oversight

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

Published by the Government Accountability Office on 1999-02-10.

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 Committee on Appropriations


February 1999
                STATUS OF OPEN
                RECOMMENDATIONS
                Improving Operations
                of Federal
                Departments and
                Agencies




GAO/OP-99-1
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States

      B-205879

      February 10, 1999

      The Honorable Ted Stevens
      Chairman
      Committee on Appropriations
      United States Senate

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

      The Honorable C.W. Bill Young
      Chairman
      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’s) audits, evaluations, and other review work in federal departments
      and agencies. To encourage prompt, responsive actions on our recommendations, we
      systematically follow-up 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 during appropriations and
      oversight hearings. We are also sending copies to the Chairs and Ranking Minority Members of
      all House and Senate committees and subcommittees to inform them of our open
      recommendations.




      David M. Walker
      Comptroller General
      of the United States
Preface


          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 of all open recommendations. This information
          should help congressional and agency leaders prepare for upcoming
          appropriations and oversight activities and stimulate further actions to
          achieve 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 in appendix I of this publication.

          The name and telephone number of the GAO manager to contact for
          information or assistance about a product is included. 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 202/512-6061.

          This report along with the complete database on open recommendations is
          also available on the INTERNET. For information on how to access this
          and other GAO reports on the INTERNET, visit GAO’s World Wide Web
          Home Page at:

          http://www.gao.gov




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Contents



Preface                                                                                          2


Chapter 1                                                                                       10
                        Defense Acquisitions Issue Area (Budget Function 050)                   10
Improving National      Defense Management Issue Area (Budget Function 050)                     15
Security and            International Relations and Trade Issue Area (Budget Function           18
                           150)
International Affairs   Military Operations and Capabilities Issue Area (Budget Function        23
Programs                   050)
                        National Security Analysis Issue Area (Budget Function 050)             28
                        Special Studies and Evaluations (Budget Function 090)                   33


Chapter 2                                                                                       36
                        Energy, Resources, & Science Issue Area (Budget Functions 250,          36
Improving Resources,      270, 300)
Community, and          Environmental Protection Issue Area (Budget Function 300)               47
                        Food and Agriculture Issue Area (Budget Function 350)                   52
Economic                Housing and Community Development Issue Area (Budget                    58
Development               Functions 370, 450)
Programs                Transportation Issue Area (Budget Function 400)                         64


Chapter 3                                                                                       68
                        Education and Employment Issue Area (Budget Function 500)               68
Improving Human         Veterans’ Affairs and Military Health Care Issue Area (Budget           74
Services Programs         Functions 050, 550, 700, 753)
                        Health Financing and Systems Issue Area (Budget Function 550)           79
                        Health Services Quality and Public Health Issue Area (Budget            85
                          Functions 550, 570)
                        Income Security Issue Area (Budget Functions 600, 650)                  92


Chapter 4                                                                                      101
                        Administration of Justice Issue Area (Budget Function 750)             101
Improving Justice and   Federal Management and Workforce Issue Area (Budget                    108
General Government        Function 800)
                        Financial Institutions and Markets Issue Area (Budget Function         112
Programs                  800)
                        Government Business Operations Issue Area (Budget Function             117
                          800)
                        Tax Policy and Administration Issue Area (Budget Function 800)         122




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Chapter 5                                                                                  131
                      Budget Issue Area (Budget Function 990)                              131
Improving Financial   Financial Management and Accountability Issue Areas (Budget          137
and Information          Function 990)
                      Information Management Issue Areas (Budget Function 990)             153
Management
Programs
Appendix I                                                                                 167
                      Introduction                                                         167
Status of Open        How to Install                                                       167
Recommendations: a    How to Start                                                         167
                      How to Search—Report Details                                         168
Users Quick           How to Search—Issue Area Summary                                     170
Reference for the     Exiting the Program                                                  171
Electronic Edition    How to Get Help                                                      171


Figures               Figure 1                                                             168
                      Figure 2                                                             170

                      Abbreviations

                      ADP        automatic data processing
                      AFDC       Aid to Families With Dependent Children
                      AID        Agency for International Development
                      AIDS       acquired immunodeficiency syndrome
                      APHIS      Animal and Plant Health Inspection Service
                      AOUSC      Administrative Office of the U.S. Courts
                      ASCI       Accelerated Strategic Computer Initiative
                      ATF        Bureau of Alcohol, Tobacco, and Fire Arms
                      BIF        Bank Insurance Fund
                      BOP        Bureau of Prisons
                      CBO        Congressional Budget Office
                      CBSX       Continuing Balance System-Expanded
                      CDC        Centers for Disease Control
                      CFO        Chief Financial Officer
                      CIO        Chief Information Officer
                      COPS       Office of Community Oriented Policing Services
                      CPA        certified public accountant
                      CTR        cooperative threat reduction
                      D.C.       District of Columbia
                      DEA        Drug Enforcement Agency
                      DFAS       Defense Finance and Accounting Service


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DI         Disability Insurance
DLA        Defense Logistics Agency
DOD        Department of Defense
DOE        Department of Energy
DOI        Department of the Interior
DOL        Department of Labor
DOT        Department of Transportation
EEOC       Equal Employment Opportunity Commission
EIC        Earned Income Credit
EPA        Environmental Protection Agency
EZ/EC      Empowerment Zone/Enterprise Community
FAA        Federal Aviation Administration
FAR        Federal Acquisition Regulation
FASAB      Financial Accounting Standards Advisory Board
FBI        Federal Bureau of Investigation
FCC        Federal Communications Commission
FDA        Food and Drug Administration
FDIC       Federal Deposit Insurance Corporation
FEMA       Federal Emergency Management Agency
FHA        Federal Housing Administration
FHWA       Federal Highway Administration
FinCEN     Financial Crimes Enforcement Network
FNS        Food and Nutrition Service
FPI        Federal Prison Industries
FRA        Federal Railroad Administration
FRF        Federal Savings and Loan Insurance Resolution Fund
FSA        Farm Service Agency
FSIS       Food Safety and Inspection Service
FTA        Federal Transit Administration
GAO        General Accounting Office
GNMA       Government National Mortgage Association
GPO        Goverment Printing Office
GPRA       Government Performance and Results Act
GSA        General Services Administration
HACCP      Hazard Analysis and Critical Central Point
HCFA       Health Care Financing Administration
HIV        human immunodeficiency virus
HIV/AIDS   human immunodeficiency virus/acquired immunodeficiency
                syndrome
HHS        Department of Health and Human Services
HMO        health maintenance organization


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HUD        Department of Housing and Urban Development
IAEA       International Atomic Energy Agency
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
NRC        Nuclear Regulatory Commission
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
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       Plan for Achieving Self-Support
PTO        Patent and Trademark Office
RDT&E      Research, Development, Test and Evaluation
SAIF       Savings Association Insurance Fund
SAMSA      Substance Abuse and Mental Health Services
                 Administration
SBA        Small Business Administration
SBIC       Small Business Investment Company
SEC        Securities and Exchange Commission
SES        Senior Executive Service
SRO        self-regulating organization
SSA        Social Security Administration
SSI        Supplemental Security Income
STARS      Standard Accounting and Reporting System
TANF       Temporary Assistance for Needy Families
TVA        Tennessee Valley Authority


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USDA       United States Department of Agriculture
USEC       United States Enrichment Corporation
USPS       United States Postal Service
USTF       Uniformed Services Treatment Facilities
VA         Department of Veterans Affairs
WIC        Women, Infants, and Children




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                       GAO   Contact: Louis J. Rodrigues, 202/512-4841
Defense Acquisitions
Issue Area (Budget
Function 050)
Impact of GAO’s Work   During fiscal year 1998, we reviewed weapons and space programs to
                       determine whether systems (1) are being acquired effectively and
                       efficiently, based on requirements of the national security strategy and
                       national space policy and (2) could benefit from adopting best
                       management practices from the commercial marketplace. We also
                       reviewed these programs to determine whether the Department of
                       Defense (DOD) and the National Aeronautics and Space Administration
                       (NASA) had selected the lowest risk and least costly acquisition strategies
                       consistent with the need for the planned system or modification. Our
                       reviews included systems such as the F/A-18E/F and F-22 aircraft, the
                       theater missile defense program, the evolved expendable launch vehicle,
                       and the space station. We also reviewed plans to automate the battlefield
                       of the future. We also assisted the authorizing and appropriating
                       committees of both the House and Senate by examining DOD’s fiscal year
                       1999 budget and prior years’ budgets and identifying opportunities to
                       reduce and rescind DOD’s procurement and research, development, testing
                       and evaluation (RDT&E) requests by about $6.3 billion.

                       We provided Congress with information to assist in its oversight
                       responsibility on many occasions. For example, we testified that DOD could
                       improve the outcomes of the weapons acquisition process—that is,
                       acquire systems better, cheaper, and faster—if the incentives were
                       changed to encourage and reward program managers for applying best
                       commercial practices. We also testified on the military sensitivity of
                       foreign launches of commercial communications satellites and on the
                       recent shift in export licensing jurisdiction from the State Department to
                       the Commerce Department. In addition, our testimony on the competitive
                       effects of mergers and acquisitions in the defense industry identified
                       approaches DOD can take to ensure the benefits of competition in a more
                       concentrated industry.

                       Fiscal year 1998 saw the culmination of several years of GAO work on
                       specific weapons systems in terms of actions taken by DOD and the
                       Congress. For example, six GAO products on concurrency and risk in the
                       F-22 program were important influences on DOD actions to decrease
                       concurrency, which included reducing the number of initial production
                       aircraft from eight to six annually—resulting in measurable savings of



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about $1.7 billion. Likewise, we questioned the need for and the
affordability of the Navy’s F/A-18E/F aircraft in a series of reports,
testimonies, and briefings to Members of Congress and their staffs
between June 1996 and March 1998. These questions contributed to a
decision to reduce the planned procurement almost in half, for a total
program savings of almost $22 billion, or a savings of just over $1 billion
for fiscal years 1998 and 1999.

During the year, our best practices work resulted in reports on reducing
unneeded RDT&E infrastructure, transitioning programs from development
to production, and improving supplier relationships. In terms of
infrastructure, DOD has estimated that 35 percent of its laboratory facilities
and over 50 percent of selected test and evaluation centers are unneeded;
but its initiatives to reduce capacity, as well as those of other government
agencies, have achieved little success. By contrast, the domestic
corporations and foreign government organizations GAO examined
substantially reduced their research and development infrastructure. In
analyzing this disparity, corporate and foreign government personnel
identified critical elements in their success that are generally lacking in
federal agency efforts.

The best practices work on weapons acquisitions contributed to a greater
understanding of the root causes of problems that have been noted year
after year in our individual weapons reviews. Important among these are
the incentives that force overly optimistic decisions early in the acquisition
process. Our review of the transition of programs from development to
production identified commercial practices that, conversely, force
knowledge-based decisions at critical junctures. We continue to find that
culture also plays a large role. DOD agreed with recommendations in this
report and also in our report on managing supplier relationships and is
incorporating changes in its training programs and electronic reference
system for the acquisition workforce.

Our work on the defense industry showed that DOD estimated net savings
of over $3 billion from restructurings after seven business combinations.
We also reported that tracing these savings into contracts was extremely
difficult given other factors that affect a contractor’s operations and costs.
However, we were able to trace hundreds of millions of dollars of savings
in contractors’ costs of operations, which benefited DOD because contract
costs were lower than they would have been if the restructuring activities
had not occurred.




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High-Risk Areas               Defense Acquisitions is responsible for three areas that have been
                              designated as high risk—Defense Weapon Systems Acquisition, Defense
                              Contract Management, and NASA Contract Management.

Defense Weapon Systems        In fiscal year 1998, we reported that despite DOD’s past and current efforts
Acquisition                   to reform its acquisition system, wasteful practices still add billions of
                              dollars to defense acquisition costs. Many new weapon systems cost more
                              and do less than anticipated and schedules are often delayed because key
                              decisionmakers do not have adequate information when needed, rush to
                              commit programs to available funding streams before completing adequate
                              testing, or have not put in place appropriate risk management strategies.

                              Several reports provided illustrations of these problems. For example, we
                              reported that the Army is awarding both hardware and software contracts
                              for various battlefield automation systems despite ongoing and significant
                              software problems, lengthy delays in completion of testing programs, or
                              significant schedule risks because of fielding deadlines set by senior
                              officials. Likewise, we reported on the significant technical challenges in
                              making an airborne laser capable of destroying a missile during its boost
                              phase—challenges that will not be resolved for several years.
                              Consequently, we concluded it is too early to predict whether an airborne
                              laser program will evolve into a viable missile defense system.

Defense Contract Management   Over the past few years, several broad-based changes have been made to
                              DOD contracting processes to improve the way DOD relates to its
                              contractors and the rules governing their relationships. And the changes
                              are by no means complete. Acquisition reform, with its emphasis on
                              widespread reengineering of fundamental processes, continues to receive
                              attention at the highest levels in DOD.

                              DOD  faces a number of areas where risks appear particularly acute. The
                              need for DOD to achieve effective control over its payment process remains
                              an imperative. If it does not, DOD continues to risk erroneously paying
                              contractors millions of dollars and perpetuating other financial
                              management and accounting control problems. We, and the DOD Inspector
                              General, have also found that DOD needs to strengthen the quality of its
                              analyses for commercial purchases. Because DOD has not formulated good
                              procurement and management strategies for commercial parts in the
                              acquisition reform environment, it is paying higher prices for commercial
                              spare parts than necessary. And, there are numerous cases in which
                              limited analysis of commercially offered prices resulted in significantly
                              higher prices than previously paid. DOD’s implementation of health care



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                           management programs, particularly the TRICARE Program, further
                           illustrates DOD’s difficulty in managing contracts. DOD has incurred added
                           costs, the program was significantly delayed, and change orders have not
                           been processed in a timely manner.

                           DOD has actions underway to address each of these problems. Whether DOD
                           can successfully solve them remains to be seen.

NASA Contract Management   NASA spends about $12 billion annually, largely for contractual goods and
                           services. In 1990, when we began to review the adequacy of NASA’s
                           contract management process, we found that the agency lacked systems
                           and processes to oversee procurement activities and the ability to
                           routinely produce accurate and reliable management information. As a
                           result, NASA was placed on GAO’s high-risk list.

                           In fiscal year 1998, we again reviewed the agency’s procurement and
                           financial management processes. We found that NASA has delayed
                           implementation of its integrated financial management system and has not
                           implemented its procurement metrics initiative. Furthermore, while it has
                           made progress in evaluating its field centers’ procurement activities based
                           on international quality standards, NASA has not issued formal
                           requirements for evaluations at the centers. We concluded that it is
                           premature to remove NASA contract management from the high-risk list.


Key Open                   Our work on best practices concluded that there were several actions DOD
Recommendations            could take to improve outcomes for weapon acquisition programs. To
                           improve the transition from development to production, we recommended
                           that DOD (1) take steps to ensure that sound standards for the timing and
                           quality of production-related knowledge are applied to individual weapon
                           systems and used as a basis for assessing production risks and for making
                           tradeoffs, (2) redefine the point for launching programs as the point at
                           which technology development ends and product development begins, and
                           (3) send the signals that create incentives for acquisition managers to
                           identify unknowns and ameliorate their risks early in development. To
                           improve supplier relationships on acquisition programs, we recommended
                           that DOD (1) develop a policy that promotes productive supplier
                           relationships and emphasizes the importance of suppliers in improving
                           program outcomes and (2) communicate this policy throughout the
                           acquisition workforce and the defense industry through training and other
                           means. We also recommended specific steps DOD should take to ensure
                           that weapon system program managers provide leadership and incentives



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for optimizing supplier relations on their programs. (GAO/NSIAD-98-56,
GAO/NSIAD-98-87)


Our work on the New Attack Submarine resulted in a recommendation
that DOD assess the impact on ship survivability of reducing the capabilities
of various subsystems. This recommendation is a theme of our weapons
acquisition work. In major acquisitions, it is important for decisionmakers
to have as complete information as possible in trading off threat
assessments, system capability, and developmental risks. We have
observed previous instances where backfits were needed to bring early
production models up to required performance levels. The types of
analyses we recommended, based on survivability modeling, would allow
changes in development schedules and funding profiles at a much lower
cost than if problems were identified later. (GAO/NSIAD-98-87)

With regard to the Army’s program to automate information exchange at
the battle command, brigade, and below levels, we recommended that this
top priority program be moved to category I—projected to require in
excess of $355 million (fiscal year 1996 constant dollars) in development
or procurement of more than $2.1 billion (fiscal year 1996 constant
dollars)—management to increase top-level oversight of its costs and risk.
(GAO/NSIAD-98-140)

Our work on the services’ efforts to reduce risk in the development of the
AIM-9X missile system led to concerns about subsequent discovery of
technical and operational problems because of plans to start low-rate
initial production about 1 year before completing development flight
testing and before operational testing of production-representative
missiles. It also led to concerns about development of a helmet-mounted
cuing system under a separate program although pilots need both the
missile and the cuing system to prevail in combat. Consequently, we
recommended that DOD revise AIM-9X acquisition strategy to allow for
enough operational testing of the missile and helmet, using
production-representative items, to demonstrate that the missile can meet
minimum performance requirements before low-rate production begins.
(GAO/NSIAD-98-45)

See also Chapter 5, Financial and Information Management Programs,
Financial Management and Accountability Issue Areas as well as
Information Management Issue Areas.




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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’s  managers face many challenges as they strive to improve business
                       operations by streamlining operations, reducing infrastructures, improving
                       management of remaining facilities, and enhancing effectiveness and
                       efficiency of the defense supply chain.

                       Our overall strategy for the Defense Management Issue Area is to identify
                       innovative, efficient, and cost-effective approaches for improving DOD’s
                       management and reducing costs. It focuses on the implementation and
                       effectiveness of DOD’s cost-reduction initiatives that relate to support
                       infrastructure activities. It places special emphasis on logistics functions
                       such as maintenance of depots; purchase, storage, and disposal of
                       inventory parts and supplies; and transportation. Our work encourages the
                       reengineering and streamlining of operations through new processes, best
                       management practices, and privatization or outsourcing of activities where
                       appropriate.

