its effectiveness and has led to congressional
                             interest in examining various aspects of the program.

                             The Department of Labor has also taken actions, based on our work, to
                             improve the Job Corps and the Employment Service. We recommended
                             that the Department of Labor determine whether the continued use of
                             national training contractors for Job Corps training programs is cost
                             effective. In response, Labor has initiated a new system to compare the
                             performance of national contractors with overall Job Corps center
                             performance. In addition, the Department will review all Job Corps course
                             offerings to ensure that they are for occupations with a labor market

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                    demand. With respect to the Employment Service, we recommended that
                    Labor work with the states to identify and solve problems affecting
                    program performance, increase technical assistance as a way of promoting
                    quality, and share information on effective state and local employment
                    practices. As a result, Labor initiated the “Employment Service
                    Revitalization Strategy” to increase the Employment Service’s value to its

Workplace Quality   Our reports and testimonies on workplace quality issues have focused on
                    the maintenance of basic workplace protection for employees while
                    minimizing the regulatory compliance burden on employers. For example,
                    we testified on alternative approaches to improving workplace protection
                    and on the Occupational Safety and Health Administration’s (OSHA) efforts
                    to better protect workers through enhanced involvement of business in
                    the regulatory process.

                    The Congress has used our work in its deliberations about several
                    different agencies. For example, our work on National Labor Relations
                    Board staffing trends and management iniatives, was relied on by the
                    Senate Appropriations Subcommittee in its deliberations on funding for
                    the Board. Our work on over 1,000 combined Education and Labor field
                    offices was used by the Congress in its discussions on how to streamline
                    the federal government.

                    Our work has also led to numerous agency actions. For example, we
                    recommended that OSHA develop procedures to obtain worksite-specific
                    injury and illness data from employers so that OSHA could use the data to
                    better target inspections and education and training programs to the most
                    hazardous worksites and make more efficient use of limited inspection
                    and training resources. As a result, OSHA is collecting worksite-specific
                    injury and illness data from selected high hazard employers. In response to
                    our recommendation, Labor has also improved its procedures to guard
                    against the use of fraudulent or inaccurate data in the Davis-Bacon wage
                    determination process.

                    At the Securities and Exchange Commission (SEC), our work on
                    employment discrimination in the securities industry led to a number of
                    actions to better ensure equitable resolution of employment
                    discrimination cases. The SEC now directs self-regulatory organizations
                    (SRO), such as the New York Stock Exchange, to track the numbers, types,
                    and outcomes of discrimination cases that are arbitrated by their
                    arbitration departments, establish written criteria and standards for

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                          excluding persons with significant disciplinary histories from their
                          arbitration pools, require their arbitrators to disclose criminal convictions,
                          and use information on arbitrators’ expertise when selecting arbitrators to
                          serve on arbitration panels. The SEC has also established a schedule for
                          inspecting SROs, begun to visit SROs at times between on-site inspection
                          visits to determine whether its recommendations have been implemented,
                          and issued guidance to its inspectors to specifically look for arbitrated
                          employment discrimination cases when they select files to review during
                          their inspections.

Key Open
Department of Education   In our 1992 transition series report on education issues, we recommended
Management                that the Department of Education have information and financial
                          management systems that provide needed data and protect the federal
                          government’s financial interests from waste, fraud, and mismanagement.
                          We recognized that corrective actions would require new systems and
                          revised regulations, or legislation, or both. The Department is redesigning
                          its core financial management systems and it has taken steps to improve
                          its cash management. It has also established an information management
                          committee to address problems in data collection and dissemination.
                          Although the Department has made progress in implementing our
                          recommendation, its initatives are, by their nature, long term efforts that
                          will require more time to complete. (GAO/OCG-93-18TR)

Student Financial Aid     In our report on the use of student financial aid data, we recommended
                          that the Department of Education improve the accuracy and completeness
                          of student financial aid data by doing such things as continuing to screen
                          data entered into the National Student Loan Data System (NSLDS) to ensure
                          that they are in a consistent format and testing the accuracy and validity of
                          data already in NSLDS. We also recommended that the Department analyze
                          student aid data more closely to identify patterns of noncompliance with
                          federal requirements and take appropriate corrective actions. In response,
                          the Department formed the NSLDS Data Integrity Insurance Group to
                          (1) identify data anomalies, inconsistencies, and inaccuracies; (2) correct
                          and prevent data problems; and (3) work toward ensuring data accuracy,
                          completeness, and timeliness. The group identified several data
                          inaccuracies that resulted in additional edits being added to NSLDS and
                          many omissions and inaccuracies in data submitted by schools for entry
                          into the Department’s systems. The Department also formed an NSLDS team

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                                 to review alleged instances of loan defaulters receiving subsequent loans,
                                 which they were not eligible to receive because of their previous defaults.
                                 The Department is also working with a contractor to identify and verify
                                 critical data elements in NSLDS. (GAO/HEHS-95-89)

Occupational Safety and Health   In our report on the need for changes in the combined and federal-state
                                 approach to occupational safety and health, we recommended that OSHA
                                 emphasize measures of program outcomes and evaluations of the
                                 effectiveness of specific program features as it assesses both its own
                                 activities and those of the state-operated programs it is statutorily
                                 responsible for overseeing. OSHA is in the process of implementing this
                                 recommendation. It is developing a comprehensive performance
                                 measurement system that will focus on outcomes to measure its own
                                 effectiveness. OSHA and state representatives have discussed the
                                 application of this comprehensive system to OSHA’s monitoring of state
                                 safety and health programs. In addition, OSHA is seeking agreement on
                                 performance measures with interested states—performance measure
                                 agreements with two states have been approved and a third one is being
                                 negotiated. (GAO/HEHS-94-10)

                                 In the same report, we recommended that OSHA implement procedures for
                                 ensuring that employers accurately record occupational injuries and
                                 illnesses. OSHA is also in the process of implementing this
                                 recommendation. It has developed changes in its injury and illness
                                 recordkeeping regulations, published a Notice of Proposed Rulemaking in
                                 the Federal Register, and received public comments. OSHA is conducting a
                                 preliminary analysis of the comments in preparation for beginning work
                                 on the final rule. Proposed changes include simplifying the recordkeeping
                                 forms, clarifying definitions, improving employee involvement, and
                                 management certification of the records. OSHA officials plan to publish the
                                 final regulations in 1997. (GAO/HEHS-94-10)

                                 In a report on OSHA’s policy with respect to the abatement of serious
                                 hazards, we recommended that OSHA promulgate a regulation requiring
                                 employers to submit detailed evidence of corrective actions that have been
                                 taken to abate hazards. We also recommended that OSHA revise its policies
                                 so that (1) citations to employers at construction worksites require
                                 correcting the condition, equipment, or procedure that created the hazard;
                                 and (2) abatement cannot be achieved solely by moving to another
                                 location if the cited condition, equipment, or procedure would be likely to
                                 create a hazard at the new location. OSHA has chosen to develop a new
                                 abatement verification regulation in response to both our recommendation

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                            that it promulgate a regulation requiring evidence of corrective action and
                            that it revise its policies regarding citations and abatements. OSHA
                            published a Notice of Proposed Rulemaking in the Federal Register and is
                            making revisions to the proposed regulation based on comments received
                            from the public. OSHA has not stated when the regulation will be finalized.

EEOC’s Expanding Workload   To address increases in workload of the Equal Employment Opportunity
                            Commission (EEOC), we recommended that the Congress convene a
                            commission of experts to develop legislative and administrative
                            procedures that would enable EEOC to better carry out its mission within
                            the context of an overall federal strategy for enforcing federal employment
                            nondiscrimination laws. Although action is expected, at the present time,
                            congressional committees responsible for EEOC have not planned any
                            hearings or legislation to address EEOC’s workload problem. (GAO/HEHS-94-32)

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                        GAO   Contact: David P. Baine, 202/512-7101
Veterans’ Affairs and
Military Health Care
Issue Area (Budget
Functions 050, 550,
700 & 753)
Impact of GAO’s Work    The Veterans’ Affairs and Military Health Care issue area is responsible for
                        GAO’s evaluations of health care directly provided by the federal
                        government as well as nonhealth benefits provided by VA. Our work on
                        health care delivery focuses primarily on the services provided to over
                        34 million veterans and military beneficiaries by VA and DOD through their
                        $32 billion systems of hospitals, clinics, and managed care contracts. We
                        also evaluate health care provided by the Indian Health Service and
                        Bureau of Prisons. For VA nonhealth benefits, our evaluations address
                        disability compensation, pensions, vocational rehabilitation, and life
                        insurance. These programs serve over 3 million veterans at a cost of about
                        $18 billion a year.

                        Rising health care costs and substantial budget deficits have prompted
                        major congressional concerns about whether these agencies are delivering
                        quality health care to their beneficiaries as efficiently and cost-effectively
                        as possible. The downsizing of the military forces and the declining but
                        aging veteran population has also prompted a concern about the structure
                        of DOD and VA health delivery and VA’s benefits systems. Our work has
                        contributed to the debates and resulted in improvements in the related
                        programs as follows.

DOD Programs            In fiscal year 1996, we continued to focus on issues related to the reform
                        and restructuring of the military health care system, particularly
                        TRICARE, the managed care program DOD began to implement last year
                        and is continuing to phase-in across the country. Our examination of
                        TRICARE led to DOD committing to gather the data necessary to measure
                        the eventual, overall success of the program. We also studied DOD’s use of
                        Uniformed Services Treatment Facilities (USTFs) to provide care for DOD
                        beneficiaries that resulted in (1) the establishment of a uniformed benefit
                        for DOD beneficiaries receiving care at USTFs, (2) a requirement that
                        prevents double-billing for care provided to Medicare-eligible DOD
                        beneficiaries, and (3) a reduction in the appropriation level for USTFs by
                        $50 million.

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VA Health Care Programs   Our work supported congressional efforts to limit growth of VA’s health
                          care appropriation. We provided evidence that VA overstated the resources
                          it will need to meet the health care needs of veterans in the mandatory
                          care category because (1) it did not adequately relflect the declining
                          demand for VA hospital care and (2) much of the care it provides is
                          discretionary. In addition, we identified opportunities to reduce VA
                          operating expenses by billions of dollars in the next 7 years by completing
                          actions on a wide range of efficiency improvements.

                          Our work on VA’s proposed $211 million construction project at Travis Air
                          Force Base contributed significantly to congressional debate over VA’s
                          fiscal year 1997 appropriations. We reported that the hospital is no longer
                          needed and that VA planned to build too much outpatient capacity.
                          Although the Congress appropriated funds for the project, it required VA to
                          study alternatives to the project, such as those described in our report,
                          before spending the funds.

                          Through testimony, a report, and other assistance, we worked closely with
                          the Congress in evaluating eligibility reform proposals and identifying
                          alternative approaches to limit the budgetary impact of reforms. We
                          reported that VA had underestimated the potential effect of eligibility
                          expansions on demand for VA care and therefore the potential cost of
                          reform proposals. Citing our concerns, and those of CBO, the Congress
                          added a limit on VA health care authorizations before enacting reform

                          With respect to VA efforts to improve the accessibility of VA care, we
                          worked closely with the Congress to assess the potential effects of such
                          efforts. As a result of our efforts, VA redirected its efforts toward
                          improving access for current users rather than attracting new users.

VA Nonhealth Benefits     With respect to VA’s efforts to streamline its services, our past work
Programs                  identified significant delays and backlogs in VA’s claims processing. In
                          1996, we reviewed VA’s claims processing information systems and
                          reported numerous problems including a lack of business strategy and
                          information resources management plan. In response to our
                          recommendations and recommendations by others, VA has taken some
                          actions to reengineer and modernize its claims processing systems but has
                          not addressed all concerns.

                          We have also recommended ways VA can better manage the costs of its
                          services. For example, we recommended that VA establish procedures that

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                  focus on preventing overpayments that include identifying beneficiaries
                  who will soon become eligible for social security benefits. VA has adopted
                  our recommended actions and could potentially reduce costs over
                  $50 million annually.

Key Open
DOD               DOD  is in the process of improving its TRICARE contracting procedures,
                  but this process is ongoing and our recommendations in this area remain
                  open. Also of key importance are our recommendations that DOD begin
                  gathering certain data on who is using DOD health care under the TRICARE
                  program, as well as DOD’s success in providing timely access to its
                  beneficiaries. This data will be critical in the eventual evaluation of
                  TRICARE’s overall success. (GAO/HEHS-95-142, GAO/HEHS-96-128)

VA                In light of current efforts to reduce the budget deficit while improving
                  health services, we recommended that VA, in concert with veterans service
                  organizations and other federal and state agencies with jurisdiction over
                  health benefits programs, (1) identify and evaluate options to better target
                  VA resources to meet the health care needs of veterans and (2) develop
                  legislative proposals to restructure the veterans benefits program.

                  VA  has struggled for years to develop a method for equitably allocating
                  resources among its facilities nationwide. The need for such an allocation
                  system has intensified in recent years as veterans’ demographics shift and
                  its health care delivery undergoes dramatic changes to adjust to
                  increasingly limited resources. In February 1996, we recommended that VA
                  take steps to link its resource allocation process to the strategic planning
                  process so that allocations are more closely associated with VA’s
                  long-range goals, performance standards, and workload priorities,
                  including exploring options to help ensure that veterans have consistent
                  access to care throughout the system. (GAO/HEHS-96-48)

                  VA hospitals too often serve patients whose care could be more efficiently
                  provided in alternative settings, such as outpatient clinics or nursing
                  homes. In July 1996 we testified and reported that VA facilities could save
                  billions of dollars by reducing nonacute admissions and days of care in VA
                  hospitals. Toward this end, we recommended that VA establish an

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independent, external preadmission certification program for hospitals.

VA, through its Readjustment Counseling Service, operates over 200
community-based facilities, known as Vet Centers, which help certain
veterans make a successful transition from military to civilian life. In
July 1996, we reported that VA lacks the information necessary to
demonstrate that its psychological services are effective. We
recommended that VA direct the Service to develop a systematic approach
for evaluating, on a continuing basis, the effectiveness of Vet Centers in
meeting veterans’ psychological needs. (GAO/HEHS-96-113)

Three VA-administered life insurance programs have and for the
foreseeable future will continue to have sufficient excess funds to pay
their own administrative costs. This would save an estimated $27 million
annually in appropriated monies. In order to pay for this, veterans’ annual
dividends (which currently range from $274 to $373) would be reduced by
about $10. Insured veterans have no statutory or contractual right to
excess funds. However, because the law now requires the government to
pay the administrative costs, a legislative change would be required to
allow these programs to pay their own administrative costs. Thus, in
March 1992 we recommended that the Congress amend 38 U.S.C. 1982 to
require that the three VA insurance programs pay administrative costs from
excess interest income. (GAO/HRD-92-42)

VA has a goal of providing nursing home care to 16 percent of veterans
needing such care, yet it recovers, through veterans cost-sharing, less than
one-tenth of one percent of its approximately $1.5 billion in annual costs
for providing this care. We recommended that the Congress consider
authorizing VA to (1) adopt the copayment practices used by state veterans
homes (which recover from 4 to 43 percent of their operating costs
through veteran copayments) and (2) establish an estate recovery program
patterned after those operated by increasing numbers of state Medicaid
programs. (GAO/HRD-92-96, GAO/HRD-93-68)

In light of current efforts to reduce the budget deficit while improving
health services, we recommended that VA, in concert with veterans service
organizations and other federal and state agencies with jurisdiction over
health benefits programs, (1) identify and evaluate options to better target
VA resources to meet the health care needs of veterans and (2) develop
legislative proposals to restructure the veterans health benefits program.

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VA has created networks to plan and coordinate the provision of medical
services among nearby medical centers. In December 1994, we reported
that VA had not taken advantage of the opportunities in the Chesapeake
Network to reexamine its construction planning to better coordinate new
projects or to ensure that they help meet the needs of veterans across the
entire Network. We recommended that, before requesting funding for any
future construction projects in a network, VA require completion of a plan
for meeting the future medical care needs of veterans in that network area.
Such a plan should include networkwide assessments of need, assessment
of construction alternatives, and priorities among the proposed
construction projects. (GAO/HEHS-95-6)

Although VA agreed with our recommendations to focus on preventing
overpayments in compensation and benefits claims, it has not yet taken
action to implement them. (GAO/HEHS-95-88)

We recommended that VA revise the criteria its medical centers use to
report VA practitioners involved in adverse actions to the National
Practitioner Data Bank so that the criteria are more consistent with those
used in the private sector. (GAO/HEHS-95-121)

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                           GAO   Contacts: William J. Scanlon, 202/512-7114
Health Financing                           Bernice Steinhardt, 202/512-7119
Systems and Health
Services Quality &
Public Health Issue
Areas (Budget
Functions 550 and
Impact of GAO’s Work       Our work on the nation’s public and private health insurance programs,
                           access and quality issues, and public health efforts covers programs that
                           comprise dominant portions of the federal domestic and state budgets. In
                           reviewing the Medicare and Medicaid programs—with projected federal
                           outlays of $318 billion and state and local outlays of $76 billion in fiscal
                           year 1997—we focused on identifying ways to reduce costs without
                           harming beneficiaries’ access to quality care. For Medicare, fiscal
                           problems include the projected insolvency of the Hospital Insurance Trust
                           Fund by the year 2001 and the coming of entitlement age of the “baby
                           boomers,” who will begin retiring about 2010. For Medicaid, despite a
                           recent slow-down in spending growth, spending pressures—particularly
                           with respect to long-term care—are not expected to subside. At the same
                           time, we examined the ongoing transformation of U.S. health care, its
                           effects on local markets and public health institutions, the heightened
                           attention to information about health care quality, and the work of public
                           health agencies, including the Food and Drug Administration (FDA), the
                           National Institutes of Health (NIH), the Centers for Disease Control and
                           Prevention (CDC), and the Substance Abuse and Mental Health Services
                           Administration (SAMSA), which together spend $19 billion annually.

Waste, Fraud, Abuse, and   The nation’s health insurers are at risk of considerable financial loss due
Patient Protection         to waste, fraud, and abuse. In particular, Medicare’s
                           vulnerability—reviewed in numerous GAO products—stems form several
                           weaknesses, including antiquated anti-fraud-and-abuse screening controls
                           that allow improbably high claims to be paid without adequate review, the
                           absence of specific legislative authority for Health Care Financing
                           Administration (HCFA) to contract with organizaitons other than insurance
                           companies to perform state-of-the-art claims review, and weak controls to
                           check the validity of providers that are authorized to bill the program. Last
                           year, the Congress passed the Health Insurance Portability and
                           Accountability Act of 1996 (P.L. 104-191), popularly known as the

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Kassebaum-Kennedy Act. Consistent with issues raised in GAO’s body of
health care fraud and abuse work over the past 5 years, the act’s
provisions, among other things, (1) increase the funds used to investigate
Medicare fraud and abuse and pursue the recovery of inappropriate
payments, (2) make HCFA’s authority explicit to contract with companies
that specialize in utilization review, provider audit, and other safeguard
activities, (3) establish a national health care fraud data collection
program, and (4) specify health care fraud as a separate criminal offense.

The Department of Health and Human Services (HHS), its Inspector
General, and HCFA have also addressed the various waste and abuse issues
we raised in recent years. For example, Operation Restore Trust, an
antifraud initative involving the HHS Inspector General, HCFA, and the
Department of Justice—among other federal, state, and local
agencies—targets Medicare abuse and misuse in several states, focusing
on home health, nursing homes, and medical equipment and
supplies—areas on which we reported several times recently and made
recommendations. HCFA also has an interagency agreement with the DOE’s
Los Alamos National Laboratory to obtain help in developing antifraud and
abuse software for HCFA’s use in screening Medicare claims. The
Laboratory’s proposal to do this work cites GAO among others as a source
for the need for these fraud and abuse prevention tools. HCFA has also
improved its provider identification system by establishing a national
provider identifier system, addressing concerns raised in several of our
products about fraudulent schemes involving the manipulation of
Medicare’s old provider number system.

Several of our reports—in 1988, 1991, 1995, and 1996—also revealed
shortcomings in HCFA’s oversight of health maintenance organizaitons
(HMO) enrolling Medicare beneficiaries. More than 10 percent of Medicare’s
beneficiary population is enrolled in these managed care health plans, but
HCFA has not adequately enforced HMO compliance with federal standards
or kept beneficiaries apprised of pertinent information about Medicare
HMOs. Several of our reports called for, among other things, more explicit
sanction authority to improve HCFA’s weak enforcement performance.
Consistent with this message, the 1996 Health Insurance Portability and
Accountability Act included provisions giving HCFA a broader range of
sanction options to prompt HMO correction of problems affecting
marketing, enrollment, quality assurance systems, grievance and appeals
procedures, and access to health services. We also reported that HCFA has
documented numerous instances of beneficary confusion over managed
care’s benefits and restrictions and of abusive sales proctices by some HMO

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                           sales agents. Despite its awareness of thise problems, however, HCFA does
                           not provide beneficiaries with any of the comparative consumer guides
                           that the federal government and other employer-based health insurance
                           programs routinely distribute to their employees and retirees. As a result
                           of our recent work on this issue, HCFA accelerated its timetable committing
                           the agency to provide comparative information on Medicare HMOs.