                       Logistics-related business and infrastructure activities consume a major
                       share of DOD’s budget. DOD recognizes the need to cut these costs and is
                       seeking reductions to help fund a planned $20 billion increase in its
                       weapon systems procurement budget. Actions to achieve reductions
                       include privatization, acquisition reform, technology insertion,
                       organizational streamlining and consolidation, management process
                       reengineering, base and facility closures, personnel reductions, inventory
                       reductions, and private sector use of DOD facilities.

                       Key areas we focused on in fiscal year 1998 included transition of former
                       bases to civilian use, potential for future base-closure legislation, depot
                       maintenance, inventory purchases and storage, property disposal, and
                       transportation of material and personal items. We also addressed
                       environmental costs and programs and problems associated with the
                       disposal of the chemical weapons stockpile.


High-Risk Areas        GAO’s Defense Management Issue Area is the point of contact for the
                       following two high-risk areas: Defense Inventory Management and
                       Defense Infrastructure.




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Defense Inventory Management       DOD manages inventories with a reported value of about $65 billion. It also
                                   purchases at least $8 billion of new inventory annually to support its
                                   weapon systems and equipment. DOD has had longstanding problems in
                                   achieving economic and efficient inventory practices. While working to
                                   correct them, it has not yet succeeded in developing the management tools
                                   needed to solve these problems on a long-term basis. In the near term, DOD
                                   needs to emphasize the efficient operation of its existing inventory
                                   systems. In the long term, DOD must establish goals, objectives, and
                                   milestones for changing its culture and adopting new management tools
                                   and practices. Further, DOD must continue to explore other alternatives
                                   such as using business-case analyses to identify opportunities for
                                   outsourcing logistics functions and for implementing best management
                                   practices.

Defense Infrastructure             Over the past 7 to 10 years, DOD has taken actions to reduce its operations
                                   and support costs; however, billions of dollars continue to be wasted
                                   annually on inefficient and unneeded activities. In recent years, DOD has
                                   substantially downsized its force structure, yet it has not achieved
                                   commensurate reductions in operations and support costs. Progress in
                                   reducing the cost of excess infrastructure activities is critical to
                                   maintaining high levels of military capabilities and in providing increased
                                   funding for weapon systems modernization. Reductions of this nature are
                                   difficult and painful because achieving significant cost savings requires
                                   up-front investments, closure of installations, and elimination of military
                                   and civilian jobs.


Key Open                           To achieve management improvements, increase operations efficiencies,
Recommendations                    and produce dollar savings, DOD needs to take action on the following key
                                   recommendations.

                                   The Secretary of Defense should direct that the defense transportation
                                   reengineering efforts simultaneously address process and organizational
                                   structure improvements. Specifically, the reengineering efforts should
                                   confront, at a minimum:

                               •   the need for separate traffic management component command
                                   headquarters staff;
                               •   the consolidation of separate field subordinate command traffic
                                   management staff; and
                               •   the elimination of all remaining duplicative field-based subordinate
                                   command support staff. (GAO/NSIAD-96-60)



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    Whether or not Congress authorizes future Base Realignment and Closure
    rounds, DOD needs to improve its periodic updating and reporting of
    savings projected from prior Base Realignment and Closure decisions.
    This information is needed to strengthen DOD’s budgeting process and
    ensure that correct assumptions are being made regarding expected
    reductions in base operating costs. Accordingly, the Secretary of Defense
    should provide guidance to ensure that its components have and follow a
    clear and consistent process for updating savings estimates associated
    with prior Base Realignment and Closure decisions. (GAO/NSIAD-97-151)

    If Congress authorizes future Base Realignment and Closure rounds, the
    Secretary of Defense should:

•   work with the Task Force on Defense Reform and the National Defense
    Panel to address, in advance of any future Base Realignment and Closure
    round, the important organizational and policy issues in the various
    cross-service areas discussed to facilitate the process of making further
    infrastructure reductions;
•   convene a DOD joint working group, as soon as practical, to develop policy
    guidance, improve Base Realignment and Closure processes and
    decision-making tools, and ensure greater consistency among the services’
    processes; and
•   ensure full audit access to all parts of DOD’s Base Realignment and Closure
    process. (GAO/NSIAD-97-151)

    If Congress considers legislation for future Base Realignment and Closure
    rounds, it may wish:

•   to model it on the 1990 Base Realignment and Closure legislation as a
    starting point;
•   to pass such legislation early to allow the lead time needed for DOD and the
    Commission to organize their processes; and
•   to consider the relationship between new Base Realignment and Closure
    authority and section 277 of the National Defense Authorization Act for
    Fiscal Year 1996 pertaining to laboratories and test and evaluation
    facilities. (GAO/NSIAD-97-151)

    See also Chapter 5, Financial and Information Management Programs,
    Financial Management and Accountability Issue Areas as well as
    Information Management Issue Areas.




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                       GAO   Contact: Benjamin F. Nelson, 202/512-4128
International
Relations and Trade
Issue Area (Budget
Function 150)
Impact of GAO’s Work   Given the changes that are taking place throughout the world, the
                       Congress is continuing to rethink the U.S. role in international affairs,
                       including the level of resources devoted to and the effectiveness of current
                       programs in advancing U.S. economic, security, and political interests. Our
                       work focuses on the relevancy, priority, and effectiveness of international
                       affairs activities to contribute to the congressional debate on key issues of
                       current national concern, such as the Dayton Peace Accords and
                       developments in the Balkans. We have conducted assessments of (1) how
                       the integration of states and expansion of institutions in Europe, such as
                       NATO, may affect U.S. interests; (2) how effective the United States has
                       been in managing the transfer of critical, defense-related technology to
                       other nations; (3) whether U.S. participation in the United Nations, World
                       Bank, and International Monetary Fund has efficiently and effectively
                       served U.S. interests; (4) how well the government is representing U.S.
                       foreign trade interests and promoting economic stability; and (5) how the
                       government is carrying out its overseas roles and missions, including the
                       broad range of programs designed to enhance U.S. security and reduce the
                       flow of illegal drugs into the United States. We used the analytical
                       framework (relevancy, priority, and efficiency) highlighted in our
                       October 30, 1997 testimony to guide these assessments.

                       Our June 1998 report on the implementation of the Dayton Peace Accords
                       in Bosnia assessed progress toward the Accord’s goals of establishing a
                       unified, democratic government that respects the rule of law. We reported
                       to the Congress that the goal of a self-sustaining peace process remains
                       elusive primarily due to the continued intransigence of Bosnia’s political
                       leaders. We also issued a report concluding that the International Criminal
                       Tribunal for the former Yugoslavia did not have the capacity to prosecute
                       war criminals in accordance with rules and procedures established by the
                       U.N. Security Council. Earlier in the year, during a crucial period when the
                       future U.S. role in Bosnia was being debated, we briefed staff from
                       congressional committees and the National Security Council on our work.
                       Regarding NATO expansion, our assessments showed that U.S. and other
                       NATO member countries’ programs are helping former Eastern Bloc
                       countries prepare for possible membership in NATO. We also provided




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information on NATO expansion cost issues. In October 1997 testimony,
we addressed congressional concerns about the impact of NATO
expansion on DOD’s budget and noted that the ultimate cost of this
expansion will be contingent on several undetermined factors. We also
reported to Congress how NATO apportions costs among its members.
Our international security work also included an assessment of trends in
conventional military exports to China and information about the decision
to revise export controls on high-performance computers that could have
military or nuclear proliferation applications.

The Congress continued to rely on our examinations of multilateral
institutions in seeking to determine whether they are advancing U.S.
interests and whether there are opportunities to reduce their costs. Our
reviews examined the rationale, structure, and reform agenda of these
institutions that receive U.S. funding and efforts to introduce greater
accountability and transparency into their operations. Our review of World
Bank operations identified concrete steps that the Bank could take to
improve the transparency of its public consultations regarding the
environmental impact of its projects. Our assessments of the financial
status of the International Monetary Fund and nature of U.S. financial
obligations to the United Nations contributed to a greater public
understanding of these complicated issues. Our November 1997 review of
the U.N. internal audit function showed that its Office of Internal
Oversight Services is in a position to be operationally independent but that
more changes are needed to enhance future operations. This report is
being used in debates over U.S. arrears and the broader issue of U.N.
reform.

During fiscal year 1998, we continued to be an important source of
objective information and analyses concerning U.S. bilateral assistance
programs. During the year, we issued a series of reports and testimonies
concerning the operations and effectiveness of U.S. counternarcotics
programs. For example, our reports on Caribbean, Colombian, and
Mexican drug control programs continue to show that despite
long-standing efforts and expenditures of billions of dollars, these efforts
have not materially reduced the availability of drugs in the United States.
Our assessments of the U.S. Agency for International Development’s and
the U.N.’s response to the human immunodeficiency virus/acquired
immunodeficiency syndrome (HIV/AIDS) epidemic in the developing world
provided important input to the debate over whether the Congress should
provide additional support for these programs.




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                  Regarding the performance of the U.S. foreign affairs apparatus, our work
                  at the Department of State identified ways to improve service and save
                  millions of dollars in potential costs. Our reports on the Department of
                  State’s overseas relocation and housing process concluded that State
                  could control the growing costs of this function and provide quality
                  service to employees by reengineering its processes using best practices.
                  Our review of the Department of State’s program to modernize its
                  antiquated information technology infrastructure concluded that full
                  implementation of widely accepted best practices did not appear to be a
                  top management priority. Without full implementation of key best
                  practices, there is substantial risk that State’s program will not achieve
                  intended results, will cost more than anticipated, and will take longer to
                  put in place. Our review of visa processing operations revealed that
                  processing backlogs continue to be a problem for some posts, including
                  the one in Sao Paulo, Brazil.

                  We reported on a variety of international trade issues. For example, our
                  report on the potential threat posed by agricultural sanitary and
                  phytosanitary trade barriers described weaknesses in the executive
                  branch’s system for monitoring these barriers and provided insights on
                  how the executive branch could strengthen its response strategy. Our
                  report on worker rights in Caribbean Basin nations showed that although
                  efforts to improve worker rights are continuing in the region, there is some
                  validity to allegations of worker rights violations. Our report on the
                  Customs Service’s and the Census Bureau’s new, $42 million automated
                  export monitoring system, concluded that the system was not an effective
                  tool for enforcing export laws because few exporters used it and because
                  the system was not linked to other law enforcement systems. In response
                  to our recommendations, Customs and Census have taken measures to
                  correct these problems. We also reported and briefed Committee staff on
                  African trade issues associated with pending legislation and trade
                  agreements. We outlined the many issues and concerns raised by the
                  Executive Branch’s request for fast track authority to negotiate new trade
                  agreements and helped the staff prepare for the contentious debate on this
                  issue.


Key Open          In 1996, we recommended that the Secretary of the Treasury monitor and
Recommendations   periodically report to the Congress measurable indicators of the World
                  Bank’s progress in reforming its operations to improve its effectiveness.
                  Although the Treasury has developed indicators as we recommended, it
                  does not plan to report to the Congress on World Bank reforms based on



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these indicators until 1999. Our recommendation will remain open until
the Treasury submits its report. (GAO/NSIAD-96-212)

In 1997, we recommended that the Secretary of Commerce effectively
monitor export trends in controlled items to Hong Kong and China after
Hong Kong’s reversion to Chinese sovereignty. Commerce has not yet
provided specifics on what actions it plans or has taken. (GAO/NSIAD-97-149)

In 1997, we made recommendations to the Secretaries of Agriculture,
State, Defense, and Commerce and to the U.S. Trade Representative on
various issues involving international relations and trade. We
recommended that the U.S. Trade Representative and the Secretary of
Agriculture, in consultation with other agencies, coordinate goals,
objectives, and performance measures for addressing foreign sanitary and
phytosanitary issues to avoid unfairly blocking U.S. agricultural exports. In
response, the U.S. Trade Representative and the Department of
Agriculture formed a senior-level interagency Steering Group, and the
Department of Agriculture formed a management group to coordinate
policy among its multiple agencies. These groups are developing
(1) guidance on how to approach sanitary and phytosanitary issues and
determine priorities for federal efforts, and (2) goals, objectives, and
performance measures for determining progress. Full implementation of
our recommendations will take time and require continued management
attention and commitment. Therefore, the recommendations will remain
open until the agencies have had time to make more progress.
(GAO/NSIAD-98-32)

We recommended that the Secretary of State establish a pilot program for
improving the leasing and furnishing of overseas residences. We also
recommended that if pilot tests confirm cost advantages, the Secretary
should establish a plan to rollout a broad-based implementation plan. State
has asked overseas posts for preliminary information on housing options
before initiating a pilot program. (GAO/NSIAD-98-128)

We recommended that the Secretary of State act to fully implement the
Department’s information technology (IT) planning and investment
process to help ensure that almost $600 million dollars in annual on-going
support and modernization funds are spent in a rational, planned manner
consistent with federal requirements and guidance. In response, State has
(1) reconstituted and reconvened its Information Resource Management
Technical Review Committee, (2) launched plans to convene an
Information Resource Management Configuration Control Board,



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(3) developed an Information Resource Management vision paper in
anticipation of preparing a comprehensive information technology
architecture to guide funding decisions, and (4) committed to preparing a
revised “cost model” to update estimated funding needs and incorporate
actual and potential cost savings resulting from the modernization
program. (GAO/NSIAD-98-242)

We recommended that the Secretary of State, working with other
International Atomic Energy Agency member states, request the Director
General to develop a plan for implementing parts of the Strengthened
Safeguards System. Although the State Department recognizes the value of
improved planning, it does not agree with our recommendation. It believes
that a published plan could be used by some member states to push for the
phasing out of existing safeguards measures before the new measures are
proven to be effective and that a little ambiguity may serve U.S. interests.
Although we agree that it would be unwise to drop existing measures
before new measures are proven effective, a plan is necessary for the
International Atomic Energy Agency and its member states to develop a
clearer understanding of the implementation costs of the new system.
(GAO/NSIAD/RCED-98-184)

See also chapter 2, Improving Resources, Community, and Economic
Development Programs, Energy, Resources, and Science Issue Area.

We recommended that the Secretary of Defense assess and report on the
national security threat and proliferation impact of U.S. exports of high
performance computers to countries of national security and proliferation
concern. DOD said that it had taken national security issues “into account”
in a study conducted three years ago. We believe such a study is still
necessary because DOD did not assess how countries of concern would use
high performance computers to enhance their military programs. In
mid-1998, the House National Security Committee required that such a
study be conducted. We also recommended that the Secretary of
Commerce, with the support of other agencies in the export licensing
community, jointly evaluate and report on options to safeguard U.S.
national security interests that may be threatened due to the export of
computers as the technology advances in areas of scaleability and
clustering. Commerce has not yet indicated how it will respond to this
recommendation. (GAO/NSIAD-98-196)




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                         GAO   Contact: Mark E. Gebicke, 202/512-5140
Military Operations
and Capabilities Issue
Area (Budget
Function 050)
Impact of GAO’s Work     DOD faces unprecedented challenges as it strives to plan and budget for a
                         broad array of military operations that can range from humanitarian
                         assistance and peace operations to international terrorism and
                         high-intensity warfare in geographic hotspots like the Persian Gulf and the
                         Korean peninsula. To effectively meet these multiple missions, DOD must
                         maintain a high readiness level and quality personnel.

                         Our overall strategy to assist Congress with military operations and
                         capabilities issues is to: (1) evaluate the accuracy of DOD budget requests
                         and recommend ways to improve planning for military operations;
                         (2) assess whether U.S. forces are ready to arrive where they are needed,
                         on time, with sufficient forces and equipment to effectively conduct and
                         sustain their assigned missions; and (3) evaluate the effectiveness of DOD’s
                         ability to recruit, train, and retain a high-quality active, reserve, and
                         civilian workforce, while maintaining quality of life programs.

                         In fiscal year 1998, the Congress and DOD took action on a number of our
                         recommendations related to the three areas listed above. For example, the
                         House and Senate Committees on Appropriations conferees reduced DOD’s
                         fiscal year 1998 operations and maintenance request by $199.3 million,
                         based on funds we identified to be in excess of requirements. Likewise,
                         the conferees reduced DOD’s request for active military pay by $356 million,
                         based on our recommended reductions.

                         Our review of DOD’s efforts to improve its readiness assessment and
                         reporting process showed, among other things, that DOD’s quarterly
                         readiness reports to Congress provided only a vague description of
                         readiness problems and planned remedial actions. We concluded that in
                         their present form these reports were not effective as a congressional
                         oversight tool. We recommended that the Secretary of Defense take steps
                         to better fulfill legislative reporting requirements by providing supporting
                         data on key readiness deficiencies and more specific information on
                         planned remedial actions. Based on our work, DOD’s Senior Readiness
                         Oversight Council has begun to focus more attention on recruiting and
                         retention, personnel tempo, readiness funding, and aviation readiness.




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Also, DOD submitted to Congress a plan for expanding its readiness
reporting, which is scheduled for implementation in fiscal year 1999.

Our assessment of the Army’s multibillion-dollar weapon systems
modification program showed that Army officials no longer had the
information they needed to effectively oversee and manage this program,
due to the discontinuation of the centralized database used to track
installation and funding. As a result, Army officials do not have an
adequate overview of the status of equipment modifications across the
force, funding requirements, logistical support requirements, and
information needed for deployment decisions. Based on our
recommendations, the Army is developing a new information system to
improve management and provide better oversight of the program. Army
officials told us that the new information system will have increased
readiness implications and cost avoidances once the system becomes
accessible to all program managers.

In 1996, the United States and Japan agreed on recommendations for
reducing the impact of U.S. military operations in Okinawa. We reported
that, while the United States expects to encounter few problems in
implementing most of the recommendations, replacing the Marine Corps
Air Station Futenma with a sea-based facility will be a major challenge.
The United States has established requirements that Japan must meet
before Futenma is closed and operations are moved to the sea-based
facility. However, such a facility has never been built and operated. This
report has led to considerable debate over the advisability of proceeding
with such a facility.

During our testimony before the House National Security Committee, we
discussed personnel readiness in the Army’s five later-deploying divisions.
These later-deploying divisions, which constitute almost half of the Army’s
active combat forces, are expected to deploy in the event of a second
simultaneous major theater war or as reinforcements to earlier deploying
divisions. We testified that, in the aggregate, the later-deploying divisions
had an average of 93 percent of their personnel on board between August
1997 and January 1998. However, the aggregate data did not fully reflect
the shortages of combat troops, technical specialists, and experienced
officers that existed in these divisions. If these divisions had to deploy for
a high-intensity conflict, the Army would fill their ranks with Individual
Ready Reserve soldiers, retired servicemembers and newly recruited
soldiers. Our testimony contributed significantly to the debate over the




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                  readiness of U.S. forces and identified pockets of readiness problems that,
                  if improved, should bolster military readiness.

                  We testified before the Senate Committee on Veterans’ Affairs about DOD’s
                  continuing efforts to protect U.S. military forces against chemical and
                  biological weapons, including its plan to inoculate all U.S. forces against
                  the biological agent anthrax. Regarding DOD’s anthrax program, we
                  testified that to ensure that millions of active and reserve members receive
                  the prescribed vaccinations in the proper time sequence will be a
                  challenge. However, DOD could improve its prospects for a successful
                  program if it considers lessons learned from previous immunization
                  programs and from the medical record-keeping errors in the Gulf War and
                  in Bosnia. The Army has subsequently developed a detailed
                  implementation plan for inoculating personnel and for tracking the status
                  of inoculations in medical records.

                  Our assessment of DOD’s telemedicine projects (the use of communications
                  technology to help deliver medical care without regard to the distance that
                  separates the participants) showed that DOD invested more than the eight
                  other federal departments and independent agencies involved in
                  telemedicine. We recommended that a federal strategy be developed to
                  ensure the cost-effective development and use of telemedicine, and that
                  DOD, since it is a major federal investor and manages one of the nation’s
                  largest health care systems, should develop and submit to Congress an
                  overarching telemedicine research and development and operational
                  strategy. In early fiscal year 1998, DOD submitted to Congress its overall
                  telemedicine strategy, which contained all four components specified in
                  our recommendation.

                  In our report on personnel who leave the military during the first 6 months
                  of enlistment, we made several recommendations that could reduce
                  attrition and save DOD millions of dollars. The Congress adopted all but
                  one of GAO’s recommendations in the National Defense Authorization Act
                  for Fiscal Year 1998. The one recommendation not included in the Act—to
                  move all drug testing of recruits to the preenlistment stage—had already
                  been implemented by DOD. In our March 1998 testimonies before both the
                  House and Senate Subcommittees on Military Personnel, we reported that
                  DOD had taken action on five of eight recommendations and was forming a
                  joint service working group to address our other recommendations.


Key Open          Military medical personnel have almost no chance during peacetime to
Recommendations   practice their battlefield trauma care skills. In response to this concern,


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the Congress required DOD to implement, and GAO to evaluate, a
demonstration program that would provide trauma care training for
military medical personnel at a civilian center not later than April 1996.
Due to the program’s delayed start in November 1997, it was too early to
assess its effectiveness. As of March 1, 1998, only four surgeons had
completed their training rotations. We recommended, among other things,
that the Secretary of Defense expedite efforts to establish an evaluation
tool to assist in an assessment of the feasibility of training military
personnel in civilian trauma centers. (GAO/NSIAD-98-75)

DOD  has estimated that over $20 billion and 30 to 40 years would be
required to upgrade or replace existing military family housing. To
improve housing faster and more economically, the Congress, in fiscal
year 1996, approved DOD’s Military Housing Privatization Initiative, which
allows private sector financing, ownership, operation, and maintenance of
military housing. In the two years since the Congress approved the
program, no new agreements have been finalized to build or renovate
military housing. We recommended that the Secretary of Defense direct
the services to, among other things, prepare detailed, integrated housing
plans that will describe their plans for addressing long-standing
weaknesses in their housing requirements determination processes.
(GAO/NSIAD-98-178)

Each year the military services recruit hundreds of thousands of new
enlistees, who sign first-term contracts that are typically for 4 years. Many
enlistees fail to complete their contracts, which has been a long-standing
and costly problem for the services. Between fiscal years 1982-93, 31.7
percent of all enlistees did not complete their first terms. Using fiscal year
1993 cost estimates, we calculated that the services spent $1.3 billion on
the 72,670 enlistees who entered the services in fiscal year 1993 and
departed prematurely. We recommended that the Secretary of Defense
direct the service secretaries to, among other things, continually
emphasize to all officers the cost of first-term attrition, and to use
quality-of-life surveys to collect information on the factors contributing to
first-term separation, and identify quality-of-life initiatives aimed at
reducing first-term attrition. (GAO/NSIAD-97-39)

DOD  sent approximately 2.2 million recruits to basic training between fiscal
years 1987 and 1996. However, over 700,000 of those recruits failed to
complete their initial service obligations, with about 200,000 failing to
complete even 90 days of service. Given the concern in Congress about
this matter, we reviewed the services’ processes to screen, select, and



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train recruiters and to measure and reward recruiter performance. To
enhance the performance of DOD’s approximately 12,000 recruiters and the
retention of recruits, we recommended that the Secretary of Defense
direct the services to, among other things, link recruiter awards more
closely to recruits’ successful completion of basic training and develop or
procure personality screening tests that can aid in the selection of high
quality recruiters. (GAO/NSIAD-98-58)

See also Chapter 5, Financial and Information Management Programs,
Financial Management and Accountability Issue Areas as well as
Information Management Issue Areas.




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                        GAO   Contact: Henry L. Hinton, Jr., 202/512-4300
National Security
Analysis Issue Area
(Budget Function 050)
Impact of GAO’s Work    This is our first full year of reporting since DOD reassessed its strategy and
                        forces as part of the congressionally mandated Quadrennial Defense
                        Review. DOD views the Quadrennial Defense Review as a blueprint for a
                        strategy-based, balanced, and affordable program to meet defense needs
                        from 1997 to 2015. Our reports and testimonies on DOD’s budget, force
                        structure, and strategy implementation have assisted the Congress to
                        better understand the thoroughness of DOD’s review, as well as the
                        progress it has made in carrying out its plans. Our work also addresses
                        Presidential Decision Directives 39 (June 1995) and 62 (May 1998), which
                        provide the blueprint for a national strategy to combat terrorism. Over the
                        past year, we have expanded our analysis of the Federal Government’s
                        efforts to combat terrorism, and have provided important information to
                        the Congress on the U.S. Government’s policy, strategy, and numerous
                        programs and initiatives to combat terrorism, including the cost to the
                        government of funding these initiatives.

Budget Analysis         Although DOD has reduced military and civilian personnel, force structure,
                        and facilities, we have reported over the last few years that DOD has been
                        unable to shift funds from infrastructure to modernization. This is the fifth
                        straight year that DOD’s proposed program was inverse to its goals of
                        reducing its infrastructure costs and increasing funds for weapons
                        modernization. DOD acknowledged in its report on the Quadrennial
                        Defense Review that it has postponed procurement plans because funds
                        were redirected to pay for underestimated operating costs and new
                        program demands, and projected savings from outsourcing and other
                        initiatives had not materialized. Although DOD’s 1999 program, its first
                        since the Quadrennial Defense Review, made adjustments to the 1998
                        program to decrease risks, we reported in July 1998 that we continue to
                        see risks that the 1999 program may not be executable as planned.

                        Contingency operations, principally those in Bosnia and Southwest Asia,
                        continue to cost billions of dollars. We reported in February 1998 that
                        budget-quality estimates would not be available until key decisions were
                        made and that the services were considering ways to reduce costs now
                        that the Bosnia mission has been extended. We also provided analysis of
                        the President’s request for supplemental funding for fiscal year 1998 and
                        amended budget for fiscal year 1999 for the defense appropriations



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                  subcommittees. As a result of our May 1996 report on the accuracy of
                  reported costs, the services have improved their reporting of costs and,
                  hence, funding needs.

Force Structure   This year we continued our assessment of Army force structure issues, as
                  directed by the Fiscal Year 1996 National Defense Authorization Act.
                  Previously we had criticized the Army for its lack of an analytical basis for
                  determining its institutional personnel requirements. Based on our
                  recommendation, the Army agreed to report this long standing problem as
                  a material weakness under the Federal Managers’ Financial Integrity Act
                  and develop a corrective action plan with milestones for completion. This
                  year we reported that while the Army had developed the corrective action
                  plan, two critical subplans had not been developed—one that
                  implemented a new costing system and another to develop a new
                  computer based-methodology for depots and arsenals. Further, we
                  reported that the Army’s institutional redesign efforts had not resulted in a
                  reduction in major command headquarters, and the dollar and position
                  savings identified for the effort had been overstated. For example, our
                  analysis showed that the Army anticipated $1.7 billion in savings from
                  phase I redesign efforts, but the savings will be at least $405 million less. In
                  response to our previous work assessing how the Army determined its
                  support force requirements, and the results of its biennial process for
                  allocating support forces, the Army implemented several of our
                  recommendations. For example, to take better advantage of capability that
                  already existed in the force, we recommended that the Army determine
                  how support units resident within the eight National Guard divisions could
                  be used to fill some of the Army’s support force requirements. In response,
                  the Army has agreed to dual mission two National Guard Strategic Reserve
                  Aviation Branch assault companies against warfighting requirements.

                  We also assessed force structure requirements for operations other than
                  war. We reported in April 1998 that the military services had successfully
                  provided needed capabilities for the Bosnia mission since its inception.
                  With the decision to extend the Bosnia mission indefinitely, we reported
                  that the Army and the Air Force, while filling the vast majority of the
                  ground-based combat support and the aviation-related requirements, were
                  encountering resourcing challenges for a small number of capabilities that
                  are primarily in the reserves and have already been used. These challenges
                  have since been met, but underscore how the mix of capabilities needed
                  for a long-term mission like the one in Bosnia may not always match
                  current force structure.




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                          Last, we examined the force structure issue from the standpoint of the
                          cost and operational implications if the Air Force were to assign more B-1
                          bomber aircraft to the reserve component. During the course of this work,
                          we developed several options that the Air Force should consider to reduce
                          overall B-1 operating costs without adversely affecting day-to-day
                          peacetime training or critical wartime missions or closing any B-1
                          operating bases. In commenting on our report, DOD agreed that the matter
                          should be studied, and committed the Air Force to conduct a thorough
                          review of the bomber force structure. This information was then to be
                          incorporated into the upcoming programming and budgeting guidance.

Strategy Implementation   In our review of the Quadrennial Defense Review, we reported that the
                          value of the next review could be enhanced by early preparation and
                          recommended that the Secretary of Defense assign responsibility for
                          overall oversight and coordination of DOD preparation efforts. We also
                          suggested that, if the Congress chooses to establish another panel of
                          experts to provide an independent review of defense needs, it may wish to
                          require the panel to complete its work prior to the next Quadrennial
                          Review. The Senate Armed Services Committee, in the DOD Authorization
                          bill for fiscal year 1999 (S. 2060, sec. 905), established a permanent
                          requirement for the Department to conduct a comprehensive assessment
                          of strategy, force structure, modernization plans, infrastructure, budget,
                          and other elements each year in which a President is inaugurated. The
                          Committee also established that the Secretary of Defense appoint a
                          nonpartisan, independent panel by January 1 of the year preceding a
                          presidential inauguration to conduct a similar comprehensive assessment.
                          This panel is to provide two reports: an interim report by July 1 and a final
                          report by December 1.

                          In our review of the personnel cuts recommended in the Quadrennial
                          Defense Review, we found that service officials believe the majority of the
                          cuts will not impact the services ability to implement the national military
                          strategy. The cuts are primarily focused on reducing personnel associated
                          with infrastructure activities or combat forces that are not critical to
                          meeting war-fighting requirements. For example, the Air Force military
                          personnel cuts will focus primarily on replacing military personnel in
                          infrastructure functions with less costly civilians or contractors rather
                          than eliminating functions. Because some aspects of DOD’s plan to reduce
                          personnel will not occur or will be delayed, we believe it is critical that the
                          Office of the Secretary of Defense monitor the services’ progress in
                          achieving the personnel cuts and associated savings.




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                      Last, our audit of DOD’s accounting of its management headquarters and
                      headquarters support activities assisted the House National Security
                      Committee, which cited our work in its reports on the Fiscal Year 1998
                      and Fiscal Year 1999 National Defense Authorization Acts. Our work
                      helped make the case that DOD should revise its headquarters accounting
                      and reporting system, because DOD’s reports to Congress significantly
                      understated the costs and personnel involved.

Combating Terrorism   In recent years, the threat of terrorism has clearly been of increasing
                      concern, prompting the Administration to issue expanded U.S. policy,
                      strategy, and guidance on combating terrorism both at home and abroad.
                      Our work over the past 2 years has highlighted the need for
                      governmentwide priorities to be set, and for focus, coordination, and
                      efficiencies in federal agencies’ roles, missions, programs, activities, and
                      spending to combat terrorism. In the past year, we reported on spending
                      to combat terrorism at several key federal agencies, noting that the Office
                      of Management and Budget (OMB) did not perform crosscutting reviews of
                      the many involved agencies’ and offices’ proposed programs and budgets
                      to avoid duplication and gaps in coverage. In the National Defense
                      Authorization Act for Fiscal Year 1998, the Congress required OMB to
                      establish a governmentwide reporting mechanism to report expenditures
                      to combat terrorism, and, in March 1998, OMB submitted its first annual
                      report to the Congress. In addition, we testified about the growth in the
                      number of agencies and offices involved in programs and activities to
                      combat terrorism and the increasing challenges to coordinate them. We
                      have also performed analyses and evaluations of interagency
                      counterterrorism preparedness and how DOD and other agencies are
                      implementing legislation requiring training of local first responders to
                      better deal with the early hours of terrorist incidents involving weapons of
                      mass destruction. Our work on DOD’s training program for local first
                      responders highlighted the need to perform threat and risk assessments to
                      provide local jurisdictions a sound analytical basis for making decisions
                      about training and equipment requirements. A provision in the Fiscal Year
                      1999 Defense Authorization Act requires that these assessments be
                      incorporated in the program. We also noted problems with the way in
                      which DOD selected cities for training and implemented the program
                      without consideration of existing state and local emergency response
                      structures and training institutions.


Key Open              In our report assessing Air Force aircraft, we recommended that the
Recommendations       Secretary of Defense, in his efforts to reduce DOD’s infrastructure costs,



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require the Secretary of the Air Force to develop an implementation plan
to operate the Air Force’s fighter force in larger, more cost-effective
squadrons. If the Secretary of Defense believes that the plan could reduce
costs, he should seek congressional support for it. (GAO/NSIAD-96-82)

After assessing key combat air power missions, we recommended that the
Secretary of Defense conduct comprehensive cross-service assessments of
overall joint close support mission needs, existing close support systems,
and planned enhancements on a routine basis to determine whether and
which proposed enhancements to close support systems should be
funded, and in what quantities and priority. Such assessments might be
made within the context of the joint warfighting capabilities assessment
process although alternative mechanisms might be explored.
(GAO/NSIAD-96-45)

In our report addressing potential efficiencies in operating the B-1 Bomber
fleet, we recommended that the Secretary of Defense direct the Secretary
of the Air Force to prepare a plan to place more B-1s in the reserve
component and seek congressional support for the plan. (GAO/NSIAD-98-64)

To improve the Army’s ability to accurately project war-fighting
requirements and allocate the Army’s personnel resources, we
recommended that the Secretary of the Army perform analyses to
determine how multiple operations other than war support force
requirements might differ from support force requirements based on two
major regional conflicts and bring any variances to the attention of the
Secretary of Defense so that he can consider them in developing defense
guidance. (GAO/NSIAD-97-66)

See also Chapter 5, Financial and Information Management Programs,
Financial Management and Accountability Issue Areas as well as
Information Management Issue Areas.




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                       GAO   Contact: Kwaicheung Chan, 202/512-3092
Special Studies and
Evaluations (Budget
Function 090)
Impact of GAO’s Work   Congressional committees continue to raise important questions about
                       national security and international affairs issues that are best answered
                       using applied social science research and analytic methods. In fiscal year
                       1998, we conducted a broad range of congressionally requested studies
                       and evaluations that examined (1) the intended and unintended effects of
                       key programs, policies, and investments, such as DOD’s animal research
                       activities, (2) the reliability and validity of data and measures used in
                       policy decision-making, such as the quality of economic and trade data for
                       Southeast Asian countries, and (3) the conditions and outcomes across
                       different programs and activities, such as the relationship between quality
                       of life issues and military retention.

                       Our work on the effectiveness of government research to address Persian
                       Gulf War veterans’ illnesses generated substantial congressional and
                       public interest. Since the conclusion of the war in 1991 more than 100,000
                       veterans have complained of various illnesses, however, we found that DOD
                       and the Veterans Administration (VA) have no effective means to monitor
                       whether these veterans are any better or worse today than when they first
                       started reporting their illnesses. In addition, we found that not only have
                       federal research efforts been delayed but many ongoing studies are
                       unlikely to provide answers about the causes of Gulf War illnesses. We
                       testified before the House Government Reform and Oversight Committee
                       and the House Veterans’ Affairs Committee during 1998 on these findings
                       and results. Our recommendations to improve the monitoring of veterans’
                       health conditions and to reexamine research priorities were subsequently
                       adopted into the National Defense Authorization Act for fiscal year 1998
                       and the Persian Gulf War Veterans Health Care and Research Act of 1998.

                       Congressional concern about the problems associated with Gulf War
                       illnesses has remained high, resulting in several requests for us to conduct
                       follow-up studies. One concern raised is whether Gulf War veterans have a
                       higher risk of developing certain cancers and tumors because of their
                       exposure to hazards in the Persian Gulf. In examining this issue, we found
                       that none of the data sources that provide information on the health
                       characteristics of Gulf War veterans can be used to reliably estimate the
                       incidence of tumors. Existing federal and state data systems are generally
                       limited by poor coverage of the Gulf War veteran population and problems



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of reporting accuracy and completeness. As a result it is not known how
many veterans have tumors and whether they have a higher incidence of
them than other veterans. We conducted additional work to determine the
number of tumors among Gulf War veterans by merging data from
different sources. Based on this analysis, we found a much larger number
of cases exist than previously reported in other government studies of Gulf
War veterans. We presented the results of our work on tumors among Gulf
War veterans before the House Government Reform and Oversight
Committee.

The possible exposure of U.S. troops to low levels of chemical warfare
agents in Iraq in the weeks after the Gulf War is suspected to be one of the
contributing factors in the unexplained illnesses that have plagued many
Gulf War veterans. In another report, we examined the extent to which
DOD doctrine addresses exposure to low levels of chemical warfare agents
on the battlefield and the extent to which existing research addresses the
performance and health effects of exposures to low levels of chemical
warfare agents, either in isolation or combination with other agents and
contaminants that may be present on the battlefield. We found that DOD
does not have an integrated strategy, policy, or doctrine to address
low-level exposures to chemical warfare agents. We also found that
research indicates that low-level exposure to some chemical warfare
agents results in adverse short-term performance and long-term health
effects. Our recommendations that DOD develop an integrated strategy for
addressing force protection issues resulting from low-level chemical
warfare agent exposures were incorporated into the Conference Report of
the DOD Authorization Bill for Fiscal Year 1999.