                           We also reported on fraud and abuse problems that affect Medicaid as well
                           as Medicare and other federal health programs. In particular, we examined
                           the issue of health care providers who have been removed from their state
                           Medicaid programs for committing program fraud or rendering
                           substandard care to beneficiaries. Although, the HHS Office of Inspector
                           General (OIG) has used its authority to exclude thousands of providers,
                           from all federal programs, our work suggests that several weaknesses in
                           the HHS process can leave sanctioned providers on the rolls of federal
                           health programs for unacceptably long periods of time. This puts at risk
                           the health and safety of beneficiaries and compromises the financial
                           integrity of Medicaid, Medicare, and other federal health programs. In
                           response to this work, the OIG has redesigned its system for tracking
                           referrals and has committed additonal resources to ensure the
                           completeness of its list of excluded providers.

Financial and Management   In debates over the reform of Medicaid and the design of other federal
Matters                    programs, a pivotal issue is how federal monies should be distributed
                           among states and localities. We provided information to the Congress on
                           alternate specifications of the federal funding formula for Medicaid. In
                           particular, our technical analysis and expertise helped the cognizant
                           House and Senate committees develop formulas to distribute funds under
                           their block grant proposal for Medicaid. We also provided comprehensive
                           technical analysis and redesign of the formula grants for the Ryan White
                           CARE Act. Our efforts and information helped the Congress improve the
                           targeting of federal funds among the states and cities.

                           During 1996, we provided information to the Congress concerning the
                           reform of the FDA. Specifically, we reported on drug and device approval
                           times and on the status and effectiveness of new drug and device review
                           agencies and activities in Europe. These reports helped establish a factual
                           foundation on which proponents of different approaches could build. As a
                           result, current FDA reform initiatives better reflect actual experience.

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Key Open
Special Payments to Teaching       We reported that Medicare’s extra payments to teaching hospitals were
Hospitals                          too high and recommended that the Congress reduce the percentage of
                                   add-on payments that teaching hospitals receive. About $1 billion could be
                                   saved annually. Since our report was issued, the CBO and the Prospective
                                   Payment Review Commission also have recommended similar reductions.
                                   Their analyses of recent data continue to show a reduction is warranted.

Excessive Medicare Payments        Provider costs and Medicare reimbursements for medical procedures
for Costly Technologies            involving new technologies, such as magnetic resonance imaging (MRI), are
                                   often high in order to offset initial expenditures for equipment and low
                                   rates of usage. We reported, however, that HCFA does not make timely
                                   adjustments to the Medicare reimbursement rates as new medical
                                   technologies mature and unit costs decline. Therefore, we recommended
                                   that HCFA (1) survey facility costs and revise the Medicare fee schedule to
                                   more accurately reflect the costs that are incurred and (2) periodically
                                   review and adjust the Medicare reimbursements for procedures using
                                   high-cost, revolving technologies.

                                   To help bring Medicare payment rates more into line with actual costs, the
                                   Congress has enacted several mandates to reduce rates for specific
                                   procedures and services—including payments for MRI scans. In addition,
                                   HCFA has three rate-reduction projects planned or under way:

                               •   a revision of the Medicare Fee Schedule to reflect the actual cost of staff,
                                   equipment, and supplies associated with medical procedures.

                               •   a review to identify and correct any excessive Medicare payments for 100
                                   items of medical equipment and supplies.

                               •   planning of a demonstration project to evaluate a competitive bidding
                                   process to set Medicare payment levels for some medical equipment and

                                   However, none of these projects targets new and expensive technologies.
                                   We continue to believe that significant program savings would result from
                                   an ongoing, systematic process for evaluating the reasonableness of
                                   Medicare payment rates for maturing medical technologies. (GAO/HRD-92-59)

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Rapid Spending Growth in          Since 1990, Medicare outlays on home health care services—provided to
Home Health Care                  beneficiaries who are home-bound and need skilled care—have grown at
                                  an average rate of over 30 percent a year. We reported that the increase in
                                  home health outlays is largely due to increased usage that has
                                  accompanied deterioration in program controls. Funding for review of
                                  claims has declined by over a third. In addition, a court struck down HCFA’s
                                  interpretation of benefit coverage requirements; this court ruling in effect
                                  widened Medicare coverage of home health. Consequently, we suggested
                                  that the Congress may wish to consider providing extra resources to
                                  strengthen controls against abuse of the home health benefit.
                                  Furthermore, we suggested that the Congress may wish to consider
                                  clarifying the scope of the benefit. At issue is whether this benefit should
                                  continue to be more of a long-term care benefit or whether it should be
                                  limited primarily to post-acute care. (GAO/HEHS-96-16)

Referrals to Imaging Facilities   In 1993, we reported that physicians with a financial interest in imaging
                                  facilities referred their Medicare patients for more imaging services than
                                  physicians without such investments. As a part of the Omnibus Budget
                                  Reconciliation Act of 1993 (OBRA). The Congress included Provisions in
                                  OBRA restrict physicians from referring their Medicare and Medicaid
                                  patients to facilities in which the referring physician has a financial stake.
                                  In 1995, we recommended that HCFA develop the procedures needed for
                                  Medicare claims processing contractors to monitor these referrals.
                                  Although OBRA restrictions were effective as of January 1, 1995, HCFA has
                                  not issued final regulations and guidance needed to assure compliance
                                  with OBRA. (GAO/HEHS-95-2)

Medicare Reimbursement for        Nursing home residents receive therapy services (e.g., physical therapy)
Therapy in Nursing Homes          from various providers. We reported that Medicare is vulnerable to
                                  overcharges by unscrupulous providers, due in part to its flawed
                                  reimbursement methods, in part to its inadequate screening of providers.
                                  Consequently, we recommended that HCFA set explicit limits to ensure that
                                  Medicare pays no more for therapy services than would any prudent
                                  purchaser. Furthermore, we recommended that Medicare certification
                                  requirements be strengthened so that those entities billing Medicare would
                                  be more accountable for the services they provide to beneficiaries.

Excessive Payments for            Medicare reimburses providers of certain medical items and supplies
Medical Supplies                  according to fee schedules that do not reflect substantially lower market
                                  prices. For example, Medicare pays $2.32 for a pad of gauze that is
                                  available at the wholesale level for 19 cents. Excessive fees invite

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                            submission of abusive claims by unscrupulous providers. Coupled with
                            inadequate review of such claims, these above-market fees and payment
                            rates lead to Medicare and the taxpayer losing hundreds of millions of

                            Because current law imposes cumbersome administrative requirements
                            that HCFA must follow when adjusting payment rates, the one time HCFA
                            made such an adjustment it took three years. In addition, for some items
                            HCFA lacks authority to adjust payment rates. We recommended that the
                            Congress give HHS the flexibility to adjust fee schedules promptly when
                            overpriced services and supplies are identified. (GAO-HEHS-95-171)

Screening Medicare Claims   Medicare is only supposed to reimburse providers for services that are
                            medically necessary. We reported that the several dozen Medicare claims
                            processors often use different automated screens to distinguish necessary
                            from unnecessary services, based on criteria developed locally. We also
                            reported that these screens do not target medical procedures that are
                            overused nationwide. (Up to several hundred million dollars per year of
                            unnecessary payments are at stake.) Consequently, we recommended that
                            HCFA act as a clearinghouse—gathering information on both local medical
                            policies and screens for procedures that are widely overused, and
                            disseminating the information to all the claims processors. We also
                            recommended that HCFA hold the claims processors accountable for
                            implementing local medical policies and screens for procedures that are
                            overused nationwide. (GAO-HEHS-96-49)

                            Our evaluation of Medicare Part B denial rates for medical necessities
                            found significant regional variation, which could not be explained by
                            random denial patterns. We identified several steps which are required to
                            achieve consistency and effective oversight of carrier denials. For effective
                            classification of denials, improvement of the screening process for claims
                            is required. In order to reduce denied claims, HHS should identify and
                            eliminate the population of applicants which consistently submits claims
                            that are denied. (GAO/PEMD-95-10)

Private Sector Tools for    Medicare’s vulnerability to making billions of dollars in unnecessary
Medicare Management of      payments stems from a combination of factors, including price-setting
Utilization and Price       problems, antiquated anti-fraud-and-abuse controls, and weak controls to
                            check the legitimacy of providers billing the program. In 1995 we
                            recommended legislative and administrative changes to allow Medicare to
                            (1) develop more competitive payment rates, (2) enhance its fraud and
                            abuse detection efforts by adopting modernized information systems, and

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                             (3) establish more rigorous requirements for granting authorization to bill
                             the program. (GAO/HEHS-95-210)

Collections From Other       Some beneficiaries have private health insurance that should pay their
Insurers                     claims ahead of Medicare. Our work showed that, as a result of a court
                             decision that invalidated Medicare collection procedures, Medicare could
                             lose hundreds of millions of dollars a year in recoveries from insurers. In
                             our testimony before authorizing committees, we pointed out that
                             legislation is needed to strengthen Medicare’s ability to collect from
                             insurers. (GAO/HEHS-94-147)

HCFA’s Contracting for       Section 1816 of the Social Security Act (42 U.S.C. 1395h) authorizes HCFA
Medicare Claims Processing   to contract with entities such as insurance companies, then called fiscal
                             intermediaries, to process Medicare part A claims. HCFA also has a contract
                             with the Blue Cross and Blue Shield Association, the national trade
                             association for the independent Blues plans, which subcontracts with 41
                             Blues plans to process Medicare part A claims. HCFA has not evaluated the
                             association’s performance since 1989, even though HCFA from 1990 through
                             1992 paid the association over $21 million. In our view, HCFA needs to
                             assess the association’s performance regularly, just as it does for other
                             contractors, to ensure that the Medicare program is being managed
                             efficiently. We recommended that the Secretary of HHS direct the
                             Administrator of HCFA to develop criteria and evaluate the performance of
                             the Blue Cross and Blue Shield Association in its role as the part A prime
                             contractor. (GAO/HEHS-94-171)

Medicare Payment Rates to    Most Medicare beneficiaries who join a HMO belong to a “risk contract”
Risk Contract HMOs           HMO, which provides them all covered services in exchange for a flat fee,
                             paid by Medicare. We have reported that Medicare generally overpays
                             these risk HMOs, because its payment methods do not correct enough for
                             risk HMO enrollees’ tendency to be healthier and less costly than the
                             average beneficiary. With risk HMO enrollment at almost 10 percent of
                             beneficiaries and growing rapidly, these excess payments become
                             substantial. Given the problem’s heightened urgency, we suggested that
                             the Congress might wish to give HHS the authority to reduce Medicare HMO
                             payment rates in areas where market data indicate that these rates are too
                             high. (GAO/HEHS-96-21)

Medicare HMO Oversight       Beneficiaries’ confidence in Medicare managed care depends significantly
                             on the effectiveness of HCFA oversight. Although HCFA has instituted several
                             promising improvements, its monitoring and enforcement of performance
                             standards for Medicare HMOs still falls short; quality assurance reviews are

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                                not comprehensive, enforcement actions are too often weak, and the
                                appeal process for beneficiaries is slow. We recommended that HHS
                                develop more consumer-oriented oversight of the Medicare HMO program,
                                including (a) routinely publishing comparative data on HMOs’ performance
                                and on known deficiencies and (b) assigning sufficient, trained staff to
                                monitor and verify the effectiveness of HMOs’ quality assurance practices.

Supplemental Health Insurance   One-third of retirees get supplemental insurance from their former
for the Elderly                 employers. If an employer subsequently modifies or discontinues a
                                Medicare beneficiary’s plan, and if the person wants to obtain a different
                                supplemental policy, that beneficiary will not be eligible for the 6-month
                                open enrollment period provided for persons newly enrolled in Medicare
                                part B. Because such retirees may not be able to get the alternative
                                Medigap coverage they seek, we recommended that the Congress amend
                                the law to provide a mechanism for retirees to obtain Medigap insurance
                                when these circumstances occur. (GAO-HEHS-94-185).

Health Care Shortage Areas      To better target resources, we recommended that the Secretary of HHS
                                apportion future National Health Service Corps (NHSC) funding to use the
                                loan repayment program to the maximum extent allowed by law. Similarly,
                                the Secretary should assess whether the benefits of the state loan
                                program, which is less costly, would warrant greater use of the program.
                                We also recommended that the Congress consider amending the Public
                                Health Service Act either to direct the Secretary to use the loan repayment
                                program rather than the scholarship program to meet future NHSC needs, or
                                to grant the Secretary greater discretion to allocate larger amounts of NHSC
                                funding through loan repayment awards than currently allowed.

Immunization of Children        CDC  has established a large program to distribute vaccines to children. The
                                intent of the program is to assure immunization of children from serious
                                disease. Our evaluation of the program found that a reexamination of
                                program goals and the quality of the program’s implementation is needed
                                to assure that vaccine is being provided to children at need. We concluded
                                that the Congress should consider refocusing the program’s goals from
                                improvement of general immunization rates to achieving higher rates in
                                “pockets of need” and focus the program on children who are at greatest
                                risk from delayed immunization. (GAO/PEMD-95-22).

Health Profession Education     Over the past decade, the supply of nearly all health professionals has
                                increased faster than the population at large. For most health professions,

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                        however, data are not available to demonstrate whether this increased
                        supply has translated into more access to care in rural and underserved
                        areas. Health profession education programs are funded under titles VII
                        and VIII of the Public Health Service Act. The effectiveness of these
                        programs will remain difficult to measure as long as they are authorized to
                        support a broad range of health care objectives without common outcome
                        measures, goals, and reporting requirements. We recommended that the
                        Congress establish, or direct the Secretary of HHS to establish more
                        specific goals, outcome measures, and funding criteria. (GAO/HEHS-94-164)

Hospital Construction   HUD’s FHA  Hospital Mortgage Insurance Program insures loans to finance
                        the renovation or construction of hospitals that meet certain criteria. FHA
                        mortgage insurance protects lenders against losses they might incur if
                        hospitals fail to make their mortgage payments. As of August 1995, the
                        program covered 100 projects in 18 states and Puerto Rico, with an unpaid
                        principal loan balance of about $5 billion. More than $4 billion of the
                        insured projects and 9 of the 10 largest loan amounts are concentrated in
                        New York. Given the risks associated with this concentration, the
                        Congress and HUD may wish to explore further options—such as limiting
                        risk exposure in a particular state and capping mortgage insurance
                        amounts—to help ensure program stability. (GAO/HEHS-96-29)

                        In addition, flaws in FHA’s methodology for estimating loan losses limit the
                        reliability of its loan loss reserve estimate. Moreover, while FHA has
                        developed performance measures for some of its major programs, it lacks
                        performance measures that would help HUD evaluate the Hospital
                        Mortgage Insurance Program. To improve the reliability of FHA’s loss
                        reserve estimate, enhance compliance with federal performance
                        measurement requirements, and minimize financial losses from future
                        projects, we recommended that the Secretary of HUD: (1) perform a
                        comprehensive analysis of individual loan loss exposure when default is
                        considered probable and consider recent events, such as policy changes,
                        that can affect the performance of loans in estimating loan loss reserves;
                        (2) develop performance measures and collect data needed to track the
                        performance of the Hospital Mortgage Insurance Program; and (3) pursue
                        risk-sharing arrangements —where private and public entities would share
                        in potential financial losses from hospital defaults on future FHA-insured
                        projects—only after evaluating the benefits and drawbacks of risk-sharing
                        ventures, and taking into account the experience of FHA’s multifamily
                        housing programs. (GAO/HEHS-96-29)

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FDA User Fees   The Congress passed the Prescription Drug User Fee Act of 1992 to
                authorize user fees that would “provide the FDA with sufficient additional
                resources to significantly expedite the drug approval process.” A critical
                question is whether the act has allowed safe and effective new drugs to
                become available to patients earlier than they were available before user
                fees were collected. The legislation requires FDA to report to the Congress
                annually on changes in the amount of time that drug applications are
                under review at the agency. However, reductions in the amount of FDA
                review time do not necessarily translate into drugs becoming available to
                the public more quickly. Therefore, among other things, we recommended
                that FDA include “time to market” in its annual report to the Congress.

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                        Improving Human Resource Programs

                        GAO   Contact: Jane L. Ross, 202/512-7215
Income Security Issue
Area (Budget
Functions 600, 650)
Impact of GAO’s Work    Income security programs operating through the Social Security
                        Administration (SSA), HHS, and the Department of Labor account for nearly
                        40 percent of all federal spending. Millions of Americans rely upon
                        programs like Social Security, Disability Insurance (DI), Supplemental
                        Security Income (SSI), and various existing and newly created block grants
                        for financial support and services. In addition, Americans are dependent
                        on Labor to provide oversight over private pension plans, an important
                        source of income for millions of retired workers.

                        Our work provided information and recommendations directed at
                        (1) ensuring that public assistance program funds are spent efficiently and
                        protected from fraud and abuse; (2) improving SSA’s administrative
                        efficiency and service to the public; (3) evaluating Social Security, state
                        and local government, and private retirement benefits; (4) redesigning the
                        nation’s disability programs to provide disabled persons with greater
                        opportunities to work; (5) monitoring federal and state efforts to move
                        welfare recipients from welfare to work and to reduce dependence on
                        welfare; and (6) assessing government efforts to preserve families and
                        protect vulnerable children.

                        The work has contributed significantly to legislative and executive actions
                        that will result in financial savings and improvements in program
                        efficiency and cost effectiveness. For example, we reported on the need to
                        reform federal disability programs, contributing to increased
                        congressional oversight and legislation to target SSI benefits toward
                        children with more severe impairments. Further, the Congress acted to
                        remedy problems we highlighted by changing the law regarding benefits
                        for drug addicts and alcoholics and increasing funding for Continuing
                        Disability Reviews (CDRs). Legislative changes and agency actions related
                        to CDRs will result in fiscal year 1996 cost reductions of about $112 million
                        in benefit reductions for the SSI population, $243 million from reduced DI
                        benefits, and about $111 million from reduced Medicare benefits. Finally,
                        having shown that prisoners and other ineligibles regularly receive SSI, we
                        have recommended ways to keep ineligible applicants from receiving SSI.

                        Similarly, our work contributed to amending the Food Stamp Act of 1977
                        to authorize states to offset current recipients’ benefits, without their

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                      consent, to recover overpayments caused by agency error. We also
                      documented millions of dollars in potentially erroneous payments from
                      various programs made to deceased beneficiaries nationwide. As a result,
                      OMB now requires that all agencies regularly use SSA death information to
                      prevent such errors.

                      Based on our recommendations, Internal Revenue Service (IRS) issued
                      regulations to require more timely reporting of earnings to help ensure
                      that workers were not losing social security benefits. Further, SSA took
                      several actions to clarify wage reporting instructions and better respond to
                      employers’ questions. Finally, we were influential in HHS’ examination of
                      its organizational structure and reorganization of regional staff to establish
                      clearer lines of authority and communications within and between the
                      Office of Child Support Enforcement (OCSE) and the states. These actions
                      should lead to fewer miscommunications and better working relations
                      between OCSE, HHS regional staff and state program staff.

Key Open
Social Security       In October 1993, we reported that while SSA had made progress in solving
                      its management problems, opportunities still existed for SSA to continue to
                      improve. We made several recommendations, among them that SSA
                      complete the implementation of a strategic management process to guide
                      planning, implementation, and evaluation of long-term strategic initiatives.
                      Further, to gain better managerial and technical control over SSA computer
                      modernization efforts, SSA should take the actions needed to fully integrate
                      SSA databases. SSA is revising its strategic plan and has in place a tracking
                      and monitoring system to monitor the progress of key agency initiatives
                      and the attainment of performance targets and plans to establish a new
                      methodology to ensure appropriate attention to key agency initiatives.
                      Further, SSA developed an integrated client database in April 1995. The
                      agency is currently in the process of refining and analyzing the functional
                      requirements of the new database before it is released for agency-wide
                      use. (GAO/HRD-94-22)

Disability Programs   SSA’s plan for achieving self-support (PASS) program was established in
                      1972 as part of the SSI program to help SSI and DI recipients return to work,
                      thus reducing or eliminating future benefit costs. However, very few
                      recipients have left the federal disability rolls by returning to work. In
                      February 1996, we reported that SSA has done a poor job implementing and

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managing the PASS program. Because SSA has provided insufficient program
direction and support to its field office staff, these staff have difficulties
approving and denying program applications. Further, the impact of the
PASS program on employment is unknown because SSA lacks basic data on
PASS program participation. Finally, a lack of safeguards has left the PASS
program vulnerable to abuse. We recommended that SSA take several
actions to address these deficiencies and SSA is making progress in
responding to these recommendations. For example, the agency now
requires all PASS applications to be approved by specially trained staff. SSA
also issued new operating procedures and revised the application form.
Both actions incorporated some of our recommendations related to
improving PASS program management and eliminating program abuse. SSA
has not, however, taken action to gather additional management data on
PASS program participation and impact, and thus is unable to use these
data to evaluate the impact of PASS participation on employment. Finally,
we recommended that the Congress consider legislation to eliminate DI
beneficiary eligibility for SSI benefits through use of PASS, and SSA has
proposed such legislation, but the Congress has taken no action on this.

In April 1996, we reported that weaknesses in the design and
implementation of DI and SSI program components have limited SSA’s
capacity to identify and assist in expanding beneficiaries’ productive
capacities. We noted that eligibility requirements and the application
process encourage people to focus on their inabilities, not their abilities;
work incentives offered by the programs do not overcome the risk of
returning to work for many beneficiaries, and the complexities of work
incentives can make them difficult to understand and challenging to
implement; and beneficiaries receive little encouragement to use
rehabilitation services, which are relatively inaccessible to beneficiaries
seeking them. We recommended that SSA take immediate action to place
greater priority on return to work, including (1) designing more effective
means to accurately identify and expand beneficiaries’ work capacities
and (2) better implementing existing return-to-work mechanisms. SSA
noted that it has undertaken several initiatives to find new and innovative
ways to encourage work among DI and SSI beneficiaries. However, we
believe that these steps, while in the right direction, do not constitute the
fundamental redirection of goals and practices necessary to move the
disability programs to much greater emphasis on return to work.