Our work in other defense areas also provided important information to
congressional decision-makers. We completed a study on the impacts of
federal defense spending and found that existing government data systems
are severely limited in terms of tracking the distribution and types of
spending and employment that occurs at the state and local level. While
the data have some value, particularly at the aggregate level for the nation,
it is important for budget and policy decision-makers who rely on the data
to be alert to data limitations and exercise discretion when using them. In
addition, we reviewed DOD’s operations and organizational structure for
overseeing the operational testing of new weapon systems. We found that
the Office of the Director for Operational Test and Evaluation has
contributed to improved testing of weapons systems. However, several
factors have limited the Office from doing more to ensure that weapons
systems are safe, suitable, and effective when fielded. These include



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                  conflicts with the services regarding oversight authority, a decline in
                  resources, and an expansion of duties into areas other than testing.


Key Open          We recommended that DOD and VA give greater priority to research on
Recommendations   effective treatments for Gulf War veterans who are ill and set up a plan for
                  monitoring their clinical progress. The House passed a bill requiring that
                  VA fund the National Academy of Sciences to conduct a study to determine
                  an appropriate method for implementing GAO’s recommendations.
                  Although VA subsequently contracted with the National Academy of
                  Sciences in 1998, they have not yet developed and implemented a plan to
                  monitor the progress of the Gulf War veterans. (GAO/NSIAD-97-163)

                  In order to more effectively evaluate the incidence of tumors and other
                  Gulf War illnesses over time, we also recommended that the Secretaries of
                  DOD and VA strengthen existing capabilities to track the nature and extent
                  of illnesses affecting Gulf War veterans. DOD and VA are beginning to work
                  on initiatives to enhance the utility of existing data systems, including the
                  transfer of health information and the joint development of a
                  computerized patient record system. In addition, DOD and VA recently
                  funded a few studies to provide information on illnesses in the future.
                  (GAO/NSIAD-98-89)

                  To address the lack of doctrine and research on low-level chemical
                  warfare agent exposures, we recommended that DOD modify its existing
                  policies to address low-level chemical threats and establish a research
                  program for determining the effects of exposures to low-level chemical
                  agents. DOD has not yet indicated how it will respond to these
                  recommendations. (GAO/NSIAD-98-228)

                  See Chapter 3, Improving Human Services Programs, Veterans’ Affairs and
                  Military Health Care Issue Area. See also Chapter 5, Financial and
                  Information Management Programs, Financial Management and
                  Accountability Issue Areas as well as Information Management Issue
                  Areas.




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                       GAO   Contact: Victor S. Rezendes, 202/512-3841
Energy, Resources, &
Science Issue Area
(Budget Functions
250, 270, 300)
Impact of GAO’s Work   Under the topics of energy, resources, and science, GAO conducts
                       evaluations which encompass a broad and diverse group of agencies with
                       concerns and topics ranging from cleaning up the nuclear weapons
                       complex—estimated to cost up to $265 billion—to finding better ways to
                       manage the 650 million acres of land owned by the federal government,
                       equal to almost one-third of our Nation’s total land surface. Agencies with
                       responsibilities in these areas include the Department of Energy (DOE) and
                       related agencies, such as the Nuclear Regulatory Commission (NRC), the
                       Federal Energy Regulatory Commission, and the Tennessee Valley
                       Authority (TVA). A second grouping encompasses various land
                       management and natural resource agencies, including the Department of
                       the Interior (DOI), the Forest Service within the Department of Agriculture,
                       and the Army Corps of Engineers. Finally, there’s an array of science and
                       technology-related agencies, including the National Science Foundation
                       (NSF), the Department of Commerce’s National Institute of Standards and
                       Technology, the Patent and Trademark Office, the National Oceanic and
                       Atmospheric Administration, and the National Technical Information
                       Service. Programs and activities within these agencies account for over
                       $60 billion in gross federal obligations each year with annual revenues of
                       about $10 billion spanning 10 of the government’s 19 budget functions.
                       But, more importantly, the activities of these agencies pose significant
                       implications for the 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,
                       as outlined in the section below, 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:




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•   implement the Government Performance and Results Act, focusing on the
    goals and missions of DOE, NRC, DOI, NSF, and the Forest Service and holding
    them more accountable for their performance and results;
•   enact legislation requiring DOE to use competitive contracting practices
    and follow the Federal Acquisition Regulation;
•   reduce DOE’s budget request for its privatization cleanup initiative by
    $775 million after we questioned the accuracy of DOE’s projected cost
    savings and the need for some of their projects;
•   continue its search for an acceptable alternative for disposing of nuclear
    waste and in assessing the safety, reliability, and security of our nation’s
    nuclear arsenal;
•   develop legislation to prevent U.S. funding to the United Nations from
    supporting the development of Cuban reactors;
•   deliberate on the U.S./North Korean nuclear reactor agreement;
•   use “carry-over” balances and other means to reduce DOE’s, NRC’s, Bureau
    of Reclamation’s, and Commerce’s budgets;
•   estimate savings to the federal government if electricity deregulation
    legislation is implemented;
•   continue its deliberations on the potential privatization of DOE’s four
    power marketing administrations;
•   require the Bureau of Indian Affairs to identify Indian tribes that have
    relatively higher economic needs and target Tribal Priority Allocation
    funds to those tribes;
•   introduce legislation providing for additional funding to restore historic
    properties at historically black colleges and universities after we provided
    information on the universe of such properties and the cost to restore
    them; and
•   enact legislation allowing the Copyright Office to become self-sustaining
    through fees, which should ultimately generate budget savings of more
    than $10 million a year.

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

•   DOE developed a more effective approach for identifying carryover funding
    balances that exceed the requirements of its programs and, as a result, has
    reduced its carryover balances by $2.3 billion since fiscal year 1995.
•   DOE renegotiated its contracts with the University of California for
    managing three national laboratories, giving DOE greater authority and
    eliminating many of the non-standard clauses found in earlier contracts.
•   DOE revised its acquisition guidance to require that contract performance
    and expectations be consistent with DOE’s strategic goals and objectives.



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•   DOE has realized savings of close to $100 million as a result of
    implementing our recommendation to consolidate the purchase of
    laboratory analysis associated with cleaning up its nuclear facilities.
•   The National Park Service embarked on a top-to-bottom revamping of its
    construction practices after we disclosed a “$300,000 outhouse” at one of
    the national parks.
•   The Corps of Engineers has improved its planning and budgeting systems
    for maintaining its hydroelectric power plants and increased their
    availability to generate electricity and resultant revenues.
•   The Bureau of Reclamation reduced its funding for an ecosystem project
    in California by over $58 million after we pointed out that not all the
    money requested for the project was needed.
•   TVA, although originally disagreeing with our assessment of TVA’s financial
    position, has recently recognized the problems we highlighted and stated
    its intention to more directly address them through various means, such as
    rate increases and debt reductions.
•   The Forest Service developed and implemented (1) a benefit-analysis
    process for funding research projects carried out by different Forest
    Service organizations,and (2) a system for limiting the amount of support
    costs that can be used from the Knutson-Vandenberg Fund.
•   The Bureau of Indian Affairs has taken steps to identify Indian tribes that
    have relatively higher economic needs and to target Tribal Priority
    Allocation funds to those tribes.
•   The Minerals Management Service developed and implemented a program
    to verify reported gas production from offshore leases.
•   The Small Business Administration developed a central database to
    provide inter-agency access to information on Small Business Innovation
    Research awards being made by 11 Small Business Innovation Research
    agencies, reducing the risk of duplicate funding of similar research.
•   The National Institute of Standards and Technology now requires
    applicants for financial assistance under the Advanced Technology
    Program to describe what efforts they made to secure private capital to
    support their projects before applying for federal funding.
•   The Patent and Trademark Office (PTO) has begun tracking the actual time
    it spends examining patent applications, greatly enhancing its ability to
    establish fees commensurate with these costs.
•   The Copyright Office raised its fees for special copyright services, adding
    an additional $1 million a year in revenues.




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Key Open
Recommendations
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.
                        Such alternatives, we said, 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, created to provide focus and direction
                        for DOE’s laboratories, has developed a strategic plan for the laboratories
                        and is taking steps to implement 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, and DOE has many
                        initiatives in process addressing the Galvin Task Force recommendations.
                        Meanwhile, various bills have been introduced in the Congress calling for
                        restructuring the laboratories. (GAO/RCED-95-10)

Nuclear Regulation      In May 1994, we recommended that the NRC—in order to ensure the health
                        and safety of workers and the public—establish acceptable limits for
                        radioactivity in sludge, ash, and related by-products at sewage treatment
                        plants that receive radioactive materials from NRC licensees. NRC has been
                        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. Among other things, they
                        are conducting a national survey to assess the extent of radioactive
                        contamination in sludge, ash, and by-products. They are also developing
                        guidance on radioactive materials in sewer sludge, ash, and by-products
                        and, once results of the national survey are available—expected in
                        August 2000—will determine whether a revision to radiation standards is
                        needed. (GAO/RCED-94-133)

                        In another report—in May 1997—we recommended that NRC develop
                        strategies to more aggressively act on safety deficiencies they discover in
                        commercial nuclear power plants. To achieve this goal, we recommended
                        that NRC require inspection reports to fully document for all plants the



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                                  status of the licensees’ actions to address identified problems, including
                                  timetables for the completion of corrective actions and how NRC will
                                  respond to nonconformance with planned actions. In response, NRC has
                                  reported that it is strengthening its processes for assessing the
                                  effectiveness of a licensee’s corrective action program by focusing on
                                  what a licensee has done as opposed to what it plans to do. In addition,
                                  NRC reported that it plans to provide inspectors with more guidance for
                                  closing out issues identified in inspection reports and is developing ways
                                  to better identify and track licensing commitments and to verify their
                                  implementation. While NRC intends to follow more closely the corrective
                                  actions taken by a licensee, it does not plan to track and document in the
                                  inspection reports the status of corrective actions for all
                                  licensee-identified issues, including how NRC would respond to
                                  nonconformances with planned actions. (GAO/RCED-97-145)

International Nuclear Technical   In September 1997, we recommended that the Secretary of State direct the
Assistance                        U.S. inter-agency group on technical assistance, in consultation with the
                                  U.S. representative to the International Atomic Energy Agency (IAEA), to
                                  systematically review all proposed technical assistance projects in
                                  countries of concern, as covered by section 307(a) of the Foreign
                                  Assistance Act of 1961 and related appropriations provisions, before the
                                  projects are approved by IAEA’s Board of Governors, to determine whether
                                  the proposed projects are consistent with U.S. nuclear nonproliferation
                                  and safety goals. If U.S. officials find that any of the projects are
                                  inconsistent with these goals, we recommended that the U.S.
                                  representative to IAEA make the U.S. objections known to IAEA and monitor
                                  the projects in these countries. We also suggested that the Congress
                                  (1) may wish to require the Secretary of State to periodically report to it
                                  on any inconsistency between IAEA’s technical assistance projects and U.S.
                                  nuclear nonproliferation and safety goals, and (2) could explicitly require
                                  the State Department to withhold a proportional share of its voluntary
                                  funds to IAEA that would otherwise go to these countries.

                                  In a June 1998 response to our report, the Department of State indicated
                                  concurrence with our recommendation and reported that it had reformed
                                  an interagency committee which evaluates proposed technical assistance
                                  projects by IAEA member states. In addition, legislation was passed in the
                                  House of Representatives in August 1998 to require the Secretary of State
                                  to report on any inconsistency between IAEA’s technical assistance projects
                                  and U.S. nuclear nonproliferation and safety goals. (GAO/RCED-97-192)




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Plutonium Disposition   Because of uncertainties about Russia’s commitment to implement a
                        long-term program—similar to the U.S. program—to reduce plutonium
                        stockpiles, we suggested that the Congress may wish to consider linking
                        DOE’s future funding requests for large-scale projects to design and
                        construct plutonium disposition facilities in the United States and Russia
                        to progress in negotiating and signing a bilateral agreement. We also
                        suggested that the Congress may wish to consider requesting that the
                        Department of State, and other appropriate agencies, report periodically
                        on efforts to conclude a plutonium disposition agreement between the
                        United States and Russia. Both the House and Senate Appropriations
                        Committee reports stipulate that DOE should not go forward with
                        plutonium disposition efforts with Russia unless an agreement is signed.
                        DOE believes this is reasonable as well and plans to continue working with
                        Russia on negotiating and signing a comprehensive agreement on various
                        aspects pertaining to plutonium disposition. In addition, DOE plans to
                        report periodically to the Congress on its progress in reaching such an
                        agreement. (GAO/RCED-98-46)

Nuclear Waste           Based on concerns about the potential risk of both radioactive and
                        hazardous chemical wastes at the Hanford Site to populations downstream
                        from the nearby Columbia River, we recommended that the Secretary of
                        Energy develop a comprehensive vadose zone strategy for the Site that
                        addresses cleaning up the high-level waste tank farm and the cribs, ponds,
                        trenches, and other waste sites. Among other things, we said the strategy
                        should address the importance of understanding conditions in the vadose
                        zone to ongoing cleanup activities and future decisions on cleaning up the
                        Hanford Site, such as deciding whether to retrieve wastes from leaking
                        single-shell tanks and, if so, how. We also recommended that the Secretary
                        reevaluate, as soon as better information is available on the behavior of
                        wastes in the zone, DOE’s proposed strategy of removing additional wastes
                        from the single-shell tank by injecting pressurized water into the tanks.

                        In April 1998, DOE issued a three-phased plan for integrated study of
                        vadose and groundwater zone issues that, among other things, establishes
                        a site-wide management function responsible for identifying and
                        coordinating activities that pose a potential impact to the Site’s soil and
                        groundwater and to the Columbia River; and provides for identifying data
                        gaps; defining needs, goals, objectives, and near-and long-term priorities.
                        According to DOE, integration of vadose zone and groundwater activities
                        within the plan is necessary to understand how pending major cleanup
                        decisions, such as retrieving waste from tanks, can be most effectively
                        accomplished with the least possible environmental impact. In addition,



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                             based on experience with injection of pressurized water into waste tanks,
                             alternative technology demonstration, and additional insights on the
                             behavior of wastes in the zone, decisions will be made on retrieval of
                             wastes from single-shell tanks that will allow for final tank closure.
                             (GAO/RCED-98-80)

External Regulation of DOE   Although DOE leadership has recognized since 1993 the need for having its
Facilities                   research and nuclear facilities inspected and licensed by independent
                             (external) regulators to help ensure safe operations, it has wavered in its
                             position and still does not have a clear strategy for accomplishing it.
                             Therefore, we recommended that the Secretary of Energy (1) clarify the
                             Department’s position on the external regulation of worker and nuclear
                             facility safety at DOE’s facilities, and (2) develop a strategy to implement it
                             that is consistent with the Department’s position. This strategy should
                             include specific goals, objectives, and milestones and show how the
                             information from the pilot projects, and other techniques, will meet the
                             strategy’s goals and objectives. (GAO/RCED-98-163)

Contract Management          In August 1994, we recommended that DOE, in conjunction with its
                             University of California contracts for the management of three national
                             laboratories, ensure that fees paid to contractors for increased financial
                             risks are cost-effective by developing criteria for measuring their costs and
                             benefits. DOE is in the process of finalizing a new fee policy for profit and
                             nonprofit management and operating contractors and anticipates that it
                             will be completed by the end of 1998. (GAO/RCED-94-202)

                             In another report—in December 1996—we recommended that DOE
                             (1) clearly link management and operating contract goals with its strategic
                             plan and annual performance goals, (2) include a mandatory standard
                             clause in all management and operating contracts that gives DOE the
                             exclusive authority to set contract goals and incentives that support the
                             strategic plans and missions of the Department, and (3) adopt federal
                             contract pricing policies, such as those contained in the Federal
                             Procurement Regulation (FAR). DOE agrees with these recommendations
                             and is in the process of implementing them. (GAO/RCED-97-18)

Strategic Management         In April 1998, we recommended, among other things, that DOE (1) review
                             its organizational structure and seek opportunities to better align the
                             organization with its strategic plan’s business lines, (2) develop specific
                             procedures that state how subordinate strategic and multiyear plans are to
                             relate to the departmental strategic plan, (3) work with its various
                             programs to develop integrated management systems that directly link



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                         required budgetary resources to the level of performance that is identified
                         in the annual performance plans, and (4) modify the agency’s contracting
                         performance goals and fees in contracts for the start of the fiscal year’s
                         work. DOE agrees with these recommendations and is in the process of
                         developing implementing procedures. (GAO/RCED-98-94)

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
                         likelihood that DOE will be unable to begin accepting the waste by that
                         year. In July 1996, a federal circuit court of appeals ruled that DOE was
                         obligated to begin accepting nuclear waste by January 31, 1998. However,
                         because DOE was not going to be able to begin accepting the waste by the
                         deadline, the court, in November 1997, directed DOE to begin pursuing
                         contractual remedies. 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. (GAO/RCED-91-194)

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. We said the policy should provide criteria and flexibility for
                         determining which programs and projects are appropriate for repayment.
                         DOE officials agree with this recommendation and DOE is conducting a
                         comprehensive review of its existing authorities, the experiences of other
                         agencies, and other matters as a basis for adopting a new policy to
                         accommodate it. (GAO/RCED-96-141)

Supercomputers           In a July 1998 report, we noted that given the number and cost of DOE’s
                         existing supercomputers, the unused capacity that exists, and future
                         planned acquisitions, it is increasingly important that DOE better manage
                         the acquisition and use of these systems. We recommended that the
                         Secretary adopt an approach to information technology investment and
                         oversight that meets the criteria set out in the Clinger-Cohen Act. Under
                         such an approach, DOE should adopt a process for acquiring scientific
                         information technology that (1) pertains to all Department-funded
                         supercomputers; (2) ensures, prior to providing funds for the acquisition
                         of any new supercomputers, that a written justification clearly
                         demonstrates the need, addresses the benefits of acquiring the subject
                         supercomputer, and allows for meaningful comparison with alternative



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                             investments; and (3) includes a laboratory-specific analysis of the
                             utilization of existing supercomputers and an analysis of the potential to
                             share supercomputers with other sites and/or programs. We further
                             recommended that the Secretary designate the Department’s most
                             ambitious acquisitions of supercomputer systems—such as those in the
                             Accelerated Strategic Computer Initiative (ASCI) program—as strategic
                             systems warranting oversight at the highest departmental level.
                             (GAO/RCED-98-208)

Intellectual Property Fees   In May 1997, we noted in our report to the Senate Committee on the
                             Judiciary that the Congress may wish to reconsider whether intellectual
                             property fees should be more closely aligned with the costs of the services
                             provided by the government. Regarding patent fees, we suggested
                             considering whether (1) the fee differentials between large and small
                             businesses should be continued, (2) a larger proportion of the fees should
                             be tied to the actual examination process, and (3) applicants requiring
                             more examination time and/or creating delays in examination should pay
                             larger fees. Regarding copyright fees, we suggested considering whether
                             the Copyright Office, like PTO, should be self-sustaining through fees. We
                             recommended that the Copyright Office itself, also like PTO, raise fees to
                             account for inflation when given the authority to do so administratively.
                             Since the issuance of our report, the Congress has been using our analyses
                             in their deliberations on bills to restructure PTO, although final action has
                             not yet taken place. The Copyright Office has indicated that it will raise
                             fees administratively in the future as we recommended. (GAO/RCED-97-113)

Fair Market Value            In April 1996, we reported that the Forest Service is not receiving fair
                             market value for right-of-way fees on Forest Service lands. We
                             recommended that an appropriate fee system be implemented. Both the
                             Forest Service and major industry groups representing private companies
                             that have rights-of-way to operate power lines, pipelines, and
                             communications lines across Forest Service lands, agree on the need for a
                             new fee system. The Forest Service is working with the Bureau of Land
                             Management to develop a common fee system for rights of way that is
                             more reflective of fair market value and expects to implement it by fiscal
                             year 1999. (GAO/RCED-96-84)

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 $300 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



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                          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. In November 1996, the Congress passed Public Law
                          104-333 that, among other things, requires the Park Service to (1) review
                          and revise its criteria for providing employees housing, and (2) assess the
                          conditions of, and need for, its employee housing units. The Park Service
                          is currently reviewing the scope of its employee housing program and is
                          exploring ways to increase private sector involvement in helping to
                          address the housing need. (GAO/RCED-94-284)

Wetlands                  Over $500 million each year is associated with the efforts of federal
                          agencies to protect and restore wetlands. However, the consistency and
                          reliability of the estimates made of the nation’s remaining wetlands
                          acreage and the data reported by the agencies on their accomplishments
                          are questionable. Despite the efforts of five interagency task forces
                          established since 1989 to resolve them, these problems persist. As a result,
                          the progress made toward achieving the goal of a no net loss of the
                          nation’s remaining wetlands, the administration’s new goal of gaining
                          100,000 acres of wetlands each year beginning in the year 2005, or the
                          contributions made by the agencies in achieving these goals cannot be
                          measured.

                          To ensure improvements to such data, we recommended that the
                          Secretary of the Department of Agriculture and the Secretary of the
                          Department of the Interior, in consultation with the Chairman of the White
                          House’s Interagency Wetlands Working Group, develop and implement a
                          strategy for ensuring that all actions contained in the Clean Water Action
                          Plan relating to wetlands data are adopted governmentwide. Such actions,
                          we said, should include, in addition to the ongoing effort to develop a
                          single set of accurate, reliable figures on the status of trends of the
                          nation’s wetlands, the development of consistent, understandable
                          definitions and reporting standards that are used by all federal agencies in
                          reporting their wetlands-related activities and the changes to wetlands that
                          result from such activities. (GAO/RCED-98-150).

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 DOI’s Bureau of Reclamation to share in the profits, thereby reducing
                          the costs to the government of providing the subsidized water. In a



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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. The Bureau of
Reclamation has taken various actions to implement these
recommendations and the Army Corps of Engineers is coordinating with
the Bureau to take others. (GAO/RCED-94-35)

See also Chapter 5, Financial and Information Management Programs,
Financial Management and Accountability Issue Areas as well as
Information Management Issue Areas.




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                            GAO   Contact: Peter F. Guerrero, 202/512-6111
Environmental
Protection Issue Area
(Budget Function 300)
Impact of GAO’s Work        In response to various laws over the years addressing environmental and
                            human health threats, the Environmental Protection Agency (EPA) has
                            established a comprehensive set of regulations aimed largely at controlling
                            the most obvious risks, such as pollution from large industries. This
                            system of setting national environmental standards; issuing permits for
                            discharges to the air, land, and water; monitoring compliance with the
                            permits; and taking enforcement action, if necessary, has been the means
                            for the nation to make substantial improvements in the environment.
                            However, the system is costly and some important limitations have
                            become increasingly clear. The nation spent $122 billion in 1994 (the
                            government’s last national estimate) to comply with environmental
                            regulations and standards, and regulatory requirements that are not
                            sufficiently flexible can impose additional costs with only incremental
                            levels of return. In addition, controls that are overly prescriptive can
                            discourage technological innovation that could help lower these costs.
                            Furthermore, a system focused largely on “end-of-pipe” pollution is not
                            effective in addressing a number of emerging issues, such as nonpoint
                            source pollution (polluted runoff), stratospheric ozone depletion, and
                            global climate change. The prescriptive approach has also at times
                            strained EPA’s working relationship with the states, who generally
                            implement national environmental programs. At a time of high public
                            expectations for environmental protection and continuing concerns about
                            the costs and the economic impact of government regulations, EPA must
                            operate its programs in an efficient and effective manner, address the
                            limitations in the current regulatory system, and prepare to manage new
                            risks as they emerge.

                            During the past year, we have assisted the Congress and EPA by providing
                            information on these challenges and assessing EPA’s efforts to meet them.
                            For example, we

                        •   reported how certain requirements of the Resource Conservation and
                            Recovery Act can have negative effects on hazardous waste cleanups by
                            unnecessarily increasing cleanup costs and completion times,
                        •   testified on EPA’s and the states’ roles and efforts to “reinvent”
                            environmental regulation through innovative methods aimed at achieving




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    “the very best protection of public health and the environment at the least
    cost,”
•   identified ways to improve the clarity and credibility of the economic
    analyses performed to support regulatory decision-making,
•   analyzed the pace and costs of cleanup of hazardous waste sites under the
    Superfund program,
•   reported on EPA’s and the states’ efforts to focus enforcement programs on
    achieving environmental results,
•   analyzed the administration’s global climate change proposal in support of
    the Kyoto Protocol, an international agreement to reduce greenhouse gas
    emissions, and
•   provided our observations on the major management issues facing EPA and
    how the agency can improve its strategic and annual performance plans,
    cornerstones of its efforts to effectively direct its resources and assess its
    performance in carrying out its mission.

    Furthermore, the work we have performed in past years has influenced
    the Congress and EPA to take actions during fiscal year 1998 that will result
    in financial benefits and program improvements. For example, the
    following occurred as a result of our work:

•   The Congress stipulated that $650 million of the Superfund program’s
    appropriations for fiscal year 1998 depended upon reauthorization of the
    program because of issues we raised about EPA’s estimate of its funding
    needs and management of the program. Reauthorization did not occur.
•   EPA took several actions to improve public communications in the
    Superfund and Safe Drinking Water programs, which should enable
    citizens to be better informed and more involved in environmental
    decisions affecting them.
•   EPA improved management and oversight of its initiatives to “reinvent”
    environmental regulation by establishing a management process to
    oversee development and implementation of reinvention across the
    agency and to improve how it sets and communicates its reinvention
    priorities.
•   EPA issued a directive and a plan to enhance the role of states in the
    Superfund program.
•   EPA improved its use of peer review to enhance the quality, credibility, and
    acceptability of the scientific and technical products that may ultimately
    form the basis of regulations and other key agency decisions.




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Key Open                     Although the Congress and EPA have taken many actions in response to
Recommendations              our work, some important recommendations remain and warrant priority
                             attention for implementation.

Air Quality                  The Clean Air Act Amendments of 1990 required EPA to issue a series of
                             regulations—many with ambitious milestones—to address some of the
                             more serious air pollution problems facing the nation. Since 1971, a series
                             of executive orders and OMB directives have required EPA and other federal
                             agencies to consider the benefits and costs associated with individual
                             regulations. We found that EPA needed to improve the presentation and
                             clarity of the information contained in these regulatory impact analyses to
                             enhance their value to both agency decisionmakers and the Congress in
                             assessing the benefits and costs of proposed regulations. For example,
                             many of the regulatory impact analyses that we reviewed did not clearly
                             identify key economic assumptions, the rationale for using these
                             assumptions, the degree of uncertainty associated with both the data and
                             the assumptions used, or the alternatives considered. EPA is addressing
                             these needed improvements in new guidance on preparing economic
                             analyses. The agency anticipates issuing the guidance document in early
                             fiscal year 1999. (GAO/RCED-97-38)

Hazardous Waste Management   EPA’s  Superfund program began in 1980 as a relatively short-term project to
                             clean up abandoned hazardous waste sites. At that time, the country’s
                             hazardous waste problems were thought to be limited. Since then,
                             thousands of waste sites have been discovered, and cleaning them up has
                             proved to be far more complicated and costly than anticipated. Recent
                             estimates show that cleaning up these sites could amount to over
                             $300 billion in federal costs and many billions more in private
                             expenditures. Under the Superfund law, EPA can compel the private parties
                             responsible for contamination at hazardous waste sites to clean them up,
                             or it can conduct the cleanup and demand reimbursement of its costs from
                             the responsible parties. To pay for its cleanups, EPA draws on a
                             legislatively established trust fund that has been primarily financed by a
                             tax on crude oil and certain chemicals and by an environmental tax on
                             corporations. (In December 1995, the authority to collect these taxes
                             expired. However, the trust fund still has an unappropriated balance and is
                             continuing to be used to finance the Superfund program.) Federal agencies
                             generally use their annual appropriations to finance cleanup of the
                             facilities under their jurisdiction.

                             Given the large number of hazardous waste sites to be cleaned up and the
                             tremendous costs involved, we recommended that the Congress consider



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amending the Superfund legislation to underscore the importance of
ranking hazardous waste sites so that resources are targeted to cleaning
up the worst sites first. We also suggested that the Congress encourage
efforts to recover cleanup costs from responsible parties by requiring EPA
to define more broadly which indirect costs are recoverable. We have also
recommended that EPA expedite the issuance of a regulation that would
more broadly define recoverable indirect costs. (GAO/T-RCED-94-274,
GAO/RCED-94-196)


Although one reauthorization bill would have required EPA to place more
emphasis on considering the relative risk of sites when setting cleanup
priorities, the bill did not pass and reauthorization of the Superfund
program is still being debated. EPA has created a panel that uses criteria,
including health and environmental risks, to score and rank sites for
cleanup during the next fiscal year. Other federal agencies have also made
progress in developing processes to rank their sites for funding. However,
not all the agencies have completed inventories of their sites and
consistently implemented their ranking processes. In implementing new
accounting standards, EPA is changing how it defines its indirect costs and
may adopt a new indirect cost rate that would result in the agency
charging more of its costs to responsible parties. However, EPA’s office
responsible for Superfund cost recovery has not yet decided if it will use
the new rate in negotiating the recovery of costs from responsible parties.

EPA relies heavily on contracts and assistance agreements to accomplish
the work of the Superfund program. When EPA awards a contract or enters
into an assistance agreement, it obligates federal funds to cover the cost of
the planned work. As work progresses according to work orders for
individual contracts or work plans for assistance agreements, the agency
makes payments and liquidates its obligations. In April 1997, we reported
that EPA had $249 million in unspent obligated funds available for
deobligation on Superfund contract work orders and assistance
agreements completed prior to calendar year 1997. In response to our
report, EPA began a systematic process to identify funds available for
deobligation by using automated data files. Using this new process, the
agency recovered or had detailed plans to recover all of the funds we
identified as available for recovery. In July 1998, we recommended that
EPA recover unspent obligated funds faster by modifying its analysis of
completed contracts to include a separate analysis in December in
addition to June of each calendar year. EPA officials disagreed with our
recommendation, stating that very little would be gained with an
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                   because a significant number of contracts typically expire in September of
                   each year. For example, an additional review in December 1997 would
                   have identified $115 million for recovery in fiscal year 1998.
                   (GAO/RCED-98-232)

Toxic Substances   To obtain a better understanding of the risks posed by chemicals, EPA is
                   planning to develop a Chemical Use Inventory. Debate on this effort has
                   focused on certain key issues, such as the chemicals to be included.
                   Although EPA had not made final plans, the agency considered collecting
                   data on up to 12,000 chemicals. Because our past work has shown that EPA
                   does not have the resources to effectively compile and analyze data on
                   such a large number of chemicals, we recommended that EPA begin its
                   inventory with a smaller number of chemicals—such as those suspected of
                   presenting the greatest risk to human health and the environment—and
                   then expand the inventory as appropriate. EPA is taking our
                   recommendation into account as it develops its proposal to establish an
                   inventory. The agency anticipates publishing the proposal in the Federal
                   Register during the second quarter of fiscal year 1999. (GAO/RCED-95-165)

                   See also Chapter 5, Financial and Information Management Programs,
                   Financial Management and Accountability Issue Areas as well as
                   Information Management Issue Areas.




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                       GAO   Contact: Lawrence J. Dyckman, 202/512-5138
Food and Agriculture
Issue Area (Budget
Function 350)
Impact of GAO’s Work   GAO conducts evaluations and audits which assess the domestic food and
                       agriculture programs at the Department of Agriculture (USDA), the third
                       largest civilian agency with a budget of about $55 billion. USDA, and the
                       food and agriculture industry it supports, is a vital part of the lives of
                       millions of Americans. Approximately two-thirds of USDA’s budget, or
                       about $36 billion, is spent on federal food and nutrition assistance
                       programs for needy citizens. Each year, American agriculture accounts for
                       about 13.5 percent of the gross domestic product and for about 9 percent
                       of all exports. In addition, about 23 million Americans have jobs related to
                       the food and agriculture economy.

                       Approximately 100,000 USDA employees are responsible for implementing
                       programs that support the productivity and profitability of farming and
                       ranching, protect the natural environment, respond to land use issues,
                       ensure food safety, improve the well-being of rural America, promote
                       domestic marketing and the export of food and farm products, conduct
                       biotechnology and other agricultural research, provide nutritional
                       guidance, and provide food assistance to those Americans who need it.
                       These activities are carried out under USDA’s seven mission areas: Farm
                       and Foreign Agricultural Services; Rural Development; Research,
                       Education, and Economics; Natural Resources and Environment; Food,
                       Nutrition, and Consumer Services; Food Safety; and Marketing and
                       Regulatory Programs.

                       In 1998, USDA continued to implement many of the changes mandated by
                       Congress in 1994 and 1996, which reflect a body of work produced by the
                       Food and Agriculture Issue Area, particularly in the farm commodity
                       program, farm credit, and food safety areas. Specifically, USDA moved
                       forward in implementing the provisions of the 1996 Farm Bill, which,
                       among other things, pushed farm assistance programs to a more
                       market-oriented approach and strengthened the integrity of the farm
                       lending programs. USDA also continued to implement the provisions of
                       Hazard Analysis and Critical Control Point (HACCP), which fundamentally
                       changes the approach to food safety inspections. Additionally, USDA’s Food
                       Stamp Program has changed significantly as a result of major changes to
                       federal welfare programs. While these program changes are occurring,




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    USDA continues to undergo the most massive streamlining efforts in its
    history.

    During 1998, we have also assisted the Congress and USDA in assessing
    USDA’s implementation of these changes. For example, we


•   reported that the federal government’s piecemeal approach to food safety
    is not an effective means of assuring the safety of the nation’s food supply
    and reiterated the need to establish a uniform, risk-based inspection
    system under a single food safety agency to fully achieve an effective food
    safety system;
•   identified hundreds of millions of dollars in the federal food safety budget
    that could be better spent if USDA applied risk-based principles to its meat
    and poultry inspections;
•   testified on major weaknesses in the nation’s imported food safety system
    that allows unsafe food to enter U.S. commerce;
•   evaluated USDA’s progress in implementing its massive reorganization and
    the provisions of the 1996 Farm Bill including the impacts these changes
    are having on federal services to farmers;
•   identified millions of dollars in overpayments to food stamp households
    who included deceased individuals as well as other ineligible individuals in
    their households;
•   highlighted serious weaknesses in the Forest Service’s multimillion dollar
    contracting efforts and recommended a series of actions to decrease the
    agency’s vulnerability to fraud, waste, and abuse; and
•   testified on international and interstate cigarette smuggling as part of the
    congressional debate on the proposed National Tobacco Settlement.

    Furthermore, during 1998, a number of our prior recommendations have
    been implemented by USDA. For example, as a result of our work, USDA

•   lowered its commissions paid to private insurance companies for selling
    federal crop insurance which will save the federal government $27 million
    dollars in fiscal years 1998 and 1999.
•   reduced underwriting profits paid to private insurance companies which
    results in a savings of $72 million annually.
•   improved oversight of its multimillion dollar rural Empowerment Zones
    (EZ) and Enterprise Communities (EC) program, which will allow it to
    better assure that the program is accomplishing its legislative purposes.