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Welfare Benefits   In June 1995, we reported that increasing states’ recovery efforts and
                   extending effective federal recovery provisions to one or more programs
                   could help recover hundreds of millions of dollars more in benefit
                   overpayments in the Aid to Families With Dependent Children (AFDC),
                   Food Stamp, and Medicaid programs. We recommended that the Congress
                   extend the authority authority for states to intercept federal income tax
                   refunds to include the recovery of AFDC and Medicaid overpayments.
                   Although a provision allowing states to do this was included in HR 3734, it
                   was omitted from the Personal Responsibility and Work Opportunity
                   Reconciliation Act of 1996, as enacted, on primarily procedural grounds.

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Improving Justice and General Government

                         GAO   Contact: Norman Rabkin, 202/512-8777
Administration of
Justice Issue Area
(Budget Function 750)
Impact of GAO’s Work     The administration of justice issue area covers a wide range of federal
                         activities, including (1) civil and criminal law enforcement in such areas as
                         community policing, the size and extent of federal law enforcement,
                         firearms regulatory and criminal enforcement, and health care fraud;
                         (2) litigative and judicial activities, such as administrative efforts to review
                         local court processes and juvenile justice incentive grant programs;
                         (3) correctional activities; (4) immigration control; and (5) U.S. Customs
                         Service revenue collection and enforcement.

Civil and Criminal Law   Federal assistance for community policing amounted to nearly $1.4 billion
Enforcement              in fiscal year 1996 to continue the President’s campaign to put 100,000
                         additional cops on the beat. The Public Safety Partnership and Community
                         Policing Act of 1994 (Community Policing Act), Title I of the Violent Crime
                         Control and Law Enforcement Act of 1994, authorizes the Department of
                         Justice to award grants for the hiring or rehiring of law enforcement
                         officers to participate in community policing. In a report on community
                         policing, we noted that the higher the crime rate, the more likely a
                         jurisdiction was to apply for a grant. The primary reasons jurisdictions
                         that we contacted chose not to apply for grants were cost related.
                         Specifically, these jurisdictions expressed uncertainty about being able to
                         continue officer funding after the grant expired and about their ability to
                         provide the required 25-percent funding match.

                         Federal law enforcement authority is dispersed among many federal
                         agencies. We found that there were at least 32 federal agencies employing
                         about 41,000 law enforcement investigative personnel in at least 9
                         occupational series as of March 31, 1995. The annual salary costs for these
                         employees totaled about $2.2 billion. We also reported on the need to
                         eliminate duplication of criminal investigations among federal agencies.

                         We reported on the Bureau of Alcohol, Tobacco, and Firearms’ (ATF)
                         (1) use-of-force policies compared to the Drug Enforcement
                         Administration (DEA) and Federal Bureau of Investigation (FBI);
                         (2) licensing of firearms dealers; and (3) compliance with legal restrictions
                         on maintaining firearms licensee data. On average, ATF arrested 8,000
                         suspects annually but was involved in less than 10 reported shooting or
                         alleged excessive force incidents annually for fiscal years 1990 through

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1995. In October 1995, Treasury and Justice issued uniform policies
governing the use of deadly force. ATF’s prior policy was generally
consistent with Treasury’s 1995 policy and with DEA’s and FBI’s deadly
force policies in effect immediately prior to Justice’s 1995 policy. The
training provided to new ATF agents was consistent with that provided new
DEA and FBI agents. Also, ATF’s procedures for reporting, investigating, and
reviewing shooting and alleged excessive force incidents were generally
comparable to DEA’s and FBI’s. Our review of ATF’s investigative files
showed that ATF (1) generally complied with its investigative procedures,
(2) found all intentional shootings justified, (3) found most excessive force
allegations unsubstantiated, and (4) sanctioned agents found to have
engaged in misconduct. Our report provided objective, independent
information on a highly sensitive issue that helped address concerns
regarding ATF’s use of force. Subsequently, the House Appropriations
Committee included in its report accompanying the fiscal year 1997
Treasury, Postal Service, and General Government Appropriations Bill
recommendations calling for (1) the creation of an Office of Professional
Responsibility within Treasury’s Office of the Undersecretary for
Enforcement to oversee, among other things, use-of-force allegations
involving Treasury law enforcement agencies and (2) outside
representation on ATF’s Shooting Incident Review Board and Professional
Review Board.

We reported that from an April 1993 high point of about 260,700, the
number of licensed firearms dealers had declined about 35 percent as of
September 30, 1995. Factors contributing to the decline included increased
ATF enforcement of existing laws and new legislative requirements, such as
increased licensing fees. However, ATF had no specific policy to reduce the
number of licensees by some targeted number.

We reported that ATF identified and described for us 14 national data
systems and 4 subsystems that related to firearms and that 5 systems and 1
subsystem contain data that identify retail purchasers or possessors of
specific firearms. We reviewed two of these systems—the Out-of-Business
(Firearms Licensees) Records System and Multiple (Handgun) Sales
Systems—and determined that they were designed and operated in
compliance with the Gun Control Act of 1968, as amended, and the annual
appropriation rider prohibiting the consolidation or centralization of data
from firearms licensee records. We also determined, however, that ATF was
interpreting the rider narrowly and, as a result, had not systematically
reviewed its data systems and its information practices to give appropriate
effect to the appropriation rider. Therefore, we recommended that ATF do

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so and report the results to the House Appropriations Subcommittee. In
response to a draft of our report, ATF stated that it (1) had adopted our
broader interpretation of the rider, (2) had applied it to a legal review of
the systems we did not review, and (3) was committed to applying it to any
record systems it established in the future. However, ATF did not determine
whether the systems we did not review were operating in compliance with
the law. Based on the preliminary results of our review of the Out-of
Business Records System, the House Appropriations Committee added a
provision to the fiscal year 1997 appropriations bill to prohibit the creation
of an out-of-business records database in which records can be retrieved
by any personal identifier.

With regard to federal fugitive apprehension activities, we reported that
despite the importance that Justice and Treasury law enforcement
agencies place on entering fugitives’ data into the National Crime
Information Center’s Wanted Person File as immediately as possible after
the arrest warrant has been issued, FBI, ATF, U.S. Marshals Service, and
Customs Service had different time criteria. Moreover, many of their
fugitives, even those classified as dangerous, were entered onto the File
long after their arrests were authorized. We made several
recommendations to improve agencies’ policies and practices relating to
the entry of fugitives’ data onto the National Crime Information Center’s
system. The agencies had made or were in the process of making

In reporting on the first full year of implementation of the Brady Handgun
Violence Prevention Act, we determined that (1) almost half of all denials
in 15 jurisdictions were because prospective purchasers had criminal
histories and (2) as of July 1995 denials had resulted in follow-up
enforcement actions against at least seven persons nationwide. These data
were cited during the 1996 presidential campaign and in a case argued
before the Supreme Court in December 1996.

In late 1993, the Attorney General designated health care fraud as the
Department of Justice’s number two enforcement priority, second only to
violent crime initiatives. Recently, we reported on ways to enhance
information sharing to support enforcement efforts. Specifically, we
reported that (1) there was no federal immunity provision to protect
persons who report suspected health care fraud to law enforcement
agencies; (2) most states had enacted immunity laws with varying levels of
protection for insurers; and (3) most of the law enforcement and industry
officials we interviewed supported establishing a database of final adverse

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                                     actions. These have been recurring topics in the administration’s and the
                                     Congress’ consideration of ways to curb health care fraud, which is
                                     estimated to result in financial losses ranging from $30 billion to
                                     $100 billion annually.

                                     Enforcement actions resulted in the seized property inventories of the
                                     Departments of Justice and the Treasury growing from $33 million in 1979
                                     to almost $2 billion in 1994. Our report identified the historical problems
                                     that have plagued management of seized and forfeited assets. While the
                                     agencies have made progress in addressing some of the problems, others
                                     such as maintenance and disposal of seized property and enhancements to
                                     seized property tracking systems remain. Further, additional policies and
                                     procedures are needed to help ensure adequate accountability and
                                     stewardship over seized property. As a result in part of our high risk report
                                     on asset forfeiture, the Permanent Subcommittee on Investigations
                                     initiated an investigation of some particularly troublesome assets being
                                     held by the Marshalls Service. Our testimony on asset forfeiture set the
                                     stage for their hearing about a casino being held by the Marshalls Service.

                                     The Congress passed the Anti-Car Theft Act of 1992 in response to what it
                                     considered to be the nation’s number one property crime—automobile
                                     theft. The act was designed to reduce automobile theft by making the
                                     selling of stolen cars and parts more difficult. We provided information on
                                     the status of the requirements to (1) establish a national motor vehicle
                                     titling information system, (2) mark major component parts with
                                     identification numbers, and (3) establish a national stolen passenger
                                     motor vehicles and parts information system. We also identified several
                                     issues related to these provisions that may impede their implementation or
                                     influence their effectiveness.

Litigative and Judicial Activities   Prior to November 1995, the Administrative Office of the U.S. Courts
                                     (AOUSC) did not require the use of generally accepted government auditing
                                     standards for its nonfinancial reviews of local court operations. As a
                                     result, program reviewers adopted a wide range of program review
                                     approaches: (1) many reviews did not result in written reports, (2) results
                                     were not generally distributed to all affected parties, and (3) follow-up on
                                     written recommendations was inconsistent. Partly as a result of our
                                     report, the AOUSC has begun to improve its process for reviewing local
                                     court operations. AOUSC has amended its auditing standards to ensure
                                     greater independence of program reviewers and require written reports. It
                                     also plans to conduct training on the new processes and monitor
                                     compliance with the standards.

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                          Title V of the reauthorization of the Juvenile Justice and Delinquency
                          Prevention Act of 1974 is designed to provide a dedicated funding source
                          for delinquency prevention and early intervention programs to local
                          governmental units. The 1992 reauthorization bill required us to report on
                          the incentive grant program for local juvenile delinquency prevention. Our
                          report provided data on, among other things, how these funds are being
                          allocated and spent. Justice will be using our data in its evaluation of the
                          Title V grants. Congress used the information we provided in its
                          deliberation on controlled funding for the program.

Correctional Activities   The Federal Bureau of Prisons has largely implemented our
                          recommendations for improving its planning and coordination with
                          probation officers for the release of inmates from the Bureau’s custody.
                          The Bureau has entered into a new memorandum of understanding with
                          the Judiciary to provide probation officers with information on inmates 90
                          days before their scheduled release to probation officer supervision and
                          has taken steps to ensure that its list of such inmates is complete and

                          As we recommended, the Bureau has also enhanced its incentives for
                          inmates to participate in and complete education and vocational training
                          programs. Inmates are generally permitted to work half a day and attend
                          school the remaining half. Inmates eligible for “premium” pay positions in
                          Federal Prison Industries must either have a high school diploma, have
                          completed their high school general equivalency degree, or be making
                          satisfactory progress in their education classes.

Immigration Control       The Immigration and Naturalization Service (INS) issues border crossing
                          cards to eligible Mexican citizens who wish to frequently visit the United
                          States on a temporary basis for business or pleasure. To obtain a crossing
                          card, applicants must be admissible as a nonimmigrant. An applicant might
                          be found inadmissible, if, for example, he or she had a criminal record.
                          Our review showed that Immigration Service inspectors at the San Ysidro,
                          California, port of entry and other ports along the southern border were
                          not required to check crossing card applicants against available criminal
                          history databases. Indeed, we found evidence of the issuance of a crossing
                          card to an alien with a criminal history. In response, the Immigration
                          Service implemented a policy to standardize background checks
                          performed during the application process.

                          The Congress is in the process of almost doubling the size of the Border
                          Patrol. We analyzed the Border Patrol’s enforcement activities nationwide

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                             and by location for use by congressional committees in their deliberations
                             on the appropriate number of Border Patrol agents to patrol the Southwest
                             Border. Our analysis showed that the Border Patrol reportedly spent 63
                             percent of its time preventing illegal alien entry. The remainder of the time
                             was spent on illegal-alien apprehension but not necessarily on the border.
                             Subsequently, the Congress directed INS to redeploy 200 agents from
                             interior stations to the border. This redeployment will result in a 2-year
                             cost reduction of about $33.6 million.

Customs Revenue Collection   In our 1992 report on the management of the Customs Service, we
and Enforcement              reported that Customs could not adequately ensure that it was meeting its
                             responsibilities to combat unfair trade practices or protect the public from
                             unsafe goods. Moreover, Customs was finding only a small percentage of
                             the estimated violations in imported cargo, and it did not have adequate
                             information to assess its effectiveness in collecting applicable duties or
                             penalizing violators of trade laws. We also stated that these problems
                             arose because of interrelated problems and weaknesses in Customs’
                             (1) mission planning, (2) information and human resource management,
                             and (3) organizational structure. In all, we made over 20 recommendations
                             to correct the identified problems and weaknesses.

                             Since then, Customs has responded with a variety of planning,
                             organizational, and processing changes that radically altered its strategies,
                             goals, and objectives. Customs redesigned its organizational structure,
                             trade enforcement processes, and support functions and is working
                             toward a complete redesign of its automated commercial system for
                             enforcing trade and contraband laws, ensuring trade compliance, and
                             providing services and information to the trade community, federal
                             agencies, and the American public.

                             Customs has taken action on most of the recommendations. In some
                             cases, the action extended far beyond the original recommendations’
                             scope, as in its trade enforcement system. Customs developed a totally
                             new system of industry compliance, replacing a transaction-based
                             violation system with no standard for measuring the violations it
                             discovered. In some instances, the actions taken represent significant
                             departures from past practices and have moved Customs in a new
                             direction toward meeting its future challenges.

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Key Open
Civil and Criminal Law               In our testimony on the misuse of criminal justice information in the
Enforcement                          National Crime Information Center, we identified numerous examples of
                                     misuse and recommended that the Congress enact legislation with strong
                                     criminal sanctions for such misuse. The FBI, the Information Center’s
                                     Advisory Policy Board, and state and local law enforcement agencies that
                                     use the National Crime Information Center generally support such
                                     legislation as a deterrent to further misuse. While the Congress had not
                                     passed such legislation as of September 1996, the Senate Judiciary
                                     Committee had referred to the Senate floor for action a bill (referred to as
                                     the National Information Infrastructure Protection Act) that would have
                                     amended 18 U.S.C., 1030 to criminalize the misuse of government
                                     computers to obtain information. (GAO/T-GGD-93-41.)

Litigative and Judicial Activities   In 1993, we recommended that the federal judiciary develop an improved
                                     measure of the workload of courts of appeals judges. The judiciary, while
                                     acknowledging the need for improvement, has been unable to agree on a
                                     methodology for developing a new workload measure. Consequently, it
                                     has not begun to develop this measure. The current measure for appellate
                                     judges is broad and less precise than that used for measuring district court
                                     judge workload. Some members of the Congress have questioned whether
                                     the current measure is a sufficient basis for recommending additional
                                     appellate judgeships. (GAO/GGD-93-31.)

Illegal Immigration                  We reviewed the Immigration and Naturalization Service’s method for
                                     estimating the number of overstays, that is, persons who entered the
                                     United States legally as visitors but did not leave under the terms of their
                                     admission, and found that a key underlying asumption is questionable and
                                     that improved approaches have the potential to reduce the uncertainty of
                                     these estimates. We developed an alternative method for estimating
                                     overstays among foreign visitors who arrive by air. When we applied our
                                     method to sample data we found that, on average, our estimates were
                                     lower than those of the Immigration and Naturalization Service. We
                                     believe that the Service should develop improved procedures for
                                     estimating overstays, using methods such as those we developed.

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                       GAO   Contact: Nye Stevens, 202-512-8676
Federal Management
and Workforce Issue
Area (Budget
Function 800)
Impact of GAO’s Work   The Federal Management and Workforce issue area focuses on the
                       analysis and evaluation of cross-cutting management, workforce, and
                       statistical issues. These include government performance goals and
                       measurement, restructuring and downsizing, regulatory reform,
                       privatization, oversight of the civil service, human resource management
                       practices at specific agencies, as well as the quality, reliability, and
                       distribution of social and economic statistical data.

                       The issue area specifically covers the Executive Office of the President,
                       OMB, Office of Personnel Management, Merit Systems Protection Board,
                       Office of Special Counsel, Federal Labor Relations Authority, Office of
                       Government Ethics, the Department of Commerce, Government Printing
                       Office, Bureau of Labor Statistics, the Library of Congress, and the
                       National Archives. However, managerial, personnel, and
                       statistical/information issues bridge into virtually all other agencies as

                       In 1996, the issue area contributed to congressional oversight of a broad
                       range of management initiatives as fundamental questions of government’s
                       role in society occupied the congressional agenda. The Comptroller
                       General enunciated a series of key principles to be considered in
                       government reorganization, and these were considered in congressional
                       hearings on dismantlement of the Department of Commerce, consolidation
                       of the government’s decentralized statistical system, and a proposal to
                       create a Department of Natural Resources. The issue area also profiled 22
                       government corporations and 5 other organizations that were similar to
                       government corporations, comparing their adherence to 15 federal
                       statutes and other organizational characteristics.

                       We continued to build on our leadership role in providing the Congress
                       and agencies with critical information and perspective to ensure the
                       successful implementation of the landmark Government Performance and
                       Results Act (GPRA). More than 50,000 copies have been distributed of GAO’s
                       Executive Guide: Effectively Implementing the Government Performance
                       and Results Act, which highlights successful practices of pilot agencies

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and other organizations making the transition to results-oriented
management. The Executive Guide is helping guide executive branch GPRA
implementation: OMB included it by reference in guidance on GPRA
implementation and the Chief Financial Officers Council enclosed copies
of the guide in its GPRA training material.

We also contributed in-depth analyses of management initiatives emerging
from the executive branch. We examined the status of 380 action items
reported as completed by the Vice President’s National Performance
Review (NPR), and confirmed that 277, or 77 percent, could be verified as
completed. Another report detailed the status and results arising from the
NPR’s 185 reinvention laboratories.

In the workforce area, persistent calls for a smaller but higher performing
federal workforce continued to focus attention on the need for rethinking
current civil service principles and practices. Three hearings on the federal
employee redress system helped define the system’s problems and pointed
to alternative dispute resolution as a possible means of relieving the
strains on the system. Our symposium on “Transforming the Civil Service:
Building the Workforce of the Future” resulted in a December 1995 report
identifying eight human resource management principles common to
leading private and public sector organizations. Our discussion of these
principles received widespread attention in the human resource
management community and underlay many discussions concerning the
kinds of human resouurce management reforms that may be appropriate
in today’s results-oriented environment. Implementation of the GPRA, for
example, may hinge on better aligning agency human resource
management functions with organizational goals—one of the principles
identified in the December 1995 report.

In the midst of the largest federal downsizing since World War II, the issue
area continued to provide the analysis needed to evaluate alternative
approaches to downsizing, and the effects of workforce reductions to
date. Some of these reviews led to potential cost reductions. For example,
$37 million was saved subsequent to our testimony’s finding that the
Department of Energy’s use of “recycled” buyouts was unauthorized. We
also pointed out that significant potential cost reductions were available
by discontinuing the expensive, military-like compensation system for the
Commissioned Officer Corps of the Public Health Service in view of our
findings that the Corps’ functions were essentially civilian in nature. In
another report we compared federal benefit levels under the Federal
Employees’ Compensation Act with states’ benefits and identified areas in

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                    which federal benefits were relatively greater. We also identified issues the
                    Congress might consider in crafting legislation to change benefits provided
                    for older beneficiaries who had reached retirement age.

                    We also contributed to the debate of a proposal to consolidate statistical
                    agencies. Through a series of reports we explained the mission and
                    budgets of the major statistical agencies and compared the United States’
                    and the centralized Canadian statistical systems. We aided congressional
                    decisionmaking through reports on the housing and medical care
                    components of the Consumer Price Index and on issues surrounding the
                    appropriateness of the current official measure of poverty in the United

Key Open
Management Issues   How best to provide central guidance on, and oversight of, management
                    issues in the federal government has been a perennial challenge.
                    Currently, management oversight is collocated with budget oversight in
                    OMB. In an effort known as OMB 2000, OMB has worked to better integrate
                    management and budget oversight functions in new Resource
                    Management Offices. We reported that this effort increased overall
                    attention to management issues. However, the long term success of the
                    reorganization is not assured. We recommended that OMB review specific
                    concerns to promote more effective integration of management and
                    budget oversight, including (1) the way OMB trains its program examiners
                    and whether this is adequate given the additional management
                    responsibilities assigned to these examiners and (2) the effectiveness of
                    different approaches taken by OMB to coordinate policy development with
                    Resource Management Offices and to provide program examiners with
                    access to expertise. (GAO/GGD/AIMD-96-50)

                    Under the administration’s NPR, some 185 “reinvention labs” were
                    established to test ways that agencies could improve their performance
                    and customer service by reengineering work processes and eliminating
                    unnecessary regulations. Although some laboratories had shown that new
                    approaches can be more effective or efficient, the real value of the labs
                    will be realized only when the operational improvements they initiated,
                    tested, and validated achieve wider adoption. However, most laboratory
                    officials said they had not had substantial communication with either
                    other labs or with the NPR’s task force. Therefore, we recommended that

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                   the Director of OMB ensure that a clearinghouse of information about the
                   labs be established. (GAO/GGD-96-69)

                   In order for congressional and executive branch decisionmakers to obtain
                   the information they need as they seek to create a government that is more
                   efficient, effective, and streamlined, the Congress needs to provide strong
                   and sustained attention to the implementation of the GPRA. Congressional
                   authorization, appropriation, budget, and oversight committees all have
                   key interests in ensuring that GPRA is successful, because once fully
                   implemented, it should provide valuable data for decisions that each
                   committee must make. The Congress can demonstrate a strong
                   commitment to GPRA in two ways. First, it can ask agencies about the
                   status of efforts to implement the act, challenges they are encountering,
                   and how those challenges are being addressed. Second, and more
                   important, the Congress can use the agency strategic plans and
                   performance information developed under the act to make decisions and
                   hold agencies accountable for achieving the goals established in strategic
                   and annual plans. (GAO/T-GGD-96-79)

Workforce Issues   In reviewing certain agency appointments of experts and consultants, we
                   found many to be inappropriate. The primary reason was that the
                   appointments were made to positions involving full-time or continuous
                   duties that are the responsibility of career employees. To achieve better
                   control over the use of experts and consultants, we recommended the
                   Congress amend 31 U.S.C. 1114(b) to explicitly state that inspectors
                   general are required to evaluate the progress agencies make in establishing
                   effective management controls over appointed experts and consultants.