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Key Open
Recommendations
Food Safety                  Our past work has been instrumental in the implementation of the new
                             HACCP 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 HACCP regulations. In addition,
                             however, we identified some shortcomings in the federal food safety
                             program that still need solutions beyond a HACCP-based food inspection
                             program. Specifically, we identified the need for Congress to (1) create a
                             uniform set of food safety laws that are administered by a single food
                             safety agency, (2) provide that agency with the flexibility to target its
                             inspection resources to the most serious food safety risks, and
                             (3) consider extending the Food Safety and Inspection Service’s (FSIS)
                             discretionary inspection authority and requiring FSIS to implement a
                             discretionary inspection program for meat and poultry processors. In
                             response to these recommendations, Congress continues to urge the
                             Administration to proceed with the development of a single-food safety
                             agency. Furthermore, in August 1998, the President issued an executive
                             order establishing an executive council to oversee federal safety activities.
                             Finally, congressional and agency officials have stated that discretionary
                             inspection authority will be considered once the new HACCP regulations
                             have been fully implemented and evaluated. (GAO/RCED-92-152,
                             GAO/RCED-94-192, GAO/RCED-94-110)


                             Most recently, in 1998, we reported that federal agencies cannot ensure
                             that the growing volume of imported foods is safe for consumers. Given its
                             lack of authority to require equivalency in foreign food safety systems, FDA
                             relies primarily on port-of-entry inspections and tests to ensure the safety
                             of imported foods. Because port-of-entry inspection and testing has been
                             widely discredited as an effective means of ensuring safety, FDA cannot
                             realistically ensure that unsafe foods are kept out of U.S. commerce. To
                             strengthen FDA’s ability to ensure the safety of imported foods, we
                             recommended, among other things, that the Congress require all food
                             eligible for importation to the United States, not just meat and poultry, be
                             produced under equivalent food safety systems. Congress is considering
                             what, if any, legislative action it will take to correct this problem.
                             (GAO/RCED-98-103)

Foreign Pests and Diseases   Foreign pests and diseases entering the United States cost an estimated
                             $41 billion annually in lost production and expenses for prevention and
                             control. USDA’s Animal and Plant Health Inspection Service (APHIS) is



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                  responsible for minimizing the risks of infestation and disease and
                  protecting the health of U.S. agriculture. On the basis of our review, we
                  recommended several actions to better ensure that APHIS identifies harmful
                  pests and diseases through the inspections it conducts. APHIS agreed with
                  problems noted in our report and has begun implementing actions to
                  address our recommendations. (GAO/RCED-97-102)

Food Assistance   USDA spends about two-thirds of its budget, or about $36 billion in fiscal
                  year 1998, on 15 separate food assistance programs. Our reviews of two of
                  these programs, the Food Stamp Program—about $22 billion in food
                  benefits in fiscal year 1996—and the Special Supplemental Nutrition
                  Program for Women, Infants, and Children (WIC)—about $2.7 billion in
                  food benefits in fiscal year 1996—have identified potential areas of fraud,
                  waste, and abuse and opportunities to reduce program costs.

                  Our most recent reviews of the Food Stamp Program identified large
                  numbers of ineligible individuals included in households receiving food
                  stamp benefits. In one report we identified nearly 26,000 deceased
                  individuals in four states who were included in households receiving food
                  stamps for the 2-year period 1995 through 1996. These households
                  improperly collected an estimated $8.5 million in food stamp benefits. In
                  order to ensure the integrity of the Food Stamp Program by preventing
                  deceased individuals from being counted as household members, we
                  recommended that Congress enact legislation to enable the Social Security
                  Administration (SSA) to disclose all information from its Death Master File
                  to the states administering the Food Stamp Program. Legislation has been
                  enacted that would require the states to enter into arrangements with SSA
                  to share information in its Death Master File and to use this information to
                  preclude deceased individuals from being included in households
                  receiving benefits. In another review, we found that duplicate participation
                  by members of food stamp households in more than one state results in
                  millions of dollars of overpayments. To resolve this problem, we
                  recommended that the Food and Nutrition Service (FNS), within USDA,
                  consider establishing a central system to help ensure that individuals
                  participating in the Food Stamp Program are not being improperly
                  included as household members in more than one state concurrently. As
                  part of this effort, FNS should conduct a feasibility study to identify options
                  and provide a cost-benefit estimate for each option. FNS agreed to conduct
                  this feasibility study. (GAO/RCED-98-53, GAO/RCED-98-228)

                  Based on our review of the states’ implementation of the WIC program, we
                  recommended that FNS work with the states to identify and implement cost



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                             containment initiatives, including policy and regulatory and legislative
                             revisions, to reduce or eliminate the obstacles that may discourage such
                             initiatives. We also recommended that FNS take the necessary steps to
                             ensure that the state agencies are requiring WIC participants to provide
                             evidence that they reside in the states where they receive WIC benefits and
                             to provide identification when their eligibility is certified and when they
                             receive food or food vouchers. USDA has begun implementing actions to
                             address our recommendations. (GAO/RCED-97-225)

Farm Programs                The Federal Agriculture Improvement and Reform Act of 1996 significantly
                             changed many of USDA farm programs. This act promotes the transition of
                             the agriculture sector from programs funded by government subsidies to
                             ones that are more market oriented. Based on our review of USDA’s
                             efficiency in delivering program services to farmers under the revamped
                             farm programs, we recommended that USDA study the costs and benefits of
                             using alternative delivery methods to deliver services to farmers more
                             efficiently thereby reducing federal expenditures. USDA generally agreed
                             with the intent of this recommendation and is in the process of preparing a
                             summary of actions it plans or has already taken in response to this
                             recommendation. (GAO/RCED-98-98)

                             Through its farm credit programs, USDA provides loans and loan guarantees
                             to financially troubled farmers. In 1994, responsibility for the farm credit
                             programs was transferred within USDA to the Farm Service Agency (FSA),
                             which was newly formed from several USDA activities. The potential for
                             conflicts of interest in this program increased by adding individuals to the
                             consolidated FSA agency who had not been previously subject to conflict of
                             interest restrictions on farm loans. We reported that as of March 1997, FSA
                             had identified 1,767 cases in which its employees or county committee
                             members had loans or relationships with borrowers that required action to
                             avoid conflicts of interest. Based on this review, we recommended that FSA
                             clarify its policy and guidance defining situations constituting potential
                             conflicts of interest and actions that are needed for addressing such cases.
                             FSA is in the process of amending its personnel handbook for federal
                             employees to clarify requirements for avoiding conflicts of interest.
                             (GAO/RCED-97-104)

Forest Service Procurement   The Forest Service, within USDA, awarded $443 million on 6,475 contract
Practices                    actions in fiscal year 1996 for a wide variety of goods and services, such as
                             building construction, tree planting, research studies, and aircraft and
                             helicopters for suppressing fires. Our review of the Forest Service’s
                             contracting practices revealed that the Forest Service is highly vulnerable



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to fraud, waste, and abuse because it does not have an effective system of
internal controls for its contracting activities. To address these
weaknesses, we recommended several actions to improve the agency’s
compliance with the Federal Managers Financial Integrity Act and GAO’s
standards for internal control. In response to these recommendations, the
Forest Service has committed to developing an internal control plan,
which addresses needed improvements in the areas of contract file
documentation, routine supervisory review of contracting activities, and
contract management information. The Forest Service also plans to ensure
contracting officers’ representatives are trained and certified in
accordance with USDA policy. They also plan to develop a system to
periodically monitor and assess compliance with internal control
standards. (GAO/RCED-98-88)

See also Chapter 5, Financial and Information Management Programs,
Financial Management and Accountability Issue Areas as well as
Information Management Issue Areas.




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                           GAO   Contact: Judy A. England-Joseph, 202/512-7631
Housing and
Community
Development Issue
Area (Budget
Functions 370, 450)
Impact of GAO’s Work       More than 300 federal programs and activities, scattered among 28
                           agencies, are aimed at providing decent, affordable housing and healthy,
                           vibrant communities. Created in 1965, the Department of Housing and
                           Urban Development (HUD), including the Federal Housing Administration
                           (FHA), is the principal federal agency responsible for about 240 of these
                           programs and activities. Other key agencies with housing or community
                           development programs include the Department of Veterans Affairs (VA),
                           the Rural Housing Service, the Small Business Administration (SBA), and
                           the Federal Emergency Management Agency (FEMA).

                           The Congress continues to deliberate how the federal government should
                           address the housing needs of its citizens—including first time homebuyers,
                           families with low income, the elderly, persons with disabilities, and the
                           homeless. Our work has significantly added to congressional debate and
                           decision-making on the future of housing and community development at
                           the federal and state levels. Highlights of some of our work and the actions
                           that the Congress, HUD, and its agencies have taken as a result are
                           described below.

                       •   Our work on HUD’s financial management of its Section 8 assisted housing
                           programs identified substantial weaknesses in HUD’s oversight of and
                           budgeting for the project-based and tenant-based programs. We found
                           nearly $11 billion of excess unexpended budget authority, much of which
                           the Congress has since rescinded. In our 1998 budget reviews, we found
                           flaws in HUD’s budget process that led HUD to significantly overestimate
                           program needs. HUD has already implemented our recommendations.
                       •   We reported that HUD could improve its administration of the Performance
                           Funding System, which provides $2.8 billion in subsidies each year to
                           public housing agencies. Among other things, we found that the subsidies
                           are not sufficient to adequately supplement some housing agencies’
                           budgets. In recently enacted legislation—Public law 105-276, section 519,
                           Congress created two new funds—the Capital Fund and the Operating
                           Fund—for providing subsidies to public housing agencies. Under this new




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    authority, HUD must develop a formula for determining the amount of
    assistance to be provided to public housing agencies.
•   Our work on HUD’s HOPE VI Program (a program to help revitalize
    severely distressed public housing) provided the Congress with critical
    information that the federal government’s 5-year, $3 billion investment is
    beginning to produce results; and pointed out barriers that delay or
    prevent improvements. To ensure that federal expenditures are producing
    results, we recommended that HUD develop performance measures for the
    community and support services at HOPE VI sites. HUD is developing such
    performance measures.
•   HUD is improving its oversight procedures of real estate asset management
    contractors, as a result of the substantial problems we reported. These
    contractors are responsible for maintaining and safeguarding HUD’s
    inventory of foreclosed single family properties—about 55,000 properties
    per year. We found that the oversight weaknesses had contributed to poor
    conditions at some properties.
•   HUD is implementing recommendations we made for improving its
    administration of FHA’s Risk Sharing Demonstration Programs, which are
    designed to expand the production of rental housing affordable to lower
    income families.
•   Based on our recommendation, HUD has increased its communications
    with its field offices and housing agencies and has attempted to clarify its
    role in welfare reform. This action is critical because public housing
    agencies and HUD field offices lack information needed to help residents
    move from welfare to work.
•   Our report on Native American homeownership opportunities on trust
    lands provided the Congress with evidence that few Native Americans
    have purchased homes on trust lands by using private, conventional
    financing. This report will assist congressional decisionmakers when
    expanding housing opportunities for Native Americans because it
    pinpoints the barriers to private mortgage financing.
•   As a result of our limited work on FHA home loan appraisals, HUD
    announced several reforms designed to protect FHA home buyers against
    bad appraisals and removed seven FHA appraisers from FHA’s roster of
    approved appraisers.
•   In response to our report that identified weaknesses in HUD’s management
    and oversight of its home improvement loan program, HUD plans to: ensure
    that information on the types of loans made is accurate; increase the
    number of claims subject to an underwriting review; and, monitor and
    target lenders for review.
•   In line with our recommendations, FEMA established new policy guidance
    concerning its use of an expedited process for providing temporary



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                         housing assistance to disaster victims. This guidance will help ensure
                         equitable treatment of disaster victims and provide for temporary housing
                         assistance when warranted.

                         The work we have performed in past years has also resulted in program
                         improvements during 1998. Examples of these improvements are shown
                         below.

                     •   The Congress terminated funding for HUD’s Low-Income Housing
                         Preservation Program. Continuing the program would have cost about
                         $2 billion over the next several years.
                     •   HUD has taken steps to improve the accuracy of its public housing
                         management assessment program by, among other things, establishing a
                         national real estate assessment center that will evaluate housing agency
                         performance based on independent information, relying less on
                         information provided by the housing agencies.
                     •   HUD instituted a system to track annual progress reports submitted by
                         Housing Opportunities for Persons With AIDS Program grantees. As a
                         result, HUD can determine if the agency has complete fund use data and
                         better assess the program’s overall accomplishments. HUD has also
                         reviewed the formula used to distribute program funds, per our
                         recommendation.
                     •   HUD strengthened its credit subsidy estimates for its Nursing Home
                         Program, which will enable HUD to better measure the outcomes of this
                         program.
                     •   HUD reestablished a requirement that its field offices review a specific
                         percentage of completed FHA single-family home appraisals, which will
                         provide some assurance that appraisals comply with statutory, regulatory,
                         and administrative requirements and will help monitor the quality of
                         appraisers.


Key Open
Recommendations
Low-Income Housing       In an April 1998 report, we recommended that the Secretary of HUD direct
                         the Commissioner of the Federal Housing Administration to explore the
                         feasibility of amending current program regulations to authorize the
                         reinsurance demonstration program’s use with 18-year balloon mortgages
                         and with loan pools. By allowing wider program use, the program would
                         encourage greater production of affordable rental housing. We also
                         recommended that HUD correct current flaws in information systems used



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                 to support and monitor both the reinsurance and credit enhancement
                 demonstration programs. HUD needs better data to accurately evaluate the
                 overall performance of individual projects and to ensure that its
                 risk-sharing partners are complying with the demonstration programs’
                 procedures and regulations. HUD plans, but has not begun, to take
                 corrective action. (GAO/RCED-98-117)

                 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. HUD’s
                 2020 Management Reform Plan contains a strategy to address the very
                 poor physical conditions at properties supported by HUD’s project-based
                 assistance. Under its reform plan, HUD has created a Department-wide Real
                 Estate Assessment Center, which is responsible for reviewing projects’
                 physical inspection results and financial performance data to identify
                 problem properties early. Several regional Multifamily Hubs and Program
                 Centers have also been created to provide improved asset management.
                 Finally, an Enforcement Center with field offices has been established to
                 take remedial action of noncompliance persists. If HUD’s strategy is
                 successfully implemented, it would meet the intent of our
                 recommendations. However, since HUD has only recently taken these new
                 initiatives, it is premature for us to assess their effectiveness.
                 (GAO/T-RCED-94-273)

                 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. Legislation authorizing HUD to merge the two rental assistance
                 programs was enacted as part of Public Law 105-276, section 545.
                 (GAO/RCED-89-20)

Welfare Reform   Because many of the people that HUD serves depend on federal cash
                 assistance for some or all of their income, welfare reforms are likely to
                 affect HUD’s programs. HUD’s role in welfare reform is driven, in part, by the
                 large numbers of tenants who currently receive welfare benefits whose
                 incomes will decline if they do not find jobs or other sources of income
                 within the time limits now placed on federal assistance. HUD’s own



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                           financial status depends, to some extent, on these tenants’ success in
                           replacing welfare benefits with earnings. In our June 1998 report, we made
                           several recommendations to HUD that we believe are critical in assisting
                           public housing authorities in their efforts to help residents move from
                           welfare to work. Per our recommendation, HUD has increased its
                           communications with its field offices and housing agencies and has
                           attempted to clarify its role in welfare reform. However, HUD has yet to
                           fully implement our recommendation to (1) provide technical assistance
                           and data on tenants’ characteristics along with guidance that would help
                           housing agencies manage their units and determine the potential impact of
                           welfare reform, and (2) develop a comprehensive strategy to help link field
                           office and housing agency staff with federal, state and local welfare reform
                           efforts. (GAO/RCED-98-148)

Lead-Based Paint Hazards   The risk of poisoning from lead-based paint continues to threaten the lives
                           of 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, we issued a
                           report that found (1) public housing authorities were not complying with
                           emergency abatement or relocation regulations for children with elevated
                           blood lead levels and (2) HUD was not complying with 1988 legislative
                           requirements aimed at abating lead-based paint hazards from public
                           housing nor ensuring that public housing authorities were complying with
                           its testing, abatement, and notification requirements. In the June 7, 1996,
                           Federal Register, HUD published a proposed rule covering notification,
                           evaluation, and reduction of lead-based paint in federally-owned and
                           assisted housing. However, HUD has not yet finalized the regulations and
                           thus, the regulations have not yet been sent to OMB for approval.
                           (GAO/RCED-93-138)

Telecommunications         The Telecommunications Act of 1996, among other things, extended
                           universal service support to schools and libraries. The general purpose of
                           the program is to improve the access of schools and libraries to modern
                           telecommunications services. To administer the program, the Federal
                           Communications Commission (FCC) directed the establishment of the
                           Schools and Libraries Corporation. As a start up operation, the
                           Corporation developed operating procedures and internal controls to
                           implement FCC’s orders guiding the program. Since January 1998, the
                           Corporation has received over 32,000 applications from schools and
                           libraries requesting funding for up to $2.5 billion in discounts on
                           telecommunications, Internet access and internal connection services. In



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July 1998, we recommended that the FCC Chairman direct the Corporation
to complete specific actions to strengthen weaknesses we found in the
Corporation’s internal controls before issuing any funding commitment
letters to schools and libraries. In addition, we recommended the
Chairman direct the development of goals, measures, and performance
targets for the program that are consistent with the requirements of the
Results Act. On July 16, 1998, the FCC Chairman directed the Corporation
to adopt all of our recommendations. As of December 1998, the
Corporation had implemented most of our recommendations and had
begun to issue commitment letters to schools and libraries.
(GAO/T-RCED-98-243)

See also Chapter 5, Financial and Information Management Programs,
Financial Management and Accountability Issue Areas as well as
Information Management Issue Areas.




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                               GAO   Contact: John H. Anderson, Jr., 202/512-2834
Transportation 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 safely meet the needs of the
                               traveling public.

                               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 and Coast Guard       During 1998, FAA implemented two of our key recommendations dealing
Issues                         with aviation infrastructure and aviation safety. FAA

                           •   finalized an integrated Global Positioning System augmentation plan that
                               includes a schedule, cost estimates and the probability of meeting them;
                               and
                           •   formed a national certification team to assist its district offices in
                               reviewing the safety of new airlines during their first year of operation and
                               to focus inspections on airlines that experience elevated rates of
                               safety-related problems.

                               Also, based on our recommendations, the Congress took actions that
                               resulted in $181 million in measurable savings. Specifically, the Congress

                           •   reduced FAA’s facilities and equipment funding by nearly $97 million; and
                           •   terminated the Coast Guard’s Vessel Traffic System program, resulting in a
                               two-year savings of nearly $84 million.




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                                 Finally, we saw action taken on a number of other recommendations that
                                 will benefit consumers, improve government efficiency, and make air
                                 travel safer. During fiscal year 1998,

                             •   to remove some barriers to competition that new entrant and other
                                 airlines face, DOT granted authority to Chicago’s O’Hare and New York’s La
                                 Guardia airports to create 31 landing/takeoff spaces, known as slots, for
                                 airlines to serve small and medium-sized communities that were
                                 experiencing a decline in air service;
                             •   to improve aviation security, the FAA, in conjunction with the Federal
                                 Bureau of Investigation (FBI), began developing security threat information
                                 and plans to conduct joint threat assessments at 31 major airports
                                 designated as high-risk; and
                             •   to better address its impending funding shortfall, the Coast Guard began
                                 quantifying the anticipated cost savings from its actions to reduce its
                                 future funding needs and implemented procedures to ensure that
                                 appropriated staffing funds for acquisition, construction, and improvement
                                 projects are used in accordance with annual appropriations acts.


Surface Transportation and       DOT took action on one of our key recommendations concerning Boston’s
Other Issues                     $11 billion Central Artery/Tunnel project—one of the largest, most
                                 complex, and most expensive highway construction projects ever
                                 undertaken. In July, 1997, we questioned whether the project’s finance
                                 plan would be sufficient to meet its financing needs. Subsequently, the
                                 State of Massachusetts provided its updated financing plans and a
                                 contingency funding plan to complete the project if less than the expected
                                 federal dollars were directed to the project.

                                 We also had significant legislative impact. On September 30, 1997, when
                                 the existing surface transportation authorizing legislation, the Intermodal
                                 Surface Transportation Efficiency Act of 1991, expired, the Congress had
                                 not reached agreement on reauthorizing legislation. Based on our analysis
                                 of the adverse impact that a lack of authorization would have on states’
                                 surface transportation programs, the Congress passed short-term
                                 legislation that provided additional funding and added flexibility for states’
                                 use of existing funds.

                                 Also, as a result of our recommendations on the impact of the North
                                 American Free Trade Agreement, DOT now requires border states to use
                                 performance-based criteria as part of their grant requests for funding to




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                               improve the safety of commercial vehicles entering the United States from
                               Mexico.

                               Finally, in response to our recommendations, DOT made a number of
                               significant changes on its Draft Strategic Plan, which was required by the
                               Government Performance and Results Act of 1993.


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.

Fees for Registering and       A potential option for dealing with limited FAA resources is to increase
Certifying Aircraft            existing fees 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. 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 has been processing a Notice of Proposed
                               Rulemaking to increase aircraft registration fees. DOT has been modifying
                               the proposed rule to include provisions of the Federal Aviation
                               Administration Drug Enforcement Assistance Act, which also deal with
                               fees associated with aircraft registration. Because of the substantial
                               changes required, DOT anticipates publishing a Supplemental Notice of
                               Proposed Rulemaking. (GAO/RCED-93-135}

FAA’s Wide Area Augmentation   As a part of FAA’s multi-billion dollar modernization effort, the agency
System                         plans to field a network of ground stations and geostationary satellites
                               which would use DOD’s Global Positioning System to locate and track
                               aircraft. FAA expects that this network, known as the Wide Area
                               Augmentation System, will permit the agency to phase out existing
                               ground-based navigation aids and achieve considerable savings. However,
                               we found that a high degree of uncertainty exists in FAA’s ability to meet its
                               implementation milestones and find a vendor to field a system of
                               geostationary satellites by FAA’s target date of October, 2001. Additionally,
                               we found that if small increments of passenger time savings were
                               considered in FAA’s benefit-cost analysis for its Wide Area Augmentation
                               System, the projected benefits would exceed costs, but not to the extent
                               that FAA officials had originally reported. In April, 1998, we recommended
                               that the Secretary of Transportation direct the FAA Administrator to report
                               to the Congress on (1) the range of milestones for initial and full Wide



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Area Augmentation System operations and the probabilities of meeting
them; (2) the agency’s detailed strategy for leasing geostationary satellites,
and (3) an updated benefit-cost analysis, including a comparison with
alternative investments and the impact of small increments of passenger
time savings on the analysis. FAA has initiated work to respond to these
recommendations and expects to complete the work in mid 1999.
(GAO/RCED-98-79)

See also Chapter 5, Financial and Information Management Programs,
Financial Management and Accountability Issue Areas as well as
Information Management Issue Areas.




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                       GAO   Contact: Carlotta C. Joyner, 202/512-7002
Education and
Employment Issue
Area (Budget
Function 500)
Impact of GAO’s Work   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 on elementary and secondary education issues has been used to
                       improve students’ access to appropriate education nationwide as well as
                       within the District of Columbia (D.C.) public schools, for which the
                       Congress has special oversight responsibility. Development of Individual
                       Education Programs for children with disabilities is a crucial, statutorily
                       required part of ensuring that they receive appropriate educational and
                       other services. We reported, however, that the deadline (July 1,
                       1998) Education had set for updating all students’ Individual Education
                       Programs for them to be in compliance with the 1997 amendments to the
                       Individuals with Disabilities Education Act was so difficult for school
                       districts to meet that they were concerned about the quality of the
                       Individual Education Programs’ process. Based in part on our work,
                       Education changed its position. The Department requires only that
                       Individual Education Programs developed on or after that date must meet
                       the new standards; Individual Education Programs developed before that
                       time need no longer be revised before July 1.

                       We also provided information to Congress identifying problems faced by
                       new charter schools getting access to federal funds because they lack the
                       historical enrollment data often required by program applications. In
                       response, Education’s 1998 appropriations bill directed Education to issue
                       guidance that clarified the options available to states and school districts
                       in the distribution of federal funds to new charter schools. Within D.C., our
                       work led to better assurance that only students eligible to attend school do
                       so and that the reported school enrollment is accurate—improvements
                       that can help avoid overpayment of federal funds to the schools. D.C. Public




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Schools implemented a policy to clarify, document, and enforce residency
verification requirements for students and their parents. Under this policy,
nonresident students would be identified and allowed to enroll only if they
paid tuition. D.C. also, as we recommended, provided for an independent
audit of student enrollment.

Our resources for work in higher education have been focused primarily
on the multi-billion dollar federal student financial aid programs—one of
the high-risk areas that GAO has identified as being vulnerable to waste,
fraud, abuse, and mismanagement. Although some progress has been
made (see discussion below), problems continue to develop in Education’s
management of these programs. Our work during this year led to
correction of one new set of problems that was interfering with timely and
accurate consolidation of multiple student loans into a single loan so that
borrowers could more easily pay off their loans and avoid defaulting on
them. The Department’s actions should prevent such problems as
identifying which loans a borrower has and the correct amount of the
loans.

The focus of our work in the area of workforce skills and jobs has been on
identifying 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. Our multi-year
program of work on the multiple employment training programs funded by
the federal government identified many problems associated with this
fragmented, overlapping system. The Workforce Investment Act of
1998—major legislation to overhaul and streamline the nation’s federally
funded employment training system—implements many actions we had
recommended. These include restructuring multiple programs into three
block grants (adult training, youth training, and dislocated worker
assistance), which eliminates many separate funding streams and
set-asides; standardizing definitions; and establishing common
performance measures. In addition, all states and localities are now
required to establish one-stop career centers to facilitate job seekers’ and
employers’ access to services. The Act also requires that Job Corps
participants be assigned to the closest center, which—we pointed
out—will allow the center to better link training to local labor market
needs and increase the prospects of participants getting jobs.

With respect to worker protection, our work has focused on the
maintenance of workplace protections for employees while minimizing the
regulatory compliance burden on employers. Two agencies within



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Labor—the Occupational Safety and Health Administration (OSHA) and the
Employment Standards Administration’s Wage and Hour Division—took
important actions in response to our recommendations. OSHA improved in
three areas. First, OSHA changed its approach in assessing the effectiveness
of state-operated programs (which operate in lieu of OSHA if OSHA approves
them to do so). It now emphasizes program outcomes and evaluation in its
reviews rather than focusing primarily on what the states are doing and
how they are doing it. Second, OSHA has also encouraged states to enter
into voluntary performance agreements that define objective performance
goals that could be used as an alternative to routine monitoring by OSHA.
Third, OSHA also made a significant improvement in protecting the safety of
workers at construction sites. We had recommended that OSHA revise its
policies so that, if the hazard would still be present in a new location,
construction employers had to correct the condition, equipment, or
procedure that created the hazard found in an inspection instead of just
moving the unsafe equipment to another location or closing the site as a
way to abate the hazard. OSHA issued directives that not only documented
general procedures employers must follow to abate hazards but also
specifically implemented these two recommendations.

In addition, OSHA improved its Integrated Management Information System,
a publicly accessible database that tracks OSHA inspection activity, to
correct a problem we identified. We reported that its Integrated
Management Information System may contain inaccurate information on
the results of certain types of inspections and recommended that OSHA
immediately review the adequacy of this database. OSHA reviewed the past
3 years’ data and clarified its procedures regarding the use of this
information. Our work also played a major role in the Wage and Hour
Division’s efforts to improve the wage data used to determine prevailing
wage rates under the Davis-Bacon Act. In response to our
recommendation, the Wage and Hour Division implemented a process to
verify, through telephone calls and on-site visits, the accuracy of the wage
data employers submit.

Another agency, the Consumer Product Safety Commission, is taking
actions that will affect not only workers but all consumers. Our
recommendations would improve the commission’s ability to collect data
on potential product hazards, analyze this information, and manage
ongoing agency projects to reduce consumer product hazards. The
commission developed a new database to better manage its projects and
improved its cost-benefit analysis procedures.




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                 Finally, we reviewed several drafts and the final strategic plans as well as
                 the fiscal year 1999 annual performance plans produced by the
                 Departments of Education and Labor. We provided Congress our overall
                 assessments of these plans and suggested areas where the plans could be
                 improved. Both departments have used our suggestions in revising their
                 plans. For example, Labor has revised its strategic goals to be more
                 mission focused and improved the discussion of its coordination activities
                 and use of program evaluations.


High-Risk Area   We have designated student financial aid as a high-risk area. Our latest
                 high-risk series report summarizes and updates both our continuing
                 concerns about the Department of Education’s vulnerabilities in managing
                 and overseeing the student aid programs as well as progress in
                 strengthening the program’s fiscal and management control systems.
                 Although the Department of Education has shown a commitment to
                 improving its management of the student aid programs, the financial risk
                 to U.S. taxpayers remains substantial. The major student aid
                 programs—the Federal Family Education Loan Program, Federal Direct
                 Loan Program, and Pell Grants program—employ complex and
                 cumbersome processes with many participants, as they provide over
                 $43 billion of aid for postsecondary education students. The addition of
                 the Federal Direct Loan Program made the management of the student aid
                 programs an even greater challenge for the Department. Also, to maximize
                 access to aid funds, the Higher Education Act placed nearly all the
                 financial risk of loan defaults (which totals over $3.3 billion in 1997) on the
                 federal government.

                 Management shortcomings are another major problem. Reviews by us,
                 congressional committees, and the Department’s Inspector General have
                 shown that the Department (1) did not adequately oversee schools that
                 participate in the programs; (2) relied too heavily on managing each title
                 IV program through separate administrative structures, with poor or little
                 communication among programs; (3) used inadequate management
                 information systems that contained unreliable data; and (4) did not have
                 sufficient and reliable student loan data to determine the liability
                 associated with outstanding loan guarantees.

                 The Department has generally been responsive to addressing problems in
                 its student aid programs, and many of those actions appear to be achieving
                 some results. For example, annual collections on defaulted loans have
                 increased over the 5 years ending in fiscal year 1996, from $1 billion to



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                          $2.8 billion, although they totaled only $2 billion in 1997. The Department
                          is also continuing a major reengineering effort that it expects will resolve
                          problems with data reliability and communication among programs in the
                          next several years. It is envisioned as a student-based, integrated data
                          system through which all management and control functions will be
                          conducted.


Key Open
Recommendations
Department of Education   In our 1992 transition series report, we recommended that the Department
Management                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 continuing the redesign of its core
                          financial management systems. However, during 1998, the Department has
                          had to focus much of its management information systems resources on
                          solving the Year 2000 problem—the inability of many computer programs
                          to correctly process dates after January 1, 2000. Although the Department
                          has made progress in implementing our recommendation, even without
                          the need to refocus resources on the year 2000 problem, its initiatives are
                          long term efforts that will require more time to complete (GAO/OCG-93-18TR).

Head Start                In our April 1997 report on research studies of the impact of the current
                          Head Start program, we reported that although research has been
                          conducted, it does not provide information on whether today’s Head Start
                          is making a positive difference in the lives of participants. While we
                          acknowledged the difficulties of conducting impact studies of programs
                          such as Head Start, we concluded that research could be done that would
                          allow the Congress and the Department of Health and Human Services
                          (HHS) to know with more certainty whether the $4 billion annual
                          investment in Head Start is making a difference. We recommended that the
                          HHS secretary include in HHS’ research plan an assessment of the impact of
                          Head Start programs. The Department has begun action to improve its
                          approach to conducting impact studies such as we recommended;
                          however, their actions to date are insufficient. In a June 1998 report we
                          also recommended that the Department should develop and implement a
                          plan for assessing individual Head Start grantee’s performance based on
                          outcomes, such as their ability to show improvement in children’s




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                           cognitive skills, literacy, and gross motor skills. (GAO/HEHS-97-59,
                           GAO/HEHS-98-186)


U.S. Commission on Civil   We recommended that the U.S. Commission on Civil Rights develop and
Rights                     document policies and procedures that (1) assign responsibility for
                           management functions to the staff director and other Commission
                           officials; and (2) provide mechanisms for holding them accountable for
                           properly managing the Commission’s day-to-day operations. We specified
                           that this effort should include establishing a management information
                           system for commissioners and staff to use to plan projects and track
                           progress using the best information available on projects’ expected and
                           actual costs, timeframes, staffing levels and completion dates. The
                           Commission is in the process of implementing our recommendations. For
                           example, a management information system that will track the status of
                           projects and the resources committed to them is nearing completion.
                           (GAO/HEHS-97-125)

Job Corps                  In a series of reports and testimonies on the $1 billion Job Corps program
                           for severely disadvantaged youth we identified a number of issues that
                           need to be addressed. We recommended that Labor improve the guidance
                           provided to its outreach contractors to better focus on those youth most
                           appropriate for Job Corps’ intensive services. We recommended that
                           Labor improve the measures it uses to assess the performance of its
                           placement contractors. In addition, in July 1998, we testified that 2 of Job
                           Corps’ performance measures are misleading and overstate the program’s
                           success. We noted that Labor and the Congress need meaningful and
                           accurate information if they are to effectively manage and oversee the Job
                           Corps program. (GAO/HEHS-98-1, GAO/T-HEHS-98-218)

                           See also Chapter 5, Financial and Information Management Programs,
                           Financial Management and Accountability Issue Areas as well as
                           Information Management Issue Areas.




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                        GAO   Contact: Stephen P. Backhus, 202/512-7101
Veterans’ Affairs and
Military Health Care
Issue Area (Budget
Functions 050, 550,
700, 753)
Impact of GAO’s Work    GAO conducts evaluations of health care provided directly to over
                        34 million military beneficiaries and veterans by DOD and VA through their
                        $32 billion systems of hospitals, clinics, and managed care contracts. We
                        also evaluate VA nonhealth benefits, such as disability compensation and
                        vocational rehabilitation, provided to over 3 million veterans at an annual
                        cost of about $18 billion.

                        The high costs of health care and budget constraints underscore
                        congressional concerns about whether VA and DOD 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 prompt related concerns about the structure of their
                        health delivery systems and VA’s benefits systems. Our recent work on
                        these and related matters resulted in DOD savings of more than
                        $180 million and VA savings exceeding $273 million.

                        For VA and DOD programs, our objectives are to (1) identify opportunities
                        to improve management and accountability of health care systems;
                        (2) assess structural reforms intended to better accomplish their missions;
                        (3) evaluate implementation of and lessons learned from managed care
                        strategies; and (4) determine whether the unique health care needs of
                        special populations, such as those with high-cost, chronic conditions, are
                        effectively served.

DOD Programs            In fiscal year 1998, we continued to focus on the reform and restructuring
                        of the military health care system, particularly TRICARE, DOD’s managed
                        care program being phased in across the country since 1995. To
                        supplement beneficiary satisfaction information on TRICARE access, DOD
                        now collects data on appointment timeliness at military treatment
                        facilities, as we recommended. Moreover, DOD is developing survey
                        instruments to obtain feedback from beneficiaries about their inpatient
                        and outpatient care and to track complaints.




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              DOD  is also acting on our recommendations to manage its health care
              system more efficiently. For instance, DOD developed a methodology to
              more accurately portray TRICARE’s full costs by estimating the costs
              associated with contract modifications, which it included in its fiscal year
              1999 budget. DOD also improved procedures for modifying contracts to
              better ensure their necessity and to streamline processing. With its
              contractors, DOD has also accelerated resource sharing efforts to minimize
              the costs of delivering health care. In addition, in collaboration with the
              Army, Navy, and Air Force, DOD is developing guidance for sizing their
              graduate medical education programs to determine whether and at which
              sites reductions could be made.

              Our comprehensive review of DOD’s pharmacy benefit resulted in
              legislation aimed at better controlling costs and improving effectiveness
              by using best business practices and changing existing methods for
              contracting and distributing medical supplies and services. In response to
              our recommendation, the Congress directed DOD to implement a
              demonstration program of a DOD-wide pharmacy benefit for
              Medicare-eligible retirees. Moreover, DOD is taking action to invest in a
              computerized drug utilization review system that would help prevent
              adverse drug interactions and save millions of dollars by reducing
              unnecessary utilization.

VA Programs   In our work last year, we examined the challenges VA faces in running its
              hospitals, increasing the efficiency of and access to its health care system
              in a managed care environment, and maintaining its service to special
              populations, including Persian Gulf War veterans and millions of veterans
              with chronic health care needs.

              Our extensive analysis and comparison of the evolution of VA and
              community hospitals in the 20th century, including factors contributing to
              declining demand and the extent of excess capacity, provided a valuable
              tool for helping VA develop and refine its strategic initiatives to improve
              efficiency and provide seamless health care services for veterans.
              Illustrating the principles of this work, we reported that VA could reduce
              expenditures, improve access to care, and still meet its medical education,
              training, and research missions by operating three hospitals instead of four
              in Chicago. As we recommended, VA issued a guidebook prescribing a
              public process for integrating facilities, and we reported on the successful
              use of this process in central Alabama. We continue to examine other
              ways in which VA could operate its hospital system more cost-effectively.




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Our reports on implementation of the Veterans Equitable Resource
Allocation system indicate that the major reorganization from four large
health care regions to 22 Veterans Integrated Service Networks shows
promise for correcting long-standing regional funding imbalances that
have impeded equity of access for veterans in different locations. We
continue to find, however, that monitoring and oversight need to be
improved to realize the Veterans Equitable Resource Allocation system’s
potential. For instance, based on our work, VA is establishing a rate to
reimburse the networks for single-visit patients, whose costs vary from the
current basic and special rates. Additional monitoring and more refined
data collection could lead to additional improvements.