                   Our review of personnel practices during presidential transitions led to
                   our recommending that to preserve the flexibility of new agency heads
                   appointed after presidential transitions, the OPM Director should routinely
                   suspend all SES appointment processing during transition periods. In line
                   with current OPM policy, in special circumstances agencies should be able
                   to request Senior Executive Service (SES) appointment processing during
                   such transitions. OPM has indicated that because it believes existing
                   controls are adequate, it does not intend to take action on this
                   recommendation. We believe such a policy should be adopted.

                   In the area of equal employment opportunity, our recommendations
                   addressed the guidance that the EEOC provides to federal agencies for

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                affirmative employment planning. According to the Commission, it is
                reexamining its proposed guidance in light of a recent U.S. Supreme Court
                decision. (GAO/GGD-91-86, GAO/T-GGD-92-2, GAO/GGD-94-71)

Census Reform   We reported in 1992 that the basic design of the decennial census had
                exhausted its potential for counting the population accurately and
                cost-effectively. We reported also that the key to a successful reform effort
                would be through vigorous congressional oversight. We recommended
                that the Congress schedule oversight hearings throughout the decade to
                ensure that consistent progress is being made in designing and planning
                the 2000 census. Oversight hearings have been held, and with one
                exception the Bureau’s cost-saving initiatives have received favorable
                responses. One initiative—whether the Bureau should sample households
                not responding to census questionnaires—lacks consensus among the
                stakeholders. Consistent with our recommendation, the Bureau has
                proposed the use of sampling instead of a 100-percent follow-up for
                citizens not responding to the mailed questionnaires, but the Congress has
                not yet agreed. If sampling is to be used in the 2000 census, the extent of
                sampling needs to be determined; savings estimates range from
                $400 million to $1.1 billion. (GAO/GGD-92-94)

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                         GAO   Contact: Jean Stromberg, 202/512-8678
Financial Institutions
and Markets Issue
Area (Budget
Function 800)
Impact of GAO’s Work     Financial institutions and markets continue to change at a rapid rate.
                         Banks and thrifts, which used to be clearly distinct institutions, perform
                         increasingly similar functions. In an attempt to increase profits and
                         maintain a customer base, banks are increasingly taking on new lines of
                         business—such as mutual funds and securities underwriting—which make
                         them look more like securities firms. The products offered by banks,
                         securities firms, and insurance companies look more and more similar. As
                         markets become more global, foreign and domestic institutions perform
                         similar functions and interact with savers and investors in similar ways.
                         Our work explores the implications of these changes for the industry, its
                         customers, and its regulators. We examine these issues to provide
                         information, analyses, and recommendations to the Congress and
                         regulators on changes in and oversight of the financial services industry.
                         We analyze: (1) various emerging issues in the financial services industry;
                         (2) regulatory practices to see if they work as intended; and (3) the
                         continued appropriateness of federal policies governing financial
                         institutions and markets.

                         Our work has improved the operation of the financial system as a whole
                         and individual components of it. Our primary mission—work on safety and
                         soundness issues—helps protect the taxpayer from the need to rescue one
                         or more financial institutions or sectors. Our work also has an
                         investor/customer focus to help ensure that financial services industry
                         customers get what they pay for. Our work on agency operations led to
                         improvements in their effectiveness.

                         Our recent look at the operations of the Federal Reserve suggests that the
                         Federal Reserve System is facing a number of major challenges that could
                         affect the nature, size, and distribution of its activities and resources. We
                         found that the Federal Reserve needs to become more cost conscious and
                         that it should undertake a thorough re-examination of its mission,
                         structure, and work processes to assure that it is operating as efficiently
                         and effectively as possible.

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                                Our work on the over-the-counter derivatives market has provided the
                                framework for debating the complex issue. Our report suggested that
                                linkages among major U.S. dealers, especially bank dealers, represented a
                                potential threat to the financial system if one or more major dealers were
                                to fail or withdraw from the market. The report also identified major gaps
                                in the regulatory structure.

                                Our work also identified failed regulatory practices. Our report on insider
                                lending cited Federal Deposit Insurance Corporation (FDIC) evidence of
                                substantial insider problems at failed banks, along with indications of
                                similar problems in open and healthy banks. Even when examiners
                                discovered insider problems, they often did not adequately communicate
                                these findings to management and boards. The FDIC sent our executive
                                summary to all its examiners with instructions to implement our
                                recommendations in their next examinations.

                                Our work also identified the need for major reform. In our report on the
                                Federal Home Loan Bank System, we expressed concerns about its capital
                                structure and the mixture of voluntary and mandatory members. We also
                                expressed substantial concern about whether the Federal Housing
                                Finance Board could act as an arm’s-length regulator, and recommended a
                                single regulator for all three housing-related Government-sponsored
                                enterprises. This report helped to spur debates in the Congress on how to
                                reform the Federal Home Loan Bank System.

                                These reports and our other work have strengthened necessary regulation
                                of financial services industries and produced a stronger financial system
                                and a strengthened regulatory structure to protect the public.

Key Open
Financial Institution Reforms   In our report on credit unions, we recommended some 50 regulatory and
                                legislative actions to ensure the future soundness of the industry,
                                including changes to (1) maintain safe and sound insurance operations,
                                (2) upgrade the regulation and supervision of credit unions, and (3) clarify
                                the “common bond” characteristic distinguishing credit unions from banks
                                and thrifts. Our 1994 testimony on Corporate Credit Unions noted eight
                                key recommendations in our 1991 report which had not been adequately
                                addressed. (GAO/GGD-91-85, GAO/GGD-95-15)

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Our report on the Federal Home Loan Bank System recommended
reforming its capital structure, its mixture of voluntary and mandatory
members, and potential cost saving reforms as well as recommended a
single regulator for all three housing-related government-sponsored
enterprises. The administration and the Congress have been working on a
legislative plan to address our recommendations. (GAO/GGD-94-38)

Our report on insider lending noted substantial insider problems at failed
banks, along with indications of similar problems in open and healthy
banks. We recommended bank examiners analyze information, such as
call reports, insurance policies, loans to insiders and other bank specific
data to determine whether insider lending is harming the bank. The bank
regulators are in the process of implementing our recommendations.

Our reviews of the Community Reinvestment Act and of the Equal Credit
Opportunity Act and the Fair Housing Act concluded that the lending and
regulatory community still face challenges in effectively implementing
these laws. We recommended that the regulators: develop uniform fair
lending examination procedures; adequately train examiners to review and
test for lending discrimination; and use their full range of resources,
including enforcement actions to ensure accurate, timely data. We further
recommended that the agencies determine what resources and
examination techniques were needed to meet the requirements of the
recently revised Community Reinvestment Act regulations. We also
recommended that the Attorney General provide updated guidance to the
bank regulators on the characteristics of referable “pattern or practice”
cases under the Equal Credit Opportunity and Fair Housing Acts. In
addition, we suggested that the Congress may wish to consider alleviating
the legal risks of self-testing for discrimination done by the lenders. These
recommendations are under consideration by the regulators. (GAO/GGD-96-23,

Our report on Federal Reserve operations noted a number of areas in
which the Federal Reserve could be more efficient. We recommended that
the Federal Reserve undertake a thorough review of its mission, structure,
and work processes to identify ways to become more efficient and
effective in the future. We suggested that the Federal Reserve carefully
examine the need for its 12 regional banks and its 25 branches. We also
recommended that the Federal Reserve develop criteria for maintaining its
surplus rather than the rule of thumb it has been using. (GAO/GGD-96-128)

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Securities   Our report on investment advisers showed that regulatory oversight of
             advisers was very weak. We recommended that the Congress clarify its
             regulatory intent for the investment advisers program by either
             strengthening the federal oversight program to meet some minimal
             standard or repealing requirements for federal regulation of advisers.
             Legislation to strengthen the program has been introduced during past
             sessions of the Congress. (GAO/GGD-90-83, GAO/T-GGD-92-46)

             Our over-the-counter derivatives market report identified the actions
             needed to ensure that this rapidly growing segment of the financial market
             does not become a source of systemic risk. We made several
             recommendations calling for congressional action to address the
             weaknesses and gaps we identified that are impeding the regulatory
             process. Additionally, we made several recommendations to the regulators
             involved with regulating the over-the-counter derivatives market that
             address the weaknesses and gaps within their control. Regulators have not
             yet implemented our recommendations. (GAO/GGD-94-133)

             Our work on the National Association of Stock Dealers’ Hotline suggested
             that many investors did not know about the hotline but that investors
             would find additional information about broker-dealers useful in making
             investment decisions. We recommended that the National Association of
             Stock Dealers’ Regulation explore ways of publicizing the hotline to a
             wider audience and provide hotline callers with all the relevant
             disciplinary-related information available. (GAO/GGD-96-171)

             See also chapter 5, Financial and Information Management Programs,
             Budget Issue Area and Corporate Audits and Standards Issue Area.

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                        GAO   Contact: William Gadsby, 202/512-8387
Government Business
Operations Issues
(Budget Function 800)
Impact of GAO’s Work    Our work focuses on two of the government’s largest business entities: the
                        General Services Administration (GSA) and the United States Postal Service
                        (USPS). Their combined annual operating budget is about $60 billion, and
                        their activities have far-reaching implications for federal agencies and the
                        general public. Through them, the federal government owns and controls
                        assets worth hundreds of billions of dollars and provides goods and
                        services to federal agencies that directly affect mission accomplishment.
                        We are also responsible for reviewing other entities, such as the
                        Smithsonian Institution, the Library of Congress, and the Administrative
                        Office of the U.S. Courts.

                        The reforms that GSA has made over the last several years appear
                        responsive to many of the concerns we and the NPR have continued to
                        express. GSA has reorganized its Public Buildings Service to separate its
                        policy/oversight and service-provider responsibilities and help facilitate
                        the delivery of real estate services to federal agencies. We have continued
                        to emphasize several key obstacles—such as Federal Buildings Fund
                        shortfalls, budget scorekeeping rules, and the lack of strategic focus and
                        planning—that impede GSA’s and the Congress’ ability to pursue the most
                        cost-effective housing and asset-management options for meeting federal
                        space needs and managing existing federal buildings. A key area of work
                        this past year has involved the design, construction, and use of federal
                        courthouses. Our work in the courthouse construction area in 1995 yielded
                        $317 million in measurable cost reductions.

                        Our efforts at the USPS have continued to focus on persistent problems as
                        well as the prospects that major reform legislation may place the USPS in a
                        more competitive arena with its private sector counterparts. The
                        persistent problems include poor labor-management relations, low
                        employee morale and dissatisfaction with working conditions, a culture of
                        autocratic management resulting in substandard mail-delivery and
                        customer-satisfaction scores, an inability to properly control the receipt of
                        mail and ensure proper revenue collection as well as reap projected
                        benefits from major automation investments. In both reports and
                        testimonies, we have highlighted the major issues facing the USPS: (1) how
                        competition will affect both the Service’s revenues, costs, and rates
                        (domestically and internationally) and the federal government’s role in

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                   mail delivery; (2) how poor controls have resulted in revenue losses and
                   mismanagement in some major purchases; and (3) how a new focus is
                   needed in tracking service quality and customer satisfaction. Our postal
                   work made major contributions to the postal reform legislation introduced
                   in 1996.

                   We also handled a wide range of congressional requests covering diverse
                   agencies and issues. In the nation’s currency area, we reported that it was
                   no longer profitable for the government to produce and distribute the
                   one-cent coin and provided options for congressional consideration for the
                   future of the penny. In addition, we reported that to make commemorative
                   coins profitable, the Mint should reduce the proliferation of
                   commemorative coins, institute a profit-sharing arrangement with coin
                   sponsors, and base the sales levels and prices of the coins on market
                   research. We also reported that the Smithsonian Institution should take
                   better care of the nation’s aircraft collection by refining the mission of the
                   National Air and Space Museum, culling the collection to a size that was
                   affordable, and developing a management plan for aircraft. We reported
                   that 10 agencies spent a total of $14 million in working for the President’s
                   Task Force on Health Care Reform.

                   Finally, we contracted with Booz-Allen & Hamilton to perform a general
                   management review of the Library of Congress. In that review and
                   testimony, we reported on the Booz-Allen report that said the Library
                   needed to reassess its mission, improve its management and operational
                   processes, and better manage its human resources and revenue
                   opportunities. The library has developed and implemented a management
                   improvement plan designed to address the Booz-Allen recommendations.
                   We also reported on governmentwide rates of return from concessions
                   contracts. We reported that, of the $2.2 billion of concessions income,
                   agencies that were able to retain the money earned three times as much as
                   those agencies who had to give the money to the Treasury, and agencies
                   that used competition in selecting contractors earned twice as much as
                   agencies that did not use competition.

Key Open
General Services   GSA is addressing our recommendations as part of its ongoing reinvention
Administration     efforts. It is working internally and with federal agencies and the
                   commercial real estate community to explore new ways of handling lease

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                      arrangements. It has already acted to simplify and streamline its leasing
                      and pilot alternative options. As part of its reinvention efforts, GSA is
                      considering privatization and outsourcing. (GAO/GGD-95-48)

                      The Congress, the Judiciary, and GSA have embarked on a $10 billion
                      courthouse construction initiative. In response to various criticisms about
                      the inadequate management and oversight, GSA established a courthouse
                      management group to develop a more disciplined approach that would
                      reduce cost and provide for better decisionmaking. This group is working
                      closely with the Administrative Office of the U.S. Courts—the
                      administrative arm of the Judiciary—to improve communication and
                      respond to specific recommendations we made during our testimony for
                      improvement in the overall management and oversight of courthouse
                      construction. The group is also establishing a mechanism to monitor and
                      assess the use of flexible design guidance with a view toward striking a
                      better balance in the choices made about courthouse designs.

U.S. Postal Service   USPS, unions, and management associations should develop a long-term
                      agreement to change the workplace climate in processing and delivery.
                      The agreement should provide incentives to encourage teamwork and
                      make employees more responsible and accountable for work results. The
                      agreement should provide for the following principles and values: (1) a
                      work structure to give employees greater responsibility and accountability
                      for results; (2) incentives to encourage all employees to share in the tasks
                      necessary for success and to allow for recognition and reward for
                      corporate and unit performance; (3) training employees and holding them
                      accountable, with a focus on customer service; (4) selection and training
                      of supervisors to be facilitator/counselors who will have the skills,
                      experience, and interest to treat employees with respect, motivate them,
                      recognize and reward them, promote teamwork, and deal with poor
                      performers; and (5) counseling, training, and if necessary, removal of
                      supervisors and employees who show a lack of commitment to work unit
                      goals, values, and principles. The Postmaster General and the leaders of
                      the unions and management associations have agreed to participate in a
                      national summit and to commit to reaching a framework agreement for
                      addressing labor-management problems. (GAO/GGD-94-201A&B)

                      If the Congress wants the USPS to keep or gain business customers in
                      parcel post and Express Mail, it should consider reexamining the
                      provisions of section 403(c) of the Postal Reorganization Act. The
                      Congress should determine if volume discounting by the USPS, in which all

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                  customers would be given the same volume discounts, would result in
                  undue or unreasonable discrimination among mailers and undue or
                  unreasonable preference given to mailers, since private carriers commonly
                  use this pricing strategy. (GAO/GGD-92-49)

                  The Congress should reexamine the act’s ratemaking criteria and consider
                  amending the criteria to state that (1) in allocating institutional costs,
                  demand factors are to be weighted to take into account the need to
                  maintain the long-term viability of the USPS as a nationwide full-service
                  provider of postal services, and (2) such use of demand factors will not be
                  inconsistent with the rate criterion requiring the establishment of an
                  equitable rate schedule as long as each mail class recovers the direct and
                  indirect costs attributable to that service and contributes to institutional
                  costs. (GAO/GGD-92-49)

Treasury Issues   Our 1993 report on the dollar coin recommended that Congress eliminate
                  the paper dollar and replace it with a well-designed coin. Hearings were
                  held in 1995, but no legislation was passed. (GAO/GGD-93-56)

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                       GAO   Contact: Lynda Willis, 202/512-5407
Tax Policy and
Administration Issue
Area (Budget
Function 800)
Impact of GAO’s Work   The Tax Policy and Administration issue area’s mission is to provide the
                       Congress, the executive branch, and the public with timely, accurate, and
                       objective analyses and information to improve our nation’s tax system and
                       its administration. Accordingly, this issue area’s responsibility
                       encompasses the revenue side of the budget—the $1.4 trillion in tax
                       receipts that finance federal government operations and the $400 billion in
                       tax expenditures used to promote numerous social and economic
                       objectives—as well as the federal agency responsible for tax

                       The federal treasury will realize over $3.1 billion in increased tax revenues
                       over 5 years as a result of statutory and administrative changes we
                       recommended during the last few years. Of that total, (1) about $1.3 billion
                       comes from IRS doing 100-percent matching of dependent Social Security
                       Numbers; (2) about $1 billion comes from IRS increasing controls, resulting
                       in fewer dependents being claimed on income tax returns; (3) about
                       $600 million comes from changes to the wealth definition used in the
                       Earned Income Credit program; (4) about $100 million comes from
                       additional tax collections by IRS sending reminder notices to delinquent
                       taxpayers; (5) about $70 million comes from reduced costs through the
                       elimination of some written collection notices; and (6) about $37 million
                       comes from requiring information returns on forgiven debts to increase
                       voluntary compliance.

                       These increased tax revenues represent only one aspect of the impact of
                       our work. For example, in response to our recommendations, (1) IRS is
                       getting taxpayer suggestions in designing tax forms, instructions and
                       publications; (2) the tax code was amended to allow IRS to withdraw a
                       notice of federal tax lien when it is in the best interest of the taxpayer and
                       the government; (3) IRS made it easier for taxpayers to request an
                       installment agreement to pay taxes owed; (4) IRS has expanded access to
                       electronic filing; (5) IRS has developed a system for monitoring sole
                       proprietor compliance projects; (6) IRS, in conjunction with trucking
                       industry groups, has developed guidance on the kinds of records that
                       truckers should maintain; (7) IRS has streamlined its organizational

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                  structure by removing regional offices from the chain of command in the
                  returns processing and forms distribution areas and plans to do the same
                  for the call sites; (8) IRS has made changes to improve the effectiveness of
                  the Federal Tax Deposit Alert Program.

                  Also, as a result of our work, better information should be available to
                  support deliberations on future tax policy and administration changes. Our
                  report on the income tax treatment of married and single individuals
                  showed that certain tax provisions could result in a marriage penalty or
                  marriage bonus depending on the individual circumstances of the
                  taxpayer. Current IRS tax data are not available to measure and compare
                  the significance of these penalties and bonuses. In another report we
                  describe how IRS’ efforts to detect earned income tax credit
                  noncompliance had favorable results but also produced several problems,
                  such as generating a workload that far exceeded IRS’ capabilities, thereby
                  delaying millions of refunds. We also provided information on the
                  potential effects of extending the federal tax code to residents of Puerto
                  Rico. We found that if the federal tax rules are applied to residents of
                  Puerto Rico, the residents would owe around $623 million in federal
                  income tax before taking into account the Earned Income Tax Credit, but
                  with that credit, Puerto Rican taxpayers would qualify for a total of about
                  $574 million in credits. We estimate that the net aggregate federal tax
                  liability after subtracting the credit would be about $49 million. Also
                  during the year, we testified at seven congressional hearings, discussing
                  tax administration issues such as Tax System Modernization, classifying
                  workers as employees or independent contractors, tax system compliance
                  burden, tax delinquencies, and tax debt collection practices.

Key Open
Compliance        Sole proprietors, who account for about 13 percent of individual
                  taxpayers, are responsible for about 40 percent of the taxable income
                  earned by individuals but not reported for tax purposes. Much of this
                  noncompliance is attributable to sole proprietors who operate as
                  independent contractors, e.g., self-employed individuals who provide
                  services to others. Given the persistently high levels of noncompliance
                  over the years, we have recommended that IRS adopt a more
                  comprehensive and coordinated compliance program. We also
                  recommended that the Congress consider compliance-enhancing
                  legislation, i.e., extending withholding and information reporting

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requirements to cover independent contractors. Since January 1995, at
least 4 legislative proposals for clarifying the rules have been submitted.
We have testified annually since 1992 and last testified in 1996.

Annually, about two-thirds of all additional tax assessments recommended
as a result of IRS audits are attributable to the nation’s 1,700 largest
corporations. Although audits of these large corporations consume about
20 percent of IRS’ examination resources, IRS neither tracks actual
collections from these audits nor the compliance rates of these
corporations. Given that our analysis indicated that only about $1 of every
$5 of recommended tax assessments is actually collected from these large
corporations, we recommended a number of steps to help IRS ensure that it
meets its mission of collecting the proper amount of tax at the least cost:
(1) IRS should increase revenue agent knowledge of specific industries
they audit; (2) IRS should begin tracking collection rates as a common
performance measure across the agency; and (3) IRS should analyze
recurring tax disputes and propose legislative changes for minimizing such
recurrence. IRS is taking steps to address these recommendations.

Through negative withholding, low-paid wage earners may receive a
proration of the Earned Income Tax Credit during the tax year. Such an
advance payment of the tax credit presents a potential compliance
problem because the credit is paid before IRS can ensure that the wage
earners are eligible. Ensuring compliance becomes more problematic if
the affected wage earners do not report the advance payment on their tax
returns or do not file tax returns. We recommended that IRS (1) send to
individuals who do not file tax returns a notice explaining their
requirement to file; and (2) explore ways to identify those individuals who
claim the credit in advance but do not report it, so as to prevent them from
receiving the credit a second time. IRS subsequently took steps directed at
helping persons fill correct tax returns. While these steps should improve
taxpayer reporting, we believe that IRS needs to do more to identify deal
with those who do not file correct returns. (GAO/GGD-92-26)

At the beginning of fiscal year 1993, IRS had an inventory of about
10 million individual and business nonfilers. IRS estimated that unpaid
taxes on nonfiled individual income tax returns for 1992 alone totaled
more than $10 billion. Concerned about this noncompliance, IRS began a
strategy in fiscal year 1993 to bring nonfilers into the system and keep
them there. IRS’ strategy was generally successful in (1) reducing the size

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                            of the nonfiler inventory, (2) eliminating unproductive cases, and
                            (3) increasing the number of returns secured from individual nonfilers.
                            However, it is unclear whether voluntary taxpayer compliance actually
                            improved and whether IRS’ enforcement resources were effectively
                            managed. We identified several areas where opportunities exist to improve
                            IRS’ nonfiler strategy, and recommended that IRS (1) become more timely in
                            making telephone contact with nonfilers, (2) use lower graded staff,
                            paraprofessionals, and administrative staff for more of the nonfiler work;
                            and (3) consider revising procedures for dealing with nonfilers who are
                            brought into compliance and then become nonfilers again. (GAO/GGD-96-72)

                            Concerns about continued noncompliance levels led IRS to change its tax
                            compliance philosophy. In addition to the use of enforcement methods, it
                            is researching ways to improve compliance for entire market
                            segments—specific groups of taxpayers that share certain characteristics
                            or behaviors. IRS’ goal is to increase total compliance with the tax laws
                            from an estimated 87 percent to 90 percent by 2001 and believes its new
                            compliance research approach will uncover ways to help meet this goal.
                            We recommended that IRS (1) develop support from IRS employees for the
                            new approach and monitor the success of IRS’ developmental effort;
                            (2) ensure that reliable compliance data will be available when needed;
                            (3) set a schedule for completion and monitor it; and (4) establish
                            milestones and monitoring mechanisms for the research effort and for
                            evaluating the effort. (GAO/GGD-96-109)

Tax Systems Modernization   Available compliance data indicate that overstated deductions by small
                            businesses are a significant noncompliance area—about $40 billion
                            annually. Our review work showed that it was technically feasible for IRS
                            to use computer-matching techniques and available information returns to
                            identify a portion of this noncompliance. We recommended that IRS
                            implement such matching techniques where tests showed that it would be
                            cost-effective. We also recommended that IRS consider actions that could
                            be taken to expand computer matching as part of its Tax Systems
                            Modernization effort. (GAO/GGD-93-133)

                            We reviewed IRS’ plans to maximize electronic filing, which is the
                            cornerstone of IRS’ plan to move from the traditional paper-based return
                            filing. We found that: (1) if electronic filing continued at the current pace,
                            IRS would fall far short of its goal of 80 million electronic returns by 2001;
                            (2) IRS was having little success in broadening the appeal of electronic
                            filing to those taxpayers who file other more complex returns; and
                            (3) unless IRS can increase electronic filing, its customer service and paper

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                      processing workloads may overwhelm its planned staffing and alter
                      various aspects of its modernization efforts. We recommended that the
                      Commissioner (1) identify those groups of taxpayers who offer the
                      greatest opportunity to reduce IRS’ paper-processing workload and
                      operating costs if they were to file electronically and develop strategies
                      that focus IRS resources on eliminating or alleviating impediments that
                      inhibit those groups from participating in the program, including the
                      impediment posed by the program’s cost; (2) adopt goals for electronic
                      filing that focus on reducing IRS paper-processing workload and operating
                      costs; and (3) prepare contingency plans for the possibility that the
                      electronic filing program will fall short of expectations. (GAO/GGD-96-12)

Accounts Receivable   IRSis losing the potential to collect hundreds of millions of dollars of
Collections           overdue taxes because of shortcomings in its processes for determining
                      which accounts are currently collectible and which are not. We also
                      recommended that IRS develop information on the characteristics of the
                      accounts written off to determine whether additional cost-effective
                      collection measures can be developed and applied. (GAO/GGD-91-89)

                      We reviewed IRS’ Offer in Compromise Program, which affords taxpayers
                      the opportunity to settle tax debts for less than the amount owed. While
                      IRS was pleased with the results of the program, it had not demonstrated
                      that the program’s objectives of increased collections and improved
                      compliance would be met. We recommended that IRS develop the
                      indicators necessary to evaluate the Offer in Compromise Program as a
                      collection and compliance tool. (GAO/GGD-94-47)

                      We studied private sector and state collection techniques to determine
                      whether IRS could improve its collection of delinquent taxes. We
                      recommended that IRS restructure its collection program to use collection
                      staff in earlier, more productive phases of the collection cycle, develop
                      detailed information on delinquent taxpayers for customized collection
                      procedures, test the use of private collection companies, and identify ways
                      to increase cooperation with state governments. (GAO/GGD-93-67)

                      While IRS’ delinquent taxpayer workload has continued to grow,
                      productivity of collection staff has varied at different field locations and
                      IRS does not use marginal productivity measurements to adjust staff levels
                      among those locations. We recommended that IRS develop a plan to ensure
                      that collection staff would be allocated to maximize the assessment and
                      collection of taxes. (GAO/GGD-93-97)

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Tax Simplification   Our work showed that the rules for claiming dependent exemptions were
                     too complex and too burdensome for many taxpayers. We recommended
                     that the Congress simplify the rules by substituting a residency test similar
                     to that used in the Earned Income Tax Credit. (GAO/GGD-93-60)

                     Businesses in order to determine their tax liabilities (e.g., employer
                     portion of Social Security taxes) and take the appropriate steps to meet
                     the requirements of other laws, need to be able to readily distinguish
                     between workers who are “employees” and those who are “independent
                     contractors.” But, the IRS rules for classifying workers are unclear and
                     subject to conflicting interpretations. This situation puts employers at risk
                     of large penalties and retroactive tax assessments. We recommended
                     congressional intervention to help clarify the rules. (GAO/T-GGD-96-130,

                     Tax simplification also involves efforts to make IRS correspondence easier
                     for taxpayers to understand. In this regard, we recommended that IRS
                     modify its correspondence practices to (1) make certain system
                     improvements, and (2) monitor taxpayer satisfaction with IRS
                     correspondence. (GAO/GGD-94-118)

Management of IRS    Knowing how much it costs to carry out programs and activities is
                     indispensable for planning and decision-making. For example, IRS
                     management needs information to compare what it costs to run IRS at
                     various times and at locations doing similar work. To strengthen IRS’
                     financial management, we recommended that IRS develop a comprehensive
                     cost accounting system, one that accounts for all IRS costs and identifies
                     the organizational components and functions to which they relate.

                     IRS is undergoing a major effort to modernize its information systems and
                     restructure its organization. This effort involves several components, one
                     of which IRS calls its “customer-service vision,” which seeks to improve IRS’
                     interactions with taxpayers and fold parts of IRS’ field structure into 23
                     customer service centers. These centers would work primarily by
                     telephone to provide taxpayer service, distribute forms, collect unpaid
                     taxes, and adjust taxpayer accounts. They would absorb current IRS
                     telephone operations and try to convert much of IRS’ written
                     correspondence work to the telephone. However, a lack of clarity in
                     management responsibilities has, to some extent, hampered IRS in
                     implementing its customer-service plans. First, because the work units and
                     related resources that are to make up the new customer

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                   service-organization belong to two separate IRS organizations, we
                   recommended that IRS clarify criteria for assigning process owners.
                   Second, at lower management levels, we found instances in which
                   “products” were being developed for use in the customer-service sites that
                   had no clearly designated process owners; thus, we recommended that IRS
                   define process owners’ roles and responsibilities. Third, we identified two
                   instances in which IRS officials had assumed ownership roles for
                   interactive telephone systems but had not carried out their duties to
                   establish the quality measures critical to evaluating the systems’
                   performance. Thus, we recommended that IRS emphasize the need for
                   timely input for quality measures. (GAO/GGD-96-03)

Taxpayer Service   Successful implementation of IRS’ one-stop service initiative is crucial to
                   IRS’ plans for improving customer service, e.g., reduce taxpayer burden in
                   terms of additional time and frustration associated with making numerous
                   contacts with IRS to resolve a single problem. In August 1994, we
                   concluded that a flawed measurement process had led IRS to overstate its
                   progress in providing one-stop service and recommended that a different
                   measurement system be adopted. This followed an earlier
                   recommendation aimed at improving taxpayer access to IRS. We
                   recommended that IRS develop a reliable measure of toll free telephone
                   accessibility so that it can make appropriate decisions on making services
                   available. (GAO/GGD-94-131, GAO/GGD-92-132)

                   Providing taxpayers with easily understood tax guidance (notices, forms,
                   and publications) can have a major impact on promoting voluntary
                   compliance. Our December 1994 report showed that IRS did not have a
                   systematic way to determine what individual taxpayers specifically find
                   confusing and, with respect to the notices sent to taxpayers, no quick and
                   easy method to revise them. We recommended steps to address these
                   problems. (GAO/GGD-95-6)

                   Taxpayers have entered into installment agreements with IRS to pay off
                   billions of dollars in past-due tax debts. According to the terms of those
                   agreements, taxpayers continue to accrue interest and penalty charges on
                   the unpaid debt balance. However, contrary to private industry practice,
                   which is governed by truth-in-lending laws, IRS does not tell taxpayers the
                   total estimated costs of the installment agreements, including interest and
                   penalty accruals, nor the amount of time required to liquidate the debt. We
                   recommended that such reporting be made. (GAO/GGD-95-137)

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Three prototype interactive telephone systems—designed to reduce
correspondence between IRS and taxpayers and to make IRS more
accessible—suffer from too many menu options and other problems.
Resolving these shortcomings is essential if IRS is to achieve its goal of
handling 45 percent of taxpayer calls by using interactive phone systems.
IRS’ telephone-routing system requires taxpayers to remember up to eight
menu options, even though the contractor guidelines called for no more
than four, and does not allow taxpayers to return to the main menu when
they make a mistake or want to resolve other issues. IRS has not done a
cost-benefit analysis of the use of multiple toll-free numbers, which we
recommended as a solution to the problem of too many menu options.
Providing taxpayers with a written, detailed step-by-step description on
how to use the menu options might be another way to make the telephone
systems more user friendly. IRS complied with government security
requirements when developing its first three interactive telephone
systems. However, future interactive systems will allow taxpayers greater
access to tax information, and more-secure features, such as a personal
identification number, may be needed to protect taxpayer data.

See also chapter 4, Information Resources Management—Internal
Revenue Service Issue Area and Chapter 5, Financial and Information
Management Programs, Budget Issue Area.

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                        GAO   Contact: Rona Stillman, 202/512-6400
Internal Revenue
Service Issue Area
(Budget Function 990)
Impact of GAO’s Work    New technology provides opportunities for agencies to revamp
                        labor-intensive processes, enhance services to the public, and keep pace
                        with other ever-increasing demands. At the IRS, labor-intensive processes
                        established back in the 1960s are being used to annually collect and
                        account for over $1 trillion in revenue. IRS’ efforts to modernize its systems
                        have been unsuccessful. In part based on numerous recommendations we
                        made to improve IRS’ ability to successfully deliver Tax Systems
                        Modernization (TSM), the Congress has recently cut and restricted
                        spending for IRS’ modernization.

                        Our July 1995 comprehensive examination of IRS’ TSM found that IRS had
                        made some progress through actions initiated to improve the management
                        of information systems; enhance its software development capability; and
                        better define, perform, and manage the technical activities. However, IRS’
                        efforts to modernize tax processing and the government’s investment in
                        modernization were found to be at serious risk due to pervasive
                        management and technical weaknesses that impeded modernization
                        efforts. We reported that IRS did not (1) have a comprehensive,
                        cost-effective business strategy to reduce paper submissions; (2) fully
                        develop and put in place the requisite management, software development,
                        and technical infrastructures necessary to successfully implement an
                        ambitious world-class modernization effort like TSM; and (3) establish an
                        effective organizational structure to consistently manage and control the
                        systems modernization organizationwide.

                        Because IRS’ weaknesses were not yet corrected, we reported that the
                        Congress should consider limiting TSM spending to only cost-effective
                        modernization efforts that (1) support ongoing operations and
                        maintenance; (2) correct IRS’ pervasive management and technical
                        weaknesses; (3) are small, represent low technical risk, and can be
                        delivered in a relatively short time frame; and (4) involve deploying
                        already developed systems, but only if these systems have been fully

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                  tested, are not premature given the lack of a completed architecture, and
                  produce a proven, verifiable business value. In IRS’ 1997 appropriations,
                  the Congress reduced TSM spending pending improvements that reflect our

                  In June 1996, we reported that IRS had initiated a number of new actions
                  and was making some progress in addressing our July 1995
                  recommendations to correct its weaknesses. For example, IRS (1) was
                  preparing a comprehensive strategy to maximize electronic filing; (2) had
                  created an investment review board to select, control, and evaluate its
                  information technology investments; (3) had updated its system
                  engineering process and its systems life cycle methodology, and was
                  working across various IRS organizations to define disciplined processes
                  for software requirements management, quality assurance, configuration
                  management, and project planning and tracking; and (4) had completed a
                  descriptive overview of an integrated, three-tier, distributed systems

                  However, more remains to be done to respond fully to our
                  recommendations, as discussed below.

Key Open          In order to fully implement our July 1995 report’s recommendations, IRS
Recommendations   needs to (1) complete the development of its comprehensive business
                  strategy for electronic filing; (2) have a repeatable process for selecting,
                  controlling, and evaluating its technology investments, and review all
                  planned and ongoing systems in a single investment portfolio;
                  (3) complete the development of its procedures for requirements
                  management, quality assurance, configuration management, and project
                  planning and tracking; and (4) provide a schedule for and complete its
                  integrated systems architecture or its security and data architectures.

                  See also chapter 4, Improving Justice and General Government Programs,
                  Tax Policy and Administration Issues Area and chapter 5, Financial and
                  Information Management Programs, Budget Issue Area.

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                        GAO   Contact: Paul L. Posner, 202/512-9573
Budget Issue Area
(Budget Function 990)
Impact of GAO’s Work    The need to reduce the federal budget deficit continued to drive public
                        debate in 1996. Although the Congress is charting a course to a balanced
                        budget by fiscal year 2002, the long-term outlook remains challenging. For
                        instance, even if growth in health care costs is moderated by the policies
                        proposed today, the aging of the population ensures that health care costs
                        will continue to rise and fiscal pressures will continue. As a result, the
                        budget will continue to be a focal point of public policy in the years to

                        Our work (1) provides the Congress with deficit reduction analysis and
                        reduction options and strategies, including perspectives on the long-term
                        outlook for the federal budget, (2) recommends improvements in the
                        structure and presentation of the budget to assist in budget choices and
                        recommends improvements in the budget process, (3) identifies
                        opportunities to improve budgetary cost data using financial
                        accountability concepts and information, (4) assesses the impacts of
                        budget rules and incentives on management, and (5) provides the
                        Congress—through the budget—with information assessing alternatives
                        for restructuring the federal role and the design of program subsidies.

Deficit Reduction       Our long-term projections of the deficit and its impact on economic
                        growth and productivity have been used by the public, private policy
                        organizations, and the Congress to provide perspective on recent
                        economic experiences and the administration’s economic plan. In 1996, we
                        testified on our simulations of the long-term economic impacts of the
                        deficit. We tracked the economic implications of three possible fiscal
                        paths through the year 2025, highlighting how some types of early action
                        on the deficit, including early action on health—a principal driver of future
                        spending, might affect the long-term deficit outlook. This type of reporting,
                        offering a long-term outlook, has driven home the point that our current
                        budget policy is unsustainable, especially in light of our aging population.
                        This work was a factor in convincing CBO to conduct and publish similar
                        analyses which has buttressed the case for early and significant action to
                        respond to growing deficit pressures.

                        For the third straight year, we produced a report on the budgetary
                        implications of selected GAO work. The report, prepared with the active
                        support of approximately 20 GAO issue areas and the cooperation of CBO

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                              and staff from the Joint Committee on Taxation, provided the Congress
                              with an update of 96 of the 120 spending reduction and revenue gain
                              options that appeared in our previous year’s report. The Budget
                              Committees used GAO’s options to recommend specific ways to reduce
                              federal spending and stay within the discretionary spending caps
                              established by the Budget Enforcement Act. In related work, we also
                              reported on (1) spending programs and tax benefits available to business
                              and (2) federal subsidy and related programs that may affect the

Improving Budgetary Choices   Because budget structure greatly influences decision-making, highlighting
                              and providing needed information about critical budget choices is very
                              important. In addition, better information about the costs of federal
                              programs and a greater ability to link budgeting to accounting data could
                              enhance the quality of budget decisions.

                              In testimony on the budget process, we identified criteria the Congress
                              might use in looking at the design of or changes in any budget process,
                              such as building in a long-term perspective; facilitating a focus on
                              important trade-offs; and developing enforcement, control, and
                              accountability mechanisms. We also provided testimony highlighting the
                              trade-offs the Congress may face if it changes the budget process from an
                              annual to a biennial cycle. For instance, we concluded that while a shift to
                              biennial appropriations could save time for agencies, it would also result
                              in a shift in congressional control and oversight.

                              In order to help the Congress and other interested researchers cope with
                              the complexity of the annual federal budget, we published a compendium
                              of federal budget accounts. The report, Compendium of Budget Accounts:
                              Fiscal Year 1997, provided a convenient way to sort through the fiscal
                              structure of the federal government and to determine the level of
                              budgetary resources—used, estimated, or requested by fiscal year—for
                              individual accounts. In work related to understanding the federal budget,
                              we updated our 1987 report on the inventory of accounts with spending
                              authority and permanent appropriations (commonly referred to as
                              “backdoor authority”). This report provided specific information on such
                              accounts and analyzed the changes in the number and dollar amounts of
                              accounts with backdoor authority. We found that the use of backdoor
                              authority continues to be widespread; both use of the authority of
                              accounts have increased since 1987.

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                               In addition to these reports, we provided correspondence to the Congress
                               on options for using accrual concepts in the budget for federal insurance
                               programs. Our work to date continues to support our previously stated
                               concern that cash-based budget reporting for federal insurance programs
                               provides incomplete information on the cost of these programs.

Government Restructuring and   The 104th Congress continued to show strong interest in a range of
the Federal Role               government reform initiatives, including privatization, consolidating
                               government programs and agencies, and giving states new authority to run
                               entitlement programs by converting AFDC from an open-ended entitlement
                               to a block grant.

                               In our report on block grant implementation, we stressed the need for the
                               Congress to build accountability provisions into newly proposed block
                               grants. We noted that well designed accountability provisions, such as
                               comparable data reporting and maintenance of effort requirements, will
                               help clarify the financial and programmatic relationship between the
                               federal government and the states and could be important in sustaining the
                               block grant approach as these programs mature.

                               Given congressional interest in federal divestitures, and the limited U.S.
                               government experience in this practice, we provided the Congress with
                               information on privatization policies and processes in foreign
                               governments. In one report, we examined the divestiture experiences of
                               Canada, France, Mexico, New Zealand, and the United Kingdom. In a
                               second report, we focused on the divestiture experiences of Argentina. In
                               both reports we examined issues related to the privatization process, the
                               valuation and preparation of the assets for sale, and the use of sale
                               proceeds. Despite the different experiences of each country, the
                               information we found from these governments may help the United States
                               smooth the transfer of viable operations from the public to the private
                               sector. The Congress has been using the information in these reports as it
                               deliberates on ways to change the budget scoring rules so that they take
                               into account the long-term budgetary impact of asset sales. The executive
                               branch has considered forming a centralized office to coordinate federal
                               asset sale.

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Key Open
Budget Enforcement Act   We were required by law to submit an annual compliance report that
Compliance               addressed OMB’s and CBO’s compliance with the Budget Enforcement Act of
                         1990. When we reviewed the reports and presidential orders for the
                         session of the Congress ending January 3, 1992, we reported that OMB and
                         CBO had substantially complied with the act; however, we found several
                         minor instances in which either OMB or CBO or both had not implemented
                         certain provisions. We discussed several matters for congressional
                         consideration involving technical corrections to the act to clarify certain
                         areas and allow more precise implementation. While the Congress
                         included some changes to the Budget Enforcement Act in the OBRA, it did
                         not address our specific recommendations. (GAO/AFMD-92-43)

Federal Credit Reform    In response to a congressional request, we issued a series of reports
                         examining several highly technical issues related to the implementation of
                         the Federal Credit Reform Act of 1990. In our July 1994 report on coverage
                         and compliance issues, we stated that Government National Mortgage
                         Association (GNMA) guarantees were covered by the Credit Reform Act but
                         that GNMA had not fully complied with the act’s requirements. We
                         recommended that the OMB Director require GNMA to budget for guarantees
                         using the issuance dates of the guarantees to determine whether their
                         costs should be included in the financing account or the liquidating
                         account. OMB is examining long-term credit reform treatment for GNMA.

                         In the same report, we stated that it was appropriate for a credit program
                         to capture the cost of a closely linked cross-subsidy program in
                         determining the credit program’s total subsidy costs. We also presented
                         criteria for defining a “closely linked cross-subsidy program.” We
                         discussed, as a matter for congressional consideration, an amendment to
                         the act to include the cost of closely linked subsidies in the cost of credit
                         programs. For cross-subsidies not meeting the criteria for being closely
                         linked, we recommended that the OMB Director include a table in the
                         appendix to the Budget of the United States Government for the
                         associated credit program showing, for each cross-subsidy, the size, cost,
                         and effect of the credit subsidy rate. OMB has responded favorably to our
                         recommendation, but has not included supplemental information in the
                         Budget Appendix on the size and effect of cross-subsidies. The Congress
                         has not yet addressed the matter for consideration. (GAO/AIMD-94-57)

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We also examined the FDIC’s and the Resolution Trust Corporation’s (RTC)
fair housing program. We suggested, as a matter for congressional
consideration, amending the act to exclude from credit reform
requirements only those FDIC and RTC programs whose sole purpose was
resolving and disposing of assets of failed and failing financial institutions.

In our recently issued report on the treatment of negative subsidies under
credit reform, we examined the budgetary treatment of negative subsidies
(those in which receipts exceed outlays) and examined whether this
treatment could adversely affect program management and budgeting.
Specifically, we reviewed budget proposals and actions for fiscal years
1992 through 1995 for the FHA’s Mutual Mortgage Insurance Fund, the
Export-Import Bank, and GNMA. We determined that the budgetary
treatment of credit programs with negative subsidies was not consistent
with credit reform requirements. The act does not explicitly address
situations in which programs have negative subsidies. Under OMB’s
reasonable guidance, appropriations of negative subsidy receipts, unlike
appropriations of general funds, do not make budget authority available
for obligations. We determined that this disconnect between
appropriations and available budget authority, coupled with the credit
reform requirement that budget authority be available before direct loans
are obligated or loan guarantees are committed, might delay or reduce
program expenditures to avoid violations of the Anti-Deficiency Act. To
avoid this, we recommended that the Congress appropriate only general
funds for all subsidies and administrative costs of credit programs and use
negative subsidy receipts to reimburse the general fund. (GAO/AIMD-94-58)

In the same report, we stated that programs with both positive and
negative subsidy direct loans and loan guarantees, such as the credit
programs on the Export-Import Bank, presented an additional issue. The
act calls for appropriating amounts equal to estimated net subsidy costs
(the estimated subsidy cost from positive subsidy direct loans and loan
guarantees offset by estimated receipts from negative subsidy loans and
loan guarantees). With such an appropriation (or, from another viewpoint,
an appropriation equal to estimated net outlays), an agency would not
have sufficient budget authority to make all subsidized loans. To solve this
problem, we recommended that the Congress amend the act to require the
appropriation of an amount equal to the gross subsidy cost for credit
programs with both positive and negative subsidy components.

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                     See also chapter 4, Improving Justice and General Government Programs,
                     Financial Institutions and Markets Issue Area.

Mandatory Spending   In response to a congressional request, we examined the implementation
                     issues involved in applying a budgetary spending cap to mandatory
                     spending programs. In our July 1994 report, we stated that although a
                     spending cap on mandatory programs would achieve savings, a cap would
                     have little, if any, effect on the long-term growth trends in these programs
                     until issues of underlying eligibility and benefit formulas, which drive
                     spending, are addressed. We discussed, as a matter for congressional
                     consideration, an alternative process under which the Congress would
                     reduce spending by periodically setting spending targets, assessing
                     mandatory spending, and voting on whether and how to change mandatory
                     programs. The Congress did not consider overall budget process reform
                     legislation in 1996. (GAO/AIMD-94-155)

Tax Expenditures     In a joint effort with the General Government Division’s Tax Policy and
                     Administration Issue Area, we responded to a congressional request to
                     examine the growth of tax expenditures and alternatives for limiting their
                     growth. Our June 1994 report contained a recommendation to the
                     Congress, matters for congressional consideration, and recommendations
                     to the OMB Director. We recommended that the congressional tax-writing
                     committees explore, within the existing framework, opportunities to
                     exercise more scrutiny over indirect “spending” through tax expenditures.
                     Although these committees have considered revisions to various existing
                     tax expenditures over the years to either eliminate such expenditures or
                     more narrowly restrict eligibility, no specific action has been taken on our
                     recommendation. (GAO/AIMD/GGD-94-122)

                     In this report, we also stated that should the Congress wish to address tax
                     expenditure efforts in the broader context of the allocation of federal
                     resources, it could consider further integrating those efforts into the
                     current budget process. One option would be for the Congress to consider
                     whether it wanted to seek a specified level of tax expenditure savings
                     during its annual deliberations on the congressional budget resolution.
                     Several proposals for better controlling tax expenditures have been
                     offered, but no specific action has been taken on our recommendation.

                     In the same report, we made several recommendations to the OMB
                     Director. First, we recommended that the Director, in consultation with
                     the Secretary of the Treasury, revise the budgetary presentation of tax

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expenditure information to highlight the fiscal and other consequences
associated with tax expenditures. (GAO/AIMD/GGD-94-122)

OMB revised its fiscal year 1995 budget to highlight information about tax
expenditures in two respects: (1) the budget presents estimated tax
expenditures over the 5-year budget window, as well as estimated
expenditures for the current fiscal year and actual expenditures for the
prior fiscal year, and (2) present-value estimates are reported for tax
expenditures involving deferrals and similar long-term revenue effects.
Although OMB agreed in principle that the combined presentation of
outlays and tax expenditures within functional areas would be helpful and
is exploring the feasibility of presenting this information on a selective
basis, OMB made no significant additions for the fiscal year 1997 budget.
The Department of the Treasury is deferring to OMB on this
recommendation. (GAO/AIMD/GGD-94-122)

Second, we recommended that to the extent practical, OMB incorporate tax
expenditures into the annual budget review process. OMB has announced
its intentions to begin such a process and has initiated preliminary actions
to implement joint reviews of tax expenditures and related outlay
programs as part of its annual budget review. (GAO/AIMD/GGD-94-122)

Third, we recommended that OMB, working with the Treasury, design and
test a basic structure for tax expenditures performance reviews before
developing the governmentwide framework the 1993 GPRA requires by
May 1997. OMB has not yet developed this framework. We also
recommended that once the initial determinations were made, OMB, along
with the Treasury, conduct case studies of the proposed performance
review process. This would enable OMB and the Treasury to gauge how
well the proposed framework might function. In addition, we
recommended that once tax expenditure performance data were
developed, OMB consult with the Treasury to consider how to present tax
expenditure performance information in the budget. OMB is scheduled to
begin action on the above recommendations according to the time frames
established in GPRA. The Department of the Treasury is deferring to OMB on
this recommendation. (GAO/AIMD/GGD-94-122)

See also chapter 4, Improving Justice and General Government Programs,
Tax Policy and Administration Issue Area and Information Resources
Management—Internal Revenue Services Issue Area.

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                                  GAO   Contact: Greg Holloway, 202/512-9510
Civil Audits Issue
Area (Budget
Function 990)
Impact of GAO’s Work              Our civil agency audit work continues to demonstrate the importance of
                                  reliable financial information and effective systems in strengthening
                                  accountability and improving control over the federal government’s
                                  financial resources and program activities. The preparation and audit of
                                  accurate and useful financial statements depends upon the quality,
                                  usefulness, and availability of the financial information on which they are
                                  based and, ultimately, the adequacy of the underlying systems and related
                                  internal controls. Overall, progress is being made. But remaining problems
                                  are difficult, and much remains to be accomplished to successfully
                                  implement the Chief Financial Officers (CFO) Act—especially to improve
                                  the quality of information and systems, which remain in serious disrepair

Chief Financial Officers Act of   The CFO Act establishes a solid foundation for greatly needed,
1990                              comprehensive reform of federal financial management. Since its
                                  enactment in 1990, coupled with the Government Management Reform Act
                                  of 1994, financial statement preparation and audit coverage have
                                  significantly increased. However, most of the 24 CFO Act agencies have not
                                  received unqualified audit opinions on financial statements for their entire
                                  operations. During 1997, audit coverage is expected to increase to about
                                  99 percent of the government’s outlays, as executive branch agencies work
                                  toward producing the agencywide financial statements now required by
                                  law and subjecting these statements to audit.

                                  Our experience has shown that preparation and audit of annual financial
                                  statements incrementally improves the reliability of financial information.
                                  Also such recurring audits are providing a more complete view of
                                  agencies’ financial conditions, highlights control weaknesses and high-risk
                                  areas that need to be resolved, and identifies actual and potential savings.
                                  We will continue to work with OMB and with agency CFOs and IGs to
                                  develop a strategy and plan for preparing and auditing agencywide
                                  financial statements, beginning with fiscal year 1996, and the first-ever
                                  consolidated executive branch financial statements, beginning with fiscal
                                  year 1997.

Other Financial Management        Our audits at civil agencies over the past several years continue to result in
Improvements                      significant financial management improvements. We assessed the

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                           effectiveness of agency efforts to implement CFO Act requirements.
                           Through this effort, we were able to work collaboratively with agency
                           management in identifying problems and potential solutions as agencies
                           position themselves to meet the audit requirements of the CFO Act over the
                           next several years. We also have stressed the need for those agencies to
                           make sound investments immediately to upgrade the qualifications of
                           financial management staff, fix rudimentary bookkeeping problems, and
                           make existing financial systems work better.

                           Agencies have long had problems in managing credit programs and
                           collecting tax and nontax debt, and these problems have been highlighted
                           in our reports and testimonies over many years. In April 1996, the Debt
                           Collection Improvement Act of 1996 was passed, which should help make
                           substantive improvements in these areas. The Act’s provisions include
                           (1) expanding and enhancing debt collection tools available to agencies,
                           (2) strengthening agencies’ authority to offset delinquent debts from
                           federal payments, (3) strengthening coordination among agencies through
                           increased centralization of collection activities, and (4) denying loans and
                           loan guarantees to those delinquent on federal debts. CBO estimated that
                           2-year savings were $364 million.

                           In our report on IRS’ 1995 financial statements, we noted that it had made
                           some progress in responding to the problems identified in our previous
                           audits. For example, IRS has implemented a new administrative accounting
                           system to account for its day-to-day operations. IRS also successfully
                           transferred its payroll processing to USDA’s National Finance Center and,
                           as a result, properly accounted for and reported on its $5.3 billion of
                           payroll expenses for fiscal year 1995.

High-Risk and Management   In our February 1995 High-Risk Series, we provided an update on a
Control Issues             number of critical government operations that we consider to be highly
                           vulnerable to waste, fraud, abuse, and mismanagement. During the past
                           year, our focus has been on six broad categories which collectively affect
                           almost all of the government’s $1.25 trillion in revenue collection efforts
                           and hundreds of billions of dollars in federal expenditures. These efforts
                           have stimulated congressional oversight touching on all of these matters
                           during 1996.

                           Our management control focus is an integral part of our overall monitoring
                           of agency efforts to achieve the objectives of the CFO Act. OMB’s revision to
                           Circular A-123 provides a good foundation for assessing management
                           controls across government, and we will monitor executive branch efforts

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                  to integrate its reporting on management controls with other management
                  reporting. (GAO/HR-95-20SET)

Key Open
Agency-Specific   We continue to make many agency-specific recommendations to correct
Recommendations   problems involving fundamental accounting procedures, including serious
                  internal control and accounting system weaknesses. The following
                  recommendations deserve priority attention. Major improvements
                  continue to be needed to restore integrity to the federal government’s
                  financial management operations. Key elements of successful federal
                  financial management reform are high-quality leadership; an effective CFO
                  organizational structure; effective long-range planning; and preparation of
                  meaningful and auditable component level, agencywide, and
                  governmentwide financial statements. Though agencies have made some
                  progress in these areas, substantive and lasting improvement will depend
                  on prompt action needed to implement our recommendations and to meet
                  the requirements of the CFO Act. To meet the CFO Act’s ultimate goals of
                  providing reliable, useful financial information, CFOs must overcome
                  serious financial management, reporting, and system weaknesses and the
                  Inspectors General (IG) must better position themselves to perform
                  required financial audits.

                  At the same time, agencies must concentrate on developing performance
                  measures and cost accounting systems, which are almost universally
                  lacking in the federal government today, and emphasize integrating
                  budget, accounting, and management data.

                  Based on our 1993 and 1992 audits of the U.S. Customs Service’s financial
                  statements, we identified several weaknesses that limited Customs’ ability
                  to report reliable financial information and effectively carry out its mission
                  and made a number of recommendations. In reporting on its audit of
                  Customs’ 1995 financial statements, Treasury’s OIG noted that Customs had
                  made substantial progress on several of our recommendations. For
                  example, Customs improved procedures for identifying and recording
                  liabilities at year-end. However, several key recommendations had not
                  been adequately addressed including the need for actions to
                  (1) reasonably ensure overall compliance with trade laws and ensure that
                  duties, taxes, and fees on imports would be properly assessed and
                  collected and refunds of such amounts would be valid, (2) control,

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manage, and report the results of its enforcement efforts, including
maintaining accountability and stewardship over cash and property seized
or used in enforcement efforts, (3) adequately control the use and
reporting of its operating funds, and (4) effectively prevent or detect
unauthorized access and modifications to sensitive data and computer
programs. (GAO/AIMD-94-119)

Although IRS improved its administrative accounting, it had made much
less progress in improving accounting for federal revenues. It had
completed action on only 3 of 14 recommendations we made in previous
reports concerning revenue collections. However, efforts are underway to
address the remaining areas. With our assistance, IRS is developing a
detailed plan of interim strategies with explicit, measurable goals, and a
timetable for action, to solve these problems in the near future. For some
areas, IRS will need to make more sweeping changes to fully address
systems problems. In these cases, longer-term solutions will be required,
involving the reprogramming of software for IRS’ antiquated systems and
developing new systems. (GAO/AIMD-96-101, GAO/T-AIMD-96-170)

Our work at the Department of the Interior’s Bureau of Indian Affairs
showed continuing trust fund management problems, and the need for the
Secretary to (1) report to the Senate Committee on Indian Affairs and the
House Committee on Resources on the tribes that accept or dispute their
reconciled account balances, and the Secretary’s plan for resolving
disputes, (2) implement trust fund management subsidiary systems,
(3) continue to hire qualified trust fund financial management staff,
(4) acquire investment advisory services, and (5) develop a comprehensive
strategic plan for Indian trust business management. (GAO/T-AIMD-95-94)

Financial audits continue to identify significant issues related to
determining the Federal Family Education Loan Program’s costs,
effectively monitoring payments to guaranty agencies and lenders, and
ensuring accurate financial reporting. These weaknesses undermine
Education’s ability to effectively and efficiently achieve the program’s
mission of providing loan access to all eligible students at a reasonable
cost to taxpayers. Education has made some progress in addressing these
issues; however, it needs to continue to improve controls to ensure that
weaknesses are corrected. Education should also continue to work with
guaranty agencies and lenders to improve the accuracy and reliability of
reported loan data. In addition, improvements over Education’s financial
management process continue to be needed to ensure that financial
statements and other management reports are reliable. (GAO/AIMD-94-131)

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                        GAO   Contact: Robert W. Gramling, (202) 512-9406
Corporate Audits and
Standards Issue Area
(Budget Function 990)
Impact of GAO’s Work    The issue area includes a broad segment of largely independent
                        government agencies referred to as government corporations, federally
                        sponsored pension plans, and mandated assistance related to legislative
                        entities. The issue area also includes accounting and auditing standard
                        setting in both the public and private sectors.

Financial Management    Government corporations conduct a variety of missions that are an
                        integral part of the nation’s economy, such as deposit insurance; buying
                        and selling mortgages, loans, and other forms of credit for housing and
                        other national purposes; transportation; and utilities. Regarding the
                        nation’s financial industries, trillions of dollars of support are provided in
                        the form of guarantees and insurance.

                        We have focused our efforts on the government corporations with
                        significant exposure presented by the government’s deposit insurance
                        guarantee. For the past several years, financial institutions have been
                        reporting record profits. This financial performance contributed to the
                        health of the various insurance funds administered by the FDIC as relatively
                        few institution failures occurred over the past several years. However, the
                        health of the Savings Association Insurance Fund (SAIF) remained a
                        concern as it continued to be undercapitalized and the thrift industry was
                        competitively disadvantaged due to an insurance premium disparity
                        between banks and thrifts. Our reports and testimonies provided the
                        Congress with various policy options to build up SAIF’s reserves, remove
                        the threat of a default on bonds issued to help finance the cost of the
                        savings and loan crisis, and remove the insurance premium disparity. In
                        1996, the Congress enacted legislation framed around the guidance we
                        provided that removed the threat of taxpayers having to pay for these
                        billions of dollars in costs facing the deposit insurance program.

                        We have independently assessed the reliability of the financial statements
                        of FDIC’s three funds—the Bank Insurance Fund (BIF), SAIF, and the Federal
                        Savings and Loan Insurance Corporation Resolution Fund (FRF)—and the
                        financial statements of the Resolution Trust Corporation (RTC). We have
                        also audited the Panama Canal Commission’s financial statements to assist
                        the Congress in monitoring the Commission’s financial progress in being
                        able to meet its obligations by the year 2000 when the Canal is turned over

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to the Panamian government. For fiscal year 1995, we issued unqualified
opinions on each of the corporation’s financial statements.

We have also continued to assess the corporations’ control structures and
worked closely with them to improve their internal control systems and
operations. The corporations we audited continued to address internal
control weaknesses we identified, and none had material weaknesses.
However, weaknesses in important areas of operations, such as electronic
data processing operations, and disposition and estimated recovery value
of assets acquired from failed institutions, still remain.

RTC terminated on December 31, 1995, and transferred its remaining assets
and obligations to FDIC as a component of FRF. In our final report on RTC’s
financial statements, we included an analysis of the total cost of the
savings and loan crisis. Our analysis showed the hundreds of billions of
dollars of taxpayer cost to resolve the crisis. Internal control weaknesses
contributed significantly to the failure of the many savings and loans that
are included in the total cost.

The regulators have taken a number of actions to correct the weaknesses
we identified in their examination policies, procedures, and practices for
banks and thrifts. Specific areas addressed included loan sampling
methodologies, internal control review procedures, working paper
documentation, and supervisory review requirements. Certain of the
regulators are still completing their new policies and procedures.

Federally sponsored pension plans cover more than 10 million participants
and range in size from the Civil Service Retirement and Disability Fund
with 5.2 million participants to smaller plans, such as the Tax Court with
fewer than 25 participants. As supported by GAO, the Congress enacted
legislation to fully fund the larger plans, but these plans remain significant
government liabilities and a key component of federal employee benefit
oversight by the Congress. In 1996, we compiled a list of the many plans
and analyzed their financial condition to assist the Congress in its
continuing oversight of the federally sponsored pension plans. Also, we
are currently reviewing the adequacy of the accounting and actuarial
reporting requirements for the plans.

As we had previously recommended, we assisted the Library of Congress
in obtaining an audit of its fiscal year 1995 financial statements. Although
the Library made considerable progress in addressing the weaknesses we
reported in our last audit, it was not able to obtain a “clean opinion” on its

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                                 financial statements and has a number of internal control weaknesses,
                                 including material weaknesses and the lack of a comprehensive security
                                 plan for its collections.

                                 To assist the Congress in its oversight of federal financial management, we
                                 worked closely this past year with the House Committee on Government
                                 Reform and Oversight to compile a comprehensive list of laws related to
                                 federal financial management. Finally, we worked with a number of
                                 executive agencies to assist them in making their operations more efficient
                                 while also maintaining effective but more efficient internal controls.

Accounting and Auditing          Accounting and auditing standards provide the foundation for consistent
Standards                        and reliable financial reporting. As a member of the Financial Accounting
                                 Standards Advisory Board (FASAB), we have provided leadership in
                                 developing the fundamental accounting standards to facilitate consistent
                                 and reliable agency financial reporting as envisioned by the CFO Act. We
                                 also reinstituted the Government Auditing Standards Advisory Committee
                                 to address issues concerning government auditing standards.

                                 With respect to the private sector, our report on the accounting profession
                                 provided a comprehensive analysis of the major issues facing the
                                 accounting profession. These issues included auditor independence
                                 concerns, auditor responsibilities for detecting fraud and determining the
                                 effectiveness of internal controls, the auditors’ role in providing additional
                                 audit-related services, and a financial reporting model that needs to be
                                 expanded to better meet users’ comprehensive needs. Our report noted
                                 that the SEC will need to assume a leadership role in working with the
                                 accounting profession to resolve these major issues that affect public
                                 confidence in the fairness of financial reporting which is critical to the
                                 effective functioning of the nation’s securities markets.

Key Open
Corporations’ Internal Control   In our 1995 financial audits of RTC and FDIC’s three funds, we found that the
Systems                          corporations continued to make progress in addressing internal control
                                 weaknesses identified during our previous financial audits. However,
                                 while much progress has been made, FDIC continues to face internal
                                 control weaknesses relating to asset valuations, expense allocations, and
                                 information systems, as well as internal control weaknesses relating to the
                                 information systems of the now terminated RTC. FDIC is currently working

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                                to address these internal control issues. We are in agreement with the
                                Corporation’s planned corrective actions and we will continue to monitor
                                its progress. (GAO/AIMD-94-135, GAO/AIMD-95-102, GAO/AIMD-96-89, GAO/AIMD-95-157,

Bank and Thrift Examinations    Our 1993 reports on bank and thrift examinations performed by the Office
                                of the Controller of the Currency and the Federal Reserve Board still
                                contain open recommendations concerning sampling methodologies and
                                internal control reviews. These two regulatory agencies are in the process
                                of addressing our recommendations. We will continue to monitor the
                                agencies’ progress to assess the effectiveness of changes in the
                                examination process. (GAO/AFMD-93-13, GAO/AFMD-93-14)

                                See also chapter 4, Improving Justice and General Government Programs,
                                Financial Institutions and Markets Issue Area.

Library of Congress’ Internal   The audit of the Library’s fiscal year 1995 financial statements, conducted
Controls and Collections        by a CPA firm under our direction, found that the Library’s balance sheet
Security                        was auditable and that the Library had made progress in improving
                                financial management since our audit of the Library’s 1988 financial
                                statements. As we reported in our testimony, the Library implemented a
                                new financial accounting system, established additional accounting
                                policies and procedures, and corrected previous noncompliance with
                                certain laws and regulations. Notwithstanding this progress, the audit
                                identified a number of significant internal control and systems weaknesses
                                that must be corrected to ensure the safeguarding of assets and reliable
                                financial reporting. Further, the library needs to improve security to
                                safeguard its collections. The library also needs to conduct a complete risk
                                assessment and develop a comprehensive security plan. The Library has
                                developed plans to address these weaknesses. (GAO/T-GGD/AIMD-96-115)

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                        GAO   Contact: Lisa G. Jacobson 202/512-9542
Defense Financial
Audit Issue Area        The serious and longstanding nature of DOD’s financial management
(Budget Function 990)   problems led us to make it an area of focus under GAO’s high-risk program.
                        Devising effective solutions to these problems is not only one of the most
                        difficult management challenges facing the federal government today, but
                        it is also critical to DOD’s ability to meet the objectives of the CFO Act for
                        strengthening federal financial management.

                        DOD’s  extensive financial management problems present difficult
                        challenges (1) to the department in meeting the requirement for audited
                        department-level financial statements as required by the CFO Act beginning
                        in fiscal year 1996, and (2) to the federal government in meeting its
                        mandate for audited consolidated financial statements beginning in fiscal
                        year 1997.

                        Our approach continues to focus on two fronts: (1) working with the DOD
                        IG and the military services’ audit organizations and (2) identifying the
                        interim corrective actions necessary to significantly improve DOD’s
                        financial management reporting and operations. Specifically, our strategy
                        has included (1) conducting the initial audits of the three military services’
                        financial reports and statements, (2) working with the DOD audit
                        community to develop its ability to perform financial statement audits
                        mandated by the CFO Act, and (3) demonstrating the need for financial
                        reform within DOD.

                        Overall, this strategy will enable us to (1) support the work necessary to
                        identify root causes and solutions to DOD’s financial management
                        problems, eventually putting us in a position to render an unqualified
                        opinion on the governmentwide statements, (2) respond to interests of a
                        number of key committees, including both the House and Senate
                        Appropriations and oversight committees.

                        This issue area also encompasses our work at the State Department, the
                        Agency for International Development (AID), and the National Aeronautics
                        and Space Administration (NASA) to assess these agencies’ progress toward
                        meeting the CFO Act requirements.

Impact of GAO’s Work    With the completion of our audit of the Navy’s financial operations, we
                        have performed financial audits of each of the three military services. In
                        each case, however, because financial records and systems were deficient

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    and basic internal controls were lacking, we could not express an opinion
    on any of the military services’ financial statements.

    Our financial audits identified fundamental weaknesses in basic processes
    and internal controls, and has also illustrated to the Congress, DOD, and the
    public that managers need better financial information for effective
    oversight and accountability over DOD’s multi-billion investments in
    weapons systems, equipment, and supplies; and tens of billions of dollars
    in funds expended and liabilities incurred.

    Perhaps most importantly, our audit work conducted pursuant to the CFO
    Act has been instrumental in gaining DOD officials’ acknowledgement—for
    the first time—of the extent and severity of the department’s financial
    management problems and the obstacles to establishing effective
    departmentwide financial management. The Secretary of Defense has
    publicly acknowledged that financial management complacency has
    permitted pervasive weaknesses to persist in DOD financial management
    operations that “waste money that is needed more than ever to sustain
    sufficient combat power.” Such forthright admissions of serious
    weaknesses places DOD, for the first time, in a position to comprehensively
    and realistically address and resolve these weaknesses.

    In addition, our audits have demonstrated that significant improvements in
    the department’s financial operations can be achieved even within DOD’s
    present deficient systems. For example,

•   As a result of our audit work, DOD took action to better ensure proper
    matching of obligations with related disbursement documents for all
    proposed payments of $5 million dollars or more before funds are

•   As of September 1996, DOD had collected over $7 million of an estimated
    $7.8 million in unauthorized payroll payments to “ghost” soldiers and Army
    deserters identified by our financial audit at the Army.

•   On both the Navy and Army financial audits, we identified significant
    errors in inventory records at selected installations. Based on our
    recommendations, these installations took actions to improve their
    inventory accuracy.

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                    •   Defense adopted a statistical sampling procedure for counting inventory
                        that satisfies both logistical and financial needs based on our physical
                        inventories completed as part of financial statement audits.

                        Our continuing work with the DOD audit community to develop its ability
                        to perform financial statement audits mandated by the CFO Act has also
                        been very successful. We assisted the Air Force Audit Agency and the
                        Army Audit Agency in their audits of their financial statements for fiscal
                        years 1992 and 1993, respectively. Since then, both of these audit agencies
                        have completed audits of their agencies’ financial statements for fiscal
                        years 1993 through 1995.

                        Our limited assessment of the State Department, AID, and NASA’s CFO
                        organizations and inspector general audits have shown that weaknesses in
                        accounting systems and poor accounting for property continue to preclude
                        State and AID from preparing auditable financial statements and fully
                        achieving the objectives of the CFO Act. In contrast, NASA has made
                        financial management improvements and received unqualified opinions on
                        its financial statements.

Key Open                DOD  will need to intensify its efforts in order to correct its long-standing,
Recommendations         serious financial management problems. These problems continue to
                        greatly impede DOD’s ability to obtain reliable financial information needed
                        to support its decisionmaking, as well as its ability to prepare auditable
                        financial statements. A consistent theme of our financial audit reporting
                        has been that it is important for DOD to pursue short-term and intermediate
                        improvements, as well as long-term system enhancements. The following
                        are among our most important recommendations that have yet to be fully

DOD-Wide Programs       In November 1995, we testified that given the serious and pervasive nature
                        of DOD’s financial management problems, and the need for more immediate
                        progress, the department needs to consider additional steps to fix its
                        longstanding weaknesses. Specifically, we reported that to turn the
                        Secretary’s “Blueprint” for reforming DOD’s financial management into
                        substantive improvements, DOD needs to take immediate action to
                        (1) assess the number and skill levels of its financial management
                        workforce, and (2) establish an outside board of experts to provide
                        counsel, oversight, and perspective to its reform efforts. (GAO/T-AIMD-96-1)

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Army Programs   In June 1993, we reported that we could not express an opinion on the
                Army’s fiscal year 1992 financial statements, in part because corrective
                actions had not been completed on previous recommendations and the
                weaknesses we had previously reported still existed. Specifically, our
                August 1992 report on the Army’s fiscal year 1991 financial management
                operations and financial reporting contained recommendations for
                improving overall financial management by (1) enhancing internal controls
                and accountability over assets and resources, (2) developing reliable
                financial performance measures, and (3) improving integration of logistics
                and financial systems. (GAO/AFMD-92-82)

                In December 1993, we reported that the Army’s budget execution system
                had fundamental weaknesses that limit the Army’s ability to ensure its
                compliance with the Anti-deficiency Act. The report also pointed out that
                inaccurate reporting could cause the Army to underestimate its future
                required outlays. In addition, we reported that the lack of sustained DOD
                leadership has impaired Army’s ability to strengthen financial
                accountability. (GAO/AIMD-94-12)

                We recommended that the DOD Chief Financial Officer (1) evaluate and
                resolve budget execution and disbursement problems, (2) implement
                existing security access policies and automated data processing
                contingency plans, and (3) develop and implement a comprehensive plan,
                with specific milestones, for identifying and monitoring improvements in
                DOD and Army financial management, including personnel qualifications,
                organizational structures, and systems used to carry out Army financial
                management. (GAO/AIMD-94-12)

Navy Programs   In March 1996, we issued a report to complete our initial reviews of each
                of the military services’ financial management operations. In that report,
                we expressed our concern that the Navy had not taken advantage of the 5
                years since the passage of the CFO Act or the experiences of its
                counterparts in the Army and the Air Force to address the pervasive and
                long-standing financial management problems that hamper the Navy’s
                financial operations. We concluded that the Navy and Defense Finance
                and Accounting Service (DFAS) must now play “catch up” by giving the area
                a higher priority and sense of urgency if it is to meet the objectives of the
                CFO Act. We recommended that the DOD Comptroller and the Navy’s
                Assistant Secretary for Financial Management take a number of actions to
                improve the credibility of the Navy’s financial reports. Our
                recommendations focused on placing high priority on implementing basic
                required financial controls over Navy accounts and reports, and

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developing a plan for producing reliable financial statements that will
address (1) staffing issues, (2) short-term measures to improve data
quality in existing financial systems, (3) strategies for promptly meeting
U.S. general ledger requirements, and (4) offices or positions that will be
held accountable for identified actions. (GAO/AIMD-96-7)

In July 1996, we reported that the Navy’s Plant Property accounting and
reporting was unreliable. Specifically, we reported that there was no
assurance that all plant property was reported and we identified over
$24 billion of real property that was reported twice. We recommended
several actions directed at updating requirements, monitoring compliance,
and ensuring that appropriate training is provided to correct the observed
deficiencies. (GAO/AIMD-96-65)

In August 1996, we reported that the Navy did not have adequate visibility
over $5.7 billion in operating materials and supplies. This lack of visibility
increased the risk that millions of dollars could be spent unnecessarily to
purchase items that could be obtained from excess stock at operating
unit-level locations. For example, we determined that, for the first half of
fiscal year 1995, the Navy will incur unnecessary expenses of
approximately $27 million. We recommended that the Navy take a number
of actions directed at eliminating operating material and supply
redistribution centers and ensuring that asset visibility efforts facilitate
complete, reliable financial reporting of Navy operating materials and
supplies. (GAO/AIMD-96-94)

In September 1996, we reported that our reviews of general controls at
locations processing Navy and Marine Corps data revealed serious
weaknesses that would allow both computer hackers and hundreds of
thousands of legitimate users with valid access privileges to improperly
modify, steal, inappropriately disclose, and destroy sensitive DOD data. We
found deficiencies across the board, undermining DOD’s ability to protect
sensitive personnel, payroll, disbursement, and inventory information
maintained in DOD computer systems. To resolve these deficiencies, we
recommended that the department’s chief information officer take a
leadership role in implementing a series of actions directed at establishing,
implementing, and monitoring a comprehensive DOD-wide computer
security management program. (GAO/AIMD-96-144)

In September 1996, we issued a report concerning improvements needed
in the Standard Accounting and Reporting System (STARS) selected to serve
as Navy’s system for general fund accounting. We found that the planned

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STARS implementation is expected to produce some net cost savings.
However, its implementation plans were hampered by the lack of a target
systems architecture—or blueprint—that would define the systems’
expected functions, features, and attributes, including interfaces and data
flows. To increase the likelihood that the STARS enhancement project will
result in an efficient, effective, and integrated Navy general fund
accounting system, we recommended that DOD and the Navy expeditiously
develop a target STARS architecture and that action plans reflect specific
steps needed to achieve this architecture, identifying responsible parties,
and establishing realistic milestones. (GAO/AIMD-96-99)

See also chapter 1, National Security and International Affairs Programs.

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                        GAO   Contact: David L. Clark, 202/512-9489
Audit Oversight and
Liaison Issue Area
(Budget Function 990)
Impact of GAO’s Work    This issue area focuses on three objectives: (1) making the
                        intergovernmental auditing process more useful, (2) strengthening the
                        inspector general concept, and (3) improving the financial accountability
                        of several federal activities.

                        The issue area provides guidance and support to the National
                        Intergovernmental Audit Forum and 10 regional intergovernmental audit
                        forums. The forums include federal, state, and local government auditors
                        as well as members of the public accounting profession. The forums have
                        provided the foundation for the development and recognition of
                        professional auditing standards for audits of governmental entities and the
                        means to ensure that those audits help to ensure accountability over
                        public funds. In that regard, the forums were an excellent resource in the
                        development of recommendations we have made to make the single audit
                        process more useful and in passage of the Single Audit Act Amendments of

                        Federal IGs have devoted considerable effort since passage of the IG Act in
                        1978 to establish controls to ensure compliance with professional
                        standards and to measure dollar savings and other accomplishments from
                        their work. NPR others, however, have begun to seriously examine the role
                        IGs should play and to demand that IGs develop more meaningful
                        performance measures for how IGs help improve the way government
                        operates. In response to our recommendations, IGs have recently begun
                        establishing their own strategic plans and have proposed new
                        performance measures.

                        We perform financial audits of several federal activities, including
                        independent counsels, commemorative coin recipients, the White House
                        Travel Office, and certain legislative branch entities. These audits are
                        typically mandated by law and have resulted in numerous
                        recommendations and suggestions for improvements in financial
                        management. For example, based on our work, independent counsels have
                        corrected serious internal control weaknesses as well as noncompliance
                        with laws and regulations we found in our first audit in 1992.

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Key Open          The single audit is an important means by which the Congress, federal
Recommendations   oversight officials, and program managers obtain information on whether
                  the recipients of federal assistance properly account for the federal funds
                  they receive, maintain adequate internal controls over those funds, and
                  comply with program requirements. The 12 years of experience since
                  passage of the Single Audit Act in 1984 have shown that refinements can
                  be made to strengthen the usefulness of single audits while at the same
                  time the burden on state and local governments and nonprofit
                  organizations can be reduced. The Single Audit Amendments of 1996 and
                  action by OMB earlier this year brought about a number of the refinements
                  in the single audit process that we recommended. OMB and others are
                  continuing to work on the additional refinements we recommended.

                  IGshave implemented our recommendations to develop strategic plans
                  that assess their respective agencies’ risks, describe the strategies for
                  reducing those risks, detail the resources required and available to
                  implement the strategies, and provide measures to evaluate their progress.
                  Not all IGs, however, have implemented our recommendation to include
                  their strategic plans in required semiannual reports to the Congress.
                  Including strategic plans in semiannual reports would help to ensure that
                  the Congress, OMB, agency heads, and others are informed of IGs’ activities
                  and effectiveness. (GAO/AIMD-94-39)

                  Audits of employee benefit plans are a key safeguard for protecting much
                  of the assets held by plans. As of 1988, the last year for which we have
                  data, an estimated 5.2 million plans covered by the Employee Retirement
                  Income Security Act of 1974 had assets of about $1.75 trillion. The Act
                  currently allows plan administrators to exclude from the scope of the
                  audit investments held by certain regulated institutions, such as banks and
                  insurance companies. The Congress has not enacted legislation we
                  recommended to eliminate this limited scope provision. (GAO/AFMD-92-14)

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                       GAO   Contact: Jack Brock, 202/512-6204
Information                            Joel Willemssen, 202/512-6253
Management Issue
Areas (Budget
Function 990)
Impact of GAO’s Work   As agencies increasingly turn to technology and the information
                       superhighway to carry out and streamline operations, it has become
                       critical that they effectively manage their information resources. Our work
                       covering many of the larger federal agencies revealed that they are not
                       doing enough to ensure that the billions of dollars the federal government
                       spends annually on new technology acquisition and development will
                       provide positive returns on investment and support agency goals and
                       missions. As a result, agencies risk missing out on the dramatic
                       improvements to operations that new technology can help achieve. In this
                       light, GAO has been working with congressional committees and civil and
                       defense agencies to improve controls over the management processes
                       associated with high risk information technology investments.

                       Our work over the past year also revealed that more attention needs to be
                       focused on protecting government information systems. While the Internet
                       and other new technologies offer tremendous opportunities for
                       streamlining operations and improving efficiency, they also greatly
                       increase the risk of unauthorized access to very valuable and sensitive
                       information, and disruption of critical operations.

                       Over the last few years, our reports and testimony have emphasized the
                       importance of improving mission performance by adopting strategic
                       information management “best practices” gleaned from leading public and
                       private organizations. In 1996, we worked closely with the Subcommittee
                       on Oversight of Government Management and the District of Columbia,
                       Senate Committee on Governmental Affairs, to develop the legislative
                       provisions of the Clinger-Cohen Act of 1996. At our recommendation,
                       many of the “best practices” principles, which include appointing a chief
                       information officer and establishing a capital planning and investment
                       process, were incorporated into the law. Further, Executive Order 13011
                       on Federal Information Technology adopted these practices and provides
                       additional guidance to agencies on implementation.

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Department of Defense   In the spring and fall of 1995, we testified on DOD’s plans to streamline,
                        improve, and reconcile financial systems. Specifically, DOD needed to
                        develop accurate, auditable financial statements; eliminate problem
                        disbursements; develop credible cost information systems; develop
                        effective financial management systems; and build an effective and
                        accountable management structure. The congressional authorizing and
                        appropriating committees for DOD have frequently cited our work on
                        financial management in their reports—most recently, the report
                        accompanying the DOD fiscal year 1997 appropriations—and used it as a
                        catalyst for improving DOD’s financial management environment.

                        Using our prior work on DOD’s Business Operating Fund as a basis, the
                        congressional Defense committees have been critical of the fund’s cash
                        management practices, which are symptomatic of long-standing DOD
                        financial management weaknesses. In April 1996 we reported that (1) the
                        fund’s managers did not have accurate, complete, or timely data on cash
                        balances, (2) DOD continued to rely on advance billing customers to
                        generate sufficient cash for the fund’s day-to-day operations, (3) the fund
                        had about $1 billion in outstanding accounts receivable that were over 120
                        days old and DOD was unable to collect over $200 million for work
                        performed because the billing documents did not identify the specific
                        activities, and (4) monthly reports did not fully disclose $5.4 billion in
                        adjustments that were made to accounts receivable and payable balances.
                        We also reported that if current practices persisted, they could lead to
                        DOD’s requiring excessive amounts of cash to maintain ongoing operations.
                        Acting upon the results of our work, the Congress reduced DOD’s fiscal
                        year 1996 budget request by $140 million.

                        In early 1995 we reported and testified that DOD processing of temporary
                        duty travel is a wasteful and burdensome operation. We indicated that, by
                        reengineering and applying industry best practices to its travel processing,
                        DOD could potentially save hundreds of millions of dollars. DOD has
                        recognized this and has a travel process reengineering initiative underway.
                        In line with our report recommendations, DOD has provided sustained
                        commitment to the initiative, supporting its reengineering team with the
                        resources and authority necessary to carry out its mandate. In anticipation
                        of savings related to travel reengineering efforts, the Congress reduced
                        DOD’s request for operations and maintenance funds for fiscal year 1996 by
                        $128.5 million.

                        DOD’s unclassified computers and networks are being attacked via the
                        Internet by unknown and unauthorized individuals. We reviewed and

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reported on the frequency of and damage caused by these attacks, as well
as DOD’s actions to secure its information systems. DOD itself has reported
that it may have experienced as many as 250,000 attacks last year, the
majority of which were successful. We found that these attacks often
caused considerable damage—information and software have been stolen,
modified, and destroyed—and the potential for greater harm is very high.
In short, these attacks pose a serious threat to military operations and
national security. We reported that DOD’s security practices are not
uniform and must be greatly improved, particularly in the areas of
information security policy, training, and incident-response capability. DOD
concurred with our findings and recommendations and indicated that
corrective actions would be taken. In response to our work, the Congress
has also recognized the need to review the protection of sensitive
government information at other federal agencies.

Our reviews of Defense and governmentwide telecommunications issues
were highly influential in improving two major programs. Our work on
FTS 2000 costs resulted in an immediate cost reductions to the
government when Sprint agreed to reduce its FTS 2000 prices by
$86 million over 2 years. Further, by working closely with congressional
staff in assessing GSA’s Post-FTS 2000 acquisition strategy, we helped
persuade GSA to adopt a more flexible, shorter term approach that will
enable the government to take advantage of telecommunications reform
and procure more services at lower cost. In addition, we produced the first
governmentwide analysis of what federal agencies spend on long-distance,
local, and other telecommunications services. That study demonstrated
that agencies need to do a much better job in managing and accounting for
telecommunications costs.

The success or failure of today’s major weapons acquisition programs
often depends on the effectiveness with which DOD manages the
development, acquisition, and support of computers and software
embedded in these systems. Despite efforts to improve software
management, DOD still needs to focus more attention on this important,
$20+ billion annual investment area. In one program—the B-1B bomber—
the computer and software upgrade approach being pursued would not
have enabled the B-1B to meet its requirements, would have increased
computer maintenance costs, and would have necessitated another costly
upgrade in the future. As a result, the $412 million estimated cost of this
upgrade would have been wasted. We recommended another computer
upgrade approach that would meet all requirements, allow growth for
future requirements without another upgrade, and save about $800 million

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                                 in software maintenance. DOD concurred with our recommendations and
                                 took corrective action.

                                 Our series of reviews of DOD’s actions to improve its logistics information
                                 systems have revealed critical flaws in DOD’s migration system
                                 strategy—principally in failing to conduct analyses needed to assess
                                 whether investments are cost-beneficial and in not trying development
                                 efforts to other major DOD initiatives. As a result, DOD has invested billions
                                 of dollars in systems that may not be any better than the hundreds of
                                 “legacy” systems already in place, and it could waste millions of dollars
                                 resolving problems that result from the lack of developing and
                                 implementing a clear and cohesive investment strategy. Our past work on
                                 DOD’s Depot Maintenance Standard System resulted in adjustments to the
                                 DOD’s migration systems strategy to take advantage of commercial
                                 off-the-shelf technology and cut implementation time frames for this
                                 important readiness-related program.

                                 Our work with the Defense congressional committees and DOD leadership
                                 has led DOD to establish several management initiatives to improve
                                 controls over and reduce the risks of its information technology
                                 investments. As a result, DOD has initiated efforts to improve (1) the
                                 strategic planning process; (2) integration of its planning, programming,
                                 and budgeting process with its acquisition and oversight process; (3) the
                                 use of performance measures as a management control; and (4) a
                                 management framework to represent more closely a Department-wide
                                 enterprise approach (a true Defense information infrastructure) rather
                                 than the historic “stovepiped” information technology management
                                 framework that followed military service organizational structures.

National Aeronautics and Space   Our work at NASA helped spur the agency to seek greater efficiencies and
Administration                   effectiveness in the way it manages its information resources. In response
                                 to our recommendation regarding consolidation of its wide area networks,
                                 NASA commissioned an independent committee to develop
                                 recommendations for a more cost-effective approach to consolidation.
                                 NASA will begin implementing the committee’s recommendations in fiscal
                                 year 1997. Our assessment of NASA’s chief information officer (CIO)—the
                                 first such GAO assessment of an agency CIO—included recommendations
                                 for strengthening the information officer’s ability to achieve greater
                                 economies and efficiencies in information management. NASA officials have
                                 indicated they will implement most of our recommendations.

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Department of Commerce,     Our continuing effort to assess the Department of Commerce’s National
National Weather Service    Weather Service’s $4.5 billion modernization program raised the
                            awareness of the Congress about the potential for requirements creep and
                            the need to contain costs. Specifically, our testimony and report on the
                            Advanced Weather Interactive Processing System highlighted the potential
                            for the system to include capabilities not directly tied to improving the
                            National Weather Service’s mission effectiveness. Based in part on our
                            concerns about cost growth, the Congress capped the total amount that
                            could be spent on the system at $525 million. Additional reports led to
                            $12 million in cost reductions in the procurement of NEXRAD radars and
                            improvements in the National Weather Service’s software development

Department of Agriculture   Our work on the InfoShare program helped convince the Congress to halt
                            and redirect the $2.6 billion effort to modernize and reinvent USDA’s farm
                            service and rural development agencies. This review found that agency
                            managers were not taking necessary steps to redesign business processes
                            and that, instead, the program was being used as a vehicle to buy
                            information technology and further automate its current way of doing
                            business. This work also resulted in the Department’s linking its business
                            processing reengineering to its reorganization initiative. Other work at the
                            Department this year yielded an additional $147 million in measurable
                            benefits by working closely with committees to limit the use of
                            Commodity Credit Corporation funding for automatic data processing
                            (ADP) equipment.

                            We also reported that USDA was wasting millions of dollars each year by
                            not cost-effectively managing its annual $100 million telecommunications
                            investment. For example, the Department had wasted millions of dollars
                            by not acting on all opportunities to consolidate and optimize
                            telecommunications services. We also reported that the Department was
                            losing millions of dollars each year paying for (1) unnecessary
                            telecommunications services, (2) leased equipment that was not used and
                            service billed but never provided, (3) commercial carrier services that cost
                            more than three times what they would under the FTS 2000 programs, and
                            (4) unauthorized collect calls and other types of telephone fraud and
                            abuse. Our work prompted the Department to reassess and begin
                            reengineering its overall telecommunications management operations, and
                            convinced the Department to report its management of
                            telecommunications as a material internal control weakness under the
                            Federal Managers’ Financial Integrity Act.

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                                  In our review of USDA’s actions to correct its financial management system
                                  problems, we reported that many problems will not be resolved until
                                  financial and mixed systems are brought into compliance with the
                                  Department’s new financial standards, and that the Department’s CFO has
                                  neither the authority nor mechanism to enforce compliance. Further, the
                                  Department’s efforts do not address eliminating and/or consolidating
                                  systems that perform similar functions, or reengineering financial
                                  management processes. This work resulted in the Department’s delegating
                                  additional authority to the CFO to oversee all Departmental financial
                                  management system activities, including approving component agency
                                  financial management system design and enhancement projects.

Environmental Protection          Our work on the EPA’s nationwide system for managing hazardous waste
Agency                            convinced the agency to eliminate reporting requirements levied on the
                                  states that dramatically reduced their reporting burden.

Department of Justice,            As a result of our work on the development of the National Fine Center, a
Administrative Office of the Us   centralized system to account for criminal debt, the Department of
Courts                            Justice’s AOUSC plans to terminate this project and return about $13 million
                                  to the Crime Victims Fund. In addition, our work contributed to
                                  improvements in the Department of Justice’s ability to identify the
                                  collectibility of criminal debt and as a result, Justice has determined that
                                  about 68 percent of the outstanding debt is unlikely to be collected.

Department of Health and          Our 1995 report on Medicare health care fraud noted that (1) Medicare
Human Services                    continues to experience large losses each year due to waste, fraud, and
                                  abuse, and (2) payment controls for Medicare Part B can be bypassed, are
                                  weak, and have important technical limitations. We recommended that
                                  HCFA develop a plan to implement commercially available antifraud
                                  technology, particularly where the need to reduce fraud is great, such as in
                                  South Florida. The agency responded by stating that it would provide
                                  funding for additional Medicare contractors to acquire anti-fraud
                                  computer systems within the next several months. As a result, three
                                  additional Medicare carriers, including Florida Blue Cross/Blue Shield
                                  have acquired the same anti-fraud technology described in our report.

                                  In 1991 we reviewed how the Public Health Service’s Agency for Health
                                  Care Policy and Research had explored ways in which automated medical
                                  records could be used. We found that the agency needed to further explore
                                  ways to use automated medical records to provide data for outcomes
                                  research. In response to our recommendation, the Agency for Health Care
                                  Policy and Research has taken several actions to support public and

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                           private use of automated medical record systems to more effectively
                           provide for outcomes research. Specifically, it has completed a series of
                           studies on the availability of automated medical records data and the
                           usability of such data in addressing medical effectiveness research
                           questions. It has joined with the National Library of Medicine to provide
                           grants to address research areas for the development of computerized
                           medical records. It is also sponsoring and encouraging public and private
                           industry meetings that explore ways to increase the use of automated
                           medical record systems.

                           In 1994 we reported on the tools and methodology DOD used to manage the
                           performance of its Composite Health Care System. We reported that to
                           provide the performance management that was warranted in a
                           state-of-the-art system such as its Composite Health Care System, tools
                           must be obtained that could measure response times and resource
                           utilization, determine the causes of problems, project workload and
                           system configuration changes, and reliably measure system reserve
                           capacity. Since our report, DOD has obtained performance measurement
                           and analysis tools for the two operating systems under which the
                           Composite Health Care System runs, and DOD has modified its approach to
                           managing the Health Care System’s performance by (1) updating its
                           performance management plan, (2) enhancing its system sizing algorithms,
                           and (3) developing performance simulation models for the Health Care
                           System’s hardware configuration.

Key Open
Office of Management and   Our review of the Information Technology (IT) decision processes at five
Budget                     case-study agencies found that elements of an investment approach were
                           embedded in some of the agencies’ existing decision-making processes.
                           However, we also found weaknesses that prevented the agencies from
                           having a complete, institutionalized process. As a result, we recommended
                           that OMB guide and assist agencies in establishing and improving their IT
                           investment management process by requiring agencies to (1) implement IT
                           investment processes; (2) periodically analyze their entire portfolio of IT
                           investments; (3) design control and evaluation processes that include cost,
                           schedule, and quantitative performance measures; and (4) set minimum
                           quality standards for data used to assess cost, benefits, and risk decisions.
                           OMB agreed with these recommendations and said it would be

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                        implementing many aspects of them as part of the fiscal year 1998 budget
                        review process of fixed capital assets. (GAO/AIMD-96-64)

                        Over the past 4 years, we have has issued over 30 reports describing
                        serious information security problems at major federal agencies. Our
                        analysis of the most recent of these reports for the 15 largest federal
                        agencies found that 10 agencies had serious information security
                        weaknesses. Such weaknesses put billions of dollars of federal assets at
                        risk of theft, misuse, or loss. In addition, unauthorized disclosure of
                        sensitive data and disruption of critical operations could occur. As a
                        result, we recommended that the director of OMB advocate and promote
                        the Chief Information Officers Council’s adoption of information security
                        as one of its top priorities, and development of a strategic plan for
                        (1) increasing awareness of the importance of information security and
                        (2) improving information security program management
                        governmentwide. OMB agreed with this recommendation and plans to take
                        action to implement it. (GAO/AIMD-96-110)

Department of Defense   Our report on computer attacks at DOD highlighted risks to our national
                        security and the damage that has already been caused. We identified
                        weaknesses in Defense’s information security practices and recommended
                        that the Department develop a strong information systems security
                        program. We specifically recommended that DOD develop departmentwide
                        policies for preventing, detecting, and responding to attacks; better train
                        users, systems managers, and security officials; evaluate the sufficiency of
                        its incident-response capability; and continue developing and using
                        network monitoring and protection technologies. DOD concurred fully with
                        our findings and recommendations and indicated that corrective actions
                        would be taken. (GAO/AIMD-96-84)

                        Prevalidating all disbursements is important to protecting the integrity of
                        DOD’s disbursement process. However, unless the threshold is lowered to
                        include all payments, billions of dollars of disbursement transactions will
                        continue to bypass this important control. Accordingly, we recommended
                        that DOD develop a plan to meet this target of matching all disbursements
                        with obligations before making a payment. DOD agreed and is in the
                        process of developing a plan that will require the matching of all
                        disbursements with obligations in the accounting records prior to making
                        a payment. (GAO/AIMD-96-82)

                        Our recent work on DOD’s logistics system improvement actions for
                        transportation and material management, and our report summarizing our

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                            reviews of the logistics migration strategy, made a number of
                            recommendations aimed at improving the management of these major
                            investments. Specifically, we recommended that DOD develop a strategic
                            information resources management plan that anchors its use of
                            information technology resources to priority business objectives. We also
                            recommended that DOD limit or halt deployment of segments of its failed
                            migration system strategies until they can be linked with evolving
                            outsourcing/privatization plans and show a favorable return on
                            investment. (GAO/AIMD-96-81, GAO/AIMD-96-109, GAO/AIMD-96-128)

                            See also Defense Financial Audit Issue Area in this chapter, and chpater 1,
                            Improving National Security and International Affairs Programs.

Department of Commerce,     Our report on the National Weather Service’s modernization program
National Weather Service    noted that the Service lacked an overall systems architecture or blueprint
                            to guide the development and evolution of the modernization’s many and
                            diverse components. As a result, we recommended that a systems
                            architecture be developed and implemented. The Service agreed, and
                            plans to complete the systems architecture in fiscal year 1997.

Department of Agriculture   USDA  has not been fully responsive to our recommendations to improve its
                            business process reengineering for the Department’s farm service and
                            rural development agencies. Consequently, the Department is having
                            difficulty making progress in reengineering its processes. As a result, we
                            are monitoring InfoShare and working with agency officials, OMB, and
                            congressional committees to ensure that sound business process
                            reengineering principles and practices are not compromised and that USDA
                            does not spend hundreds of millions of dollars of scarce resources
                            automating the farm service agencies’ current way of doing business and,
                            therefore, not achieve the objectives of a reinvented USDA. (GAO/AIMD-94-156)

                            We recommended that the Secretary of Agriculture also take a number of
                            steps to improve the management and planning of telecommunications
                            resources. In its May 6, 1996, statement of actions taken on our
                            recommendations, the Department said it was reporting
                            telecommunications management as a material internal control weakness
                            in accordance with OMB Circular A-123. The Department also discussed
                            many other actions that are currently underway to address our
                            recommendations. We continue to monitor the Department’s activities to
                            ensure that its actions are fully responsive to our recommendations.
                            (GAO/AIMD-95-997, GAO/AIMD-95-203, GAO/AIMD-96-59)

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                               To correct its financial management system problems, USDA has taken
                               steps to provide more authority to its Chief Financial Officer, but has yet
                               to fully address our other recommendations. (GAO/AIMD-95-222)

                               See also chapter 2, Improving Resources, Community, and Economic
                               Development Programs, Food and Agriculture Issue Area.

Environmental Protection       At EPA, we are working to implement several open recommendations. For
Agency                         example, we recommended that the Administrator determine what
                               information is needed to oversee states’ implementation of the Resource
                               Conservation and Recovery Act and develop a cost-effective solution for
                               meeting these needs. The agency has begun to assess the information
                               required to manage the Resource Conservation and Recovery Act
                               program, and is currently defining its strategy for carrying this out. The
                               agency has also reduced the reporting burden on states by eliminating 274
                               nonessential data elements from its reporting requirements.

                               See also chapter 2, Improving Resources, Community and Economic
                               Development Programs, Environmental Protection Issue Area.

Department of Commerce, U.S.   Our report on Customs’ modernization program noted that the agency did
Customs Service                not perform the requisite analyses before committing to its
                               organization-wide architecture project entitled CDC-2000. As a result, we
                               recommended that Customs complete work for defining its core business
                               processes, and generate business information requirements for use in
                               performing further analyses for selecting an organization-wide
                               architecture. Specifically, we recommended that Customs not resume
                               hardware and software purchases for CDC-2000 unless the requisite
                               analysis identifies it as the optimal processing approach. (GAO/AIMD-96-57)

                               See also chapter 4, Improving Justice and General Government Programs,
                               Administration and Justice Issue Area.

Department of Housing and      Our report on HUD’s information resources managements (IRM) program
Urban Development              found numerous long-standing problems. We recommended several
                               actions to address them, including (1) establishing strategic business and
                               IRM planning processes and developing and maintaining up-to-date plans
                               and a systems architecture that are clearly linked to each of the others;
                               (2) establishing a strategic information architecture that is based on
                               strategic business and IRM plans to govern the development, deployment,
                               and use of IRM resources; and (3) eliminating weaknesses in computer

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                           security controls over automated systems and installations that store,
                           process, transmit, or use sensitive or privacy data. HUD is addressing these
                           recommendations. (GAO/AIMD-94-34)

                           See also chapter 2, Improving Resources, Community and Economic
                           Development Programs, Housing and Community Development Issue

Department of Health and   In 1994 we reported on HHS’ actions to implement national and state
Human Services             systems to help manage child welfare services and made several
                           recommendations to the Department to help it work with the states in
                           developing the new systems. These recommendations included
                           (1) determining the functional capabilities of a comprehensive statewide
                           automated child welfare information system and (2) working with states,
                           vendors, and information systems experts to provide a model of that
                           system to the states to aid their system development efforts. HHS has
                           issued functional requirements for both the national and state systems,
                           and we will continue to monitor its ongoing development of the model
                           system. (GAO/AIMD-94-37)

                           Also in 1994 we reported on the automated systems of HHS’ Job
                           Opportunities and Basic Skills Training Program (JOBS) and found that
                           these systems focused on providing information for reporting purposes,
                           but not on the program’s employment objectives. We recommended that
                           HHS work with appropriate state agencies to determine how technology
                           could best be used to achieve the overall objectives of this program and
                           incorporate these features into system guidance for use by the states. HHS
                           has convened a federal/state work group to help design a prototype case
                           management and self-reporting system for the JOBS that focuses on helping
                           participants become employed and self-sufficient. We continue to monitor
                           HHS’ progress in developing this prototype. (GAO/AIMD-94-44)

                           In 1994 we also reported that pharmacies’ use of automated prospective
                           drug utilization review systems to review Medicaid prescriptions before
                           they are filled could (1) significantly improve patient safety by helping
                           prevent adverse medical reactions due to inappropriate drug therapy and
                           (2) potentially save the Medicaid program hundreds of millions of dollars
                           annually in unnecessary drug and hospitalization costs. States are not
                           required to use these systems; about a third of them believed the systems
                           were too costly to acquire and operate and might not provide tangible
                           benefits. HCFA shares our view on the value of automated prospective drug

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utilization review systems and is taking steps to gather information on
their costs and benefits to share with the states. (GAO/AIMD-94-130)

During 1994 we also reported on HCFA’s Medicare Transaction System and
found that HCFA’s executives had not been involved in the planning,
acquisition, or management of the project. In response to this report and
follow-up discussions, HCFA agreed to change to an incremental
development and implementation strategy, and deploy the system initially
at a limited number of sites, enabling HCFA to identify problems and
correct them before further implementation. In November 1995 we
testified that many problems remained, stemming from HCFA’s lack of a
disciplined management process. We reported that Medicare Tracking
System design and development was proceeding despite difficulties in
defining requirements, a compressed project schedule, and lack of reliable
information about costs and benefits. Since that time, HCFA has taken some
steps to address these weaknesses; however, many of the same problems
relating to requirements, schedule, and an adequate cost/benefit analysis
remain. (GAO/T-AIMD-96-12)

In 1995 we reported that commercial software to detect code manipulation
(one type of billing abuse) could have reduced Medicare government and
beneficiary costs by an estimated $640 million in 1994. This information
was based on a test in which four commercial firms reprocessed samples
of over 200,000 paid Medicare claims. We recommended that the Secretary
of HHS direct the Administrator of HCFA to require Medicare contractors to
use commercial software to detect code manipulation when processing
Medicare claims for physician services and supplies. HCFA agreed to
evaluate commercial software to determine whether it is appropriate for
the Medicare program. (GAO/AIMD-95-135)

In 1995 we reported that HCFA continues to experience large losses each
year due to waste, fraud, and abuse, and that existing Medicare Part B
payment safeguard controls can be bypassed, are weak, and have
technical limitations. We recommended that HCFA develop a plan to
implement commercially available antifraud technology for the entire
Medicare program. HCFA responded by providing funding to 3 of 32
Medicare Part B carriers to acquire, for their individual use, the same
antifraud technology described in our report. While this investment should
result in better detection of fraud and abuse at these carriers’ sites, it does
not completely respond to our recommendation, which advocated
establishing a plan to implement commercial antifraud technology
nationwide. Given the potential for substantial savings of program funds

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                                 and commonly accepted information resources management best
                                 practices that encourage the use of available off-the-shelf software, we will
                                 continue to meet with officials to assess their approach to enhancing
                                 Medicare’s fraud detection capabilities. (GAO/AIMD-95-77)

                                 See also chapter 3, Improving Human Resource Programs, Health
                                 Financing Systems and Health Services Quality and Public Health Issue

Department of Veterans Affairs   Since 1991, VA’s modernization project has received continued scrutiny by
                                 us as well as OMB and GSA. In 1995 VA took positive steps to direct its
                                 modernization toward fulfilling our recommendations. In September it
                                 began to analyze current business processes and set measurable goals for
                                 improved service to veterans. However, it still needs to take aggressive
                                 action to effectively address its serious technical and management
                                 weaknesses if modernization is to succeed. (GAO/IMTEC-93-6)

                                 See also chapter 3, Improving Human Resource Programs, Veterans’
                                 Affairs and Military Health Care Issue Area.

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Appendix I

Status of Open Recommendations: A Users
Quick Reference for the Electronic Edition

                 This electronic edition contains the details of GAO’s open
Introduction     recommendations using “askSam for Windows” software. The software is
                 compatible with Microsoft Windows 3.1 or Microsoft Windows 95 and
                 provides several search and retrieval options to find either summaries of
                 key open recommendations or detailed information on products
                 containing open recommendations. Three high-density 3.5 inch installation
                 disks are provided containing all of the software and data for this
                 electronic edition of the Status of Open Recommendations report.

                 The installation program installs the files necessary to run this software
How to Install   on your hard drive and creates a Windows icon that will allow you to
                 run the program. At least 8MB of RAM and 8.3MB of hard disk space are
                 required. To load the software on your hard drive:

                 1. Insert installation disk labelled “Disk 1” into your floppy drive.

                 2. Select the File option from the Windows menu bar, then select the Run
                 option from the drop-down menu.

                 3. In the Command Line window, type the drive designation of your floppy
                 drive, a colon, a backslash, and the word “install”. For example, type

                 4. Click once on the OK button, then follow the instructions that appear
                 on the screen.

                 In Windows, double-click on the Open Recommendations icon to start the
How to Start     program and display the main menu as shown in figure 1. The menu
                 contains three options: Report Details, Issue Area Summary, and

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                     Status of Open Recommendations: A Users
                     Quick Reference for the Electronic Edition

Figure 1 Main Menu

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Quick Reference for the Electronic Edition

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                               Appendix I
                               Status of Open Recommendations: A Users
                               Quick Reference for the Electronic Edition

Figure 2 Report Details Menu

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                          Appendix I
                          Status of Open Recommendations: A Users
                          Quick Reference for the Electronic Edition

                                           Table of Contents

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