Our work on programs for special populations has assisted the Congress
in overseeing VA’s key role in providing health care for these veterans. For
instance, the Congress authorized a $5 million grant program to test new
approaches for treating Persian Gulf War veterans with undiagnosed
illnesses. To correct deficiencies we noted in the claims adjudication
process, VA is doing a better job of informing veterans and helping them
obtain the evidence needed to support claims for undiagnosed illnesses.
The Congress also extended expiring authority for the spouses and
children of Persian Gulf veterans to get medical examinations through VA
for health problems potentially related to the Gulf War. We also testified
that VA needs to collect better data to demonstrate that it is maintaining
service for veterans with costly chronic conditions, such as spinal cord
injury and serious mental illness. As a result, the Congress created job
performance standards for VA employees responsible for allocating and
managing resources for specialized treatment and rehabilitative programs.
VA also implemented our recommendations to improve general and
gender-specific health care services for women veterans, and the Congress
extended VA’s authority to counsel and treat veterans for sexual trauma.

In fiscal year 1998, we also examined VA’s strategic planning efforts. Based
on our work, VA made substantive changes in its strategic plan and fiscal
year 1999 performance plan, clarifying goals and objectives and
emphasizing results rather than process. This should provide a more
meaningful framework for Congressional oversight.

We are continuing to monitor VA’s efforts to improve its adjudication and
processing of disability claims, a subject of continuing concern to the
Congress. VA is making progress in developing a new quality assurance
system, but our ongoing review indicates that more needs to be done.




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                  In relation to our work on burial benefits and the National Cemetery
                  System, VA completed a document that outlines how it plans to address
                  veterans’ long-term burial demand through the year 2010, when the need
                  for burial services will be the greatest, and is also planning a national
                  survey in the year 2000 of veterans’ burial preferences, as we
                  recommended. We also suggested options for addressing problems that
                  arose over the perceived unfairness of the waiver process for burial at
                  Arlington National Cemetery, which is operated by the Department of the
                  Army.


Key Open
Recommendations
DOD               We recommended that DOD determine whether resource sharing between
                  TRICARE support contractors and military treatment facilities would still
                  work under its new revised contracts, but also seek effective alternatives
                  to resource sharing. Moreover, DOD should apply the lessons of resource
                  sharing, such as the need for clear policies and incentives, as it plans and
                  implements the next wave of military treatment facility and contract
                  management initiatives. We are also concerned about the high volume of
                  TRICARE contract modifications that have not been settled, although DOD
                  has begun to improve its management and processing in this area. The
                  importance of controlling overall costs requires DOD to persevere in its
                  efforts to fix this process. (GAO/HEHS-97-141)

                  DOD  has experienced significant problems managing its pharmacy benefit
                  because it has tended not to view its military treatment facility, contractor
                  retail, and mail-order pharmacy programs as integral parts of a single
                  system. To fully apply best business practices to save millions of dollars
                  and improve patient outcomes, we recommended that DOD conduct a
                  top-to-bottom redesign of its prescription drug benefit across the
                  programs, which it plans to do. To respond to our recommendations, DOD
                  needs to follow through with actions including—but not limited
                  to—establishing a uniform, incentive-based formulary; electronic billing
                  and claims processing; mandatory third-party billing for military treatment
                  facility prescriptions provided to beneficiaries with other health insurance;
                  and routine application of practices such as prior authorization.
                  (GAO/HEHS-98-176)

VA                Difficulties in working with VA’s data cast doubt on whether VA can
                  perform timely and effective oversight to monitor progress under its



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Veterans Equitable Resource Allocation system. VA needs more uniform
and timely reporting of changes in access to health care, including the
number and eligibility priority of patients served, waiting times for care,
and patient satisfaction for specific services. In addition, we
recommended that VA establish criteria for networks to use in more
equitably allocating resources to facilities and monitor any resultant
improvements in equity of access. (GAO/HEHS-98-226)

In our work on health care for Persian Gulf War veterans, we
recommended that VA develop and uniformly implement a process focused
on integration of diagnostic services, treatment and evaluation of
effectiveness, and periodic reevaluation of those veterans with
undiagnosed illnesses. This should result in better coordination and
management of care for these veterans. (GAO/HEHS-98-197)

VA has deferred action on several items that would improve its
administration of disability and pension benefits, pending completion of
its Business Process Reengineering project. As part of this project, VA
plans to modernize its computer system, which should position it to save
millions of dollars in overpayments and improve claims processing,
including analyzing information on denied claims. (GAO/HRD-92-88,
GAO/HEHS-95-25, GAO/HEHS-94-179)


See Chapter 1, Improving National Security and International Affairs
Programs, Special Studies and Evaluations. See also Chapter 5, Financial
and Information Management Programs, Financial Management and
Accountability Issue Areas as well as Information Management Issue
Areas.




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                            GAO   Contact: William J. Scanlon, 202/512-7114
Health Financing and
Systems Issue Area
(Budget Function 550)
Impact of GAO’s Work        Our work on the nation’s public and private health insurance programs
                            encompasses some of the most important and expensive issues facing the
                            country. Medicare and Medicaid are the primary insurers for more than
                            70 million people, and on their behalf the federal government will spend an
                            estimated $338 billion in fiscal year 1999, with the states contributing an
                            additional $74 billion to Medicaid. Although no longer facing imminent
                            depletion, the Medicare Hospital Insurance Trust Fund is expected to face
                            longer term problems when the aging baby boom generation begins
                            turning 65 in 2010. Similarly, Medicaid—as the principal public insurer of
                            long-term care—will also face increased costs as the number of those over
                            85 substantially increases.

                            Notably, the Health Care Financing Administration (HCFA), which
                            administers Medicare and Medicaid, accounts for about two-thirds of the
                            HHS budget. There is significant interplay between federal programs, such
                            as Medicare and Medicaid, and the private insurance market: that is,
                            changes to public programs and laws affect private payers’ provision of
                            health insurance, while private sector innovations have led to public
                            program transformations. Major legislation enacted by the 104th and 105th
                            Congresses will have implications for public and private payers of health
                            care for years to come.

Medicare                    For Medicare, the Balanced Budget Act of 1997 represented landmark
                            legislation and with the Health Insurance Portability and Accountability
                            Act of 1996, incorporated more than a decade of GAO’s recommendations
                            aimed at improving Medicare payment safeguards as well as payment and
                            pricing methods. In the spirit of these reforms, HCFA acted this year on
                            several of our recommendations, and together these actions are expected
                            to produce several billion dollars in savings over the next few years. For
                            example:

                        •   In 1997, we issued two reports on Medicare’s pricing of home oxygen
                            showing that Medicare paid over a third more than the Veterans
                            Administration for oxygen provided to beneficiaries in their homes. As a
                            direct result of this work, the Congress included provisions in the
                            Balanced Budget Act of 1997 for reducing home oxygen prices
                            incrementally. The Congressional Budget Office estimates that the



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    reductions will save $6.6 billion in Medicare expenditures between 1998
    and 2007.
•   For many years GAO has taken the position that the Medicare indirect
    medical education teaching adjustment was too high. The Balanced
    Budget Act of 1997 provided that this adjustment factor be gradually
    reduced through fiscal year 2001, with $5.6 billion in estimated savings
    over 5 years.
•   In 1995, we reported on providers’ exploitation of regulatory ambiguities
    to overcharge Medicare for rehabilitation therapy provided to residents in
    skilled nursing facilities. By 1998, consistent with a recommendation in
    our 1995 report, HCFA-proposed salary equivalency guidelines for physical,
    speech, and occupational therapists were finalized. HCFA estimates that, in
    1998 and 1999, the salary guidelines will result in $240 million of savings in
    Medicare payments for rehabilitation therapy services.

    Beyond realizing these savings, we testified this year on the challenges
    HCFA faces in implementing the Balanced Budget Act of 1997 provisions in
    the coming years, particularly those associated with developing several
    separate prospective payment systems and conducting the
    Medicare+Choice program. We also reported on such hotly debated health
    care issues as payments made to physicians at teaching hospitals, the
    government’s use of the False Claims Act to penalize health care providers
    who bill Medicare inappropriately, and changes to Medicare fee schedule
    payments for physician practice expenses.

    We have been especially active this year in the debate on paying for
    Medicare’s $17-billion home health benefit. During a 4-month moratorium
    on admitting agencies to Medicare that were newly seeking to serve the
    program’s beneficiaries, HCFA strengthened numerous procedures designed
    to screen out unqualified providers. One such procedure—a requirement
    under the Balanced Budget Act of 1997 for all home health agencies to
    obtain a surety bond—remains controversial, and the Congress asked GAO
    specifically to assess the mechanics of implementing this requirement
    before having HCFA promulgate a regulation.

    At the request of the Congress, we also quickly reported on the highly
    contentious “interim payment system,” so called because it serves as a
    transition from the existing cost-based reimbursement method to a new
    prospective payment system to be designed for home health services. The
    Congress sought our information before considering what action, if any, it
    would take in response to strong industry concerns over the interim
    system’s new cost controls. In congressional testimony, we have also



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                           advised on certain features of the future prospective payment system for
                           home health services and will continue to do additional in-depth work in
                           this area.

Long-Term Care, Medicaid   In the area of long-term care—for which Medicaid is the primary public
                           payer—we testified and reported on serious quality of care problems in
                           California nursing homes. Our findings on homes with repeated violations
                           involving harm to residents had nationwide implications and prompted
                           immediate action by the Administration as well as hearings by the Senate
                           Special Committee on Aging. This and other testimony on the long-term
                           care needs of the baby boom generation and the physically fragile,
                           low-income seniors eligible for both Medicare and Medicaid have built a
                           foundation for continued work on the role of financing in quality nursing
                           home care and the financing of chronic care for the elderly and individuals
                           with disabilities. We are continuing to assess aspects of managed care for
                           Medicaid beneficiaries, focusing on access to services for people with
                           severe mental illness. In 1998 we also reported on welfare reform’s effect
                           on the enrollment and continued coverage of Medicaid beneficiaries and
                           have work underway to determine the effect on Medicaid of the newly
                           created State Children’s Health Insurance Program.

Private Health Insurance   The enactment of Health Insurance Portability and Accountability Act of
                           1996 and the Balanced Budget Act expanded our examination of private
                           sector coverage issues. Our prior work on uninsured children contributed
                           to the public debate that led to the creation of the State Children’s Health
                           Insurance Program. We also reported and testified on the near
                           elderly—those aged 55 to 64—who are not yet eligible for Medicare but
                           who, following retirement, may no longer be covered for insurance
                           through their employer. In addition, we examined the implementation of
                           the Health Insurance Portability and Accountability Act’s access,
                           portability, and renewability standards, noting that despite important new
                           provisions, significant affordability issues remain unresolved. We also
                           reported on the long-debated issue of consumers’ ability to seek recourse
                           against managed care organizations and other consumer protection issues
                           affected by provisions in the Employee Retirement Income Security Act of
                           1974.

HCFA Management            Because the recent statutory reforms related to Medicare, Medicaid, and
                           private insurance are many and complex, the Congress is increasingly
                           concerned about HCFA’s ability to manage their implementation effectively.
                           In addition to developing and monitoring Medicare’s individual
                           prospective payment systems for skilled nursing facilities, home health



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                            agencies, and rehabilitation hospitals, HCFA must oversee the
                            implementation of the new State Children’s Health Insurance Programs
                            and serve as de facto insurance commissioner for those states that have
                            not implemented the Health Insurance Portability and Accountability Act’s
                            private insurance provisions. In 1998, our testimony on HCFA’s capacity to
                            carry out its new and existing Medicare functions generated keen interest
                            by the agency itself. HCFA’s Administrator asked us to assess again the
                            agency’s performance of its many Medicare payer and purchaser functions
                            as well as its Medicaid and private insurance oversight responsibilities.


Key Open
Recommendations
Safeguarding Payments for   Until recently, Medicare outlays for home health care—services provided
Medicare’s Home Health      to beneficiaries who are homebound and need skilled care—had been
Benefit                     growing in the 1990s on average by more than 30 percent a year. We
                            reported that the increase was largely due to increased usage that had
                            followed a change in service coverage guidelines. It also coincided with a
                            deterioration in program controls.

                            In one study, we tested 80 high-dollar claims for home health services that
                            Medicare had paid. Subsequently, Medicare’s claims-processing
                            contractor, after examining each claim, denied more than $135,000 in
                            charges for 46 of the claims. While productive, these claims reviews are
                            expensive. Thus, we proposed that, to help finance Medicare’s follow-up
                            audits of claims, HCFA assess the home health agencies found to be abusive
                            billers for the cost of performing the follow-up audit work. The home
                            health agency could choose whether to have a review based on the
                            universe of its claims for a particular period or on a statistically valid
                            sample. HCFA would estimate the costs and withhold some percentage of
                            the home health agency’s current Medicare payments, unless the agency
                            negotiated an alternative payment method, to ensure that the audit costs
                            (as well as any assessed overpayment) could be recovered from the
                            agency. The monies assessed for the audit costs could be earmarked for
                            HCFA’s payment safeguard activities. Because this approach would require
                            authorizing legislation (under current law, monies recovered are returned
                            to the general Treasury), we asked that the Congress consider legislation
                            directing HCFA to carry out this approach as a pilot demonstration.
                            (GAO/HEHS-97-108)




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Controls to Keep Medicare       Medicare law divides coverage for health care services into two parts: part
From Paying Twice for Medical   A covers services and supplies provided largely by hospitals and other
Supplies                        institutions, whereas part B covers services and supplies provided largely
                                by physicians and other noninstitutional providers. Often coverage for a
                                service or supply could reasonably be billed either under part A or part B.
                                In fiscal year 1994, Medicare was billed over $6.8 billion for medical
                                supplies, including surgical dressings. In a review of Medicare’s payments
                                for surgical dressings, we reported, among several findings, that many
                                Medicare contractors lacked the internal controls that would reliably
                                identify suspicious medical supply claims before payment. As a result, we
                                recommended, among other things, that the HHS Secretary direct HCFA’s
                                Administrator to establish procedures to prevent duplicate payments
                                when providers have billed parts A and B both for the same medical
                                supply. HCFA is not likely to address the program’s exposure to the
                                problem of duplicate payments until it completes its year 2000 computer
                                initiatives. (GAO/HEHS-95-171).

Disseminating User-Friendly     In 1996, we reported that HCFA did not provide Medicare beneficiaries any
Consumer Information on         of the comparative consumer guides that the federal government and
Medicare+choice Plans           many employer-based health insurance programs routinely distribute to
                                their employees and retirees. We noted, however, that HCFA amasses
                                volumes of information that could be packaged and distributed to help
                                consumers choose among Medicare health maintenance organizations
                                (HMO). We made several recommendations to address this issue, which the
                                Congress embodied in the Balanced Budget Act. In addition, HCFA has
                                begun to address others. For example, HCFA has produced benefit and cost
                                comparison charts of Medicare options in each market area; however, it
                                has not distributed voluntary disenrollment rates or rates of inquiries and
                                complaints against Medicare HMOs.

                                As for dissimilarities in the marketing materials produced by the health
                                plans themselves, we recommended that HCFA require the plans to produce
                                key aspects of these materials using standard formats and terminology.
                                Currently, the materials are produced in widely different formats and
                                contain various definitions for similar benefits, making beneficiaries’
                                efforts to compare benefits and premiums across plans difficult, if not
                                impossible. This dissimilarity also unduly burdens HCFA, as reviewer of a
                                new plan’s marketing materials for compliance with Medicare standards.
                                HCFA officials have agreed to implement this recommendation but have not
                                yet taken significant action to do so. (GAO/HEHS-97-23)




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Enforcing Federal Care        Nursing homes play an important role in the health care system of the
Requirements to Protect       United States, and the federal government paid the homes nearly
Nursing Homes Residents       $28 billion for services under Medicare and Medicaid in 1997. We reported
                              that despite a federal and state oversight infrastructure currently in place,
                              some California nursing homes have not been sufficiently monitored to
                              guarantee the safety and welfare of their residents. Federal and state
                              surveyors sometimes missed problems that could have affected the safety
                              and health of nursing home residents. Even when such problems were
                              identified, enforcement actions did not ensure that the problems were
                              corrected and did not recur. Some of the key problems in the California
                              homes indicated systemic problems nationwide.

                              As a result, we made several recommendations for revising federal
                              guidance, which included reducing the predictability of surveyors’ visits
                              and requiring surveyors to conduct all reviews of problem homes with
                              recurring serious violations on site. HCFA took immediate steps to address
                              these recommendations. We also recommended:

                          •   revising federal survey procedures to instruct surveyors to take stratified
                              random samples of resident cases and review sufficient numbers and types
                              of resident cases so that surveyors can better detect problems and assess
                              their prevalence; and
                          •   eliminating the grace period for homes cited for repeated serious
                              violations and impose sanctions promptly, as permitted under existing
                              regulations.

                              HCFA has developed a timeline, ending April 30, 1999, for fully
                              implementing all of our recommendations. (GAO/HEHS-98-202)

                              See also Chapter 5, Financial and Information Management Programs,
                              Financial Management and Accountability Issue Areas as well as
                              Information Management Issue Areas.




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                            GAO   Contact: Bernice Steinhardt, 202/512-7119
Health Services
Quality and Public
Health Issue Area
(Budget Functions
550, 570)
Impact of GAO’s Work        GAO conducts evaluations focused on federal efforts to ensure individuals’
                            access to high quality care in a changing health care environment and on
                            measuring the outcomes and effectiveness of federally funded programs,
                            research, and regulatory activities. Within HHS, this focus leads to the eight
                            major Public Health Service agencies—including the Food and Drug
                            Administration (FDA), the National Institutes of Health (NIH), the Health
                            Resources and Services Administration, the Substance Abuse and Mental
                            Health Services Administration, and the Centers for Disease Control and
                            Prevention. Collectively, Public Health Service agencies represent a
                            substantial public investment, with a total fiscal year 1998 budget of
                            $25 billion, or 60 percent of the department’s discretionary budget.
                            Further, products regulated by federal public health agencies, including
                            drugs and medical devices, account for one-fifth of all consumer spending
                            in the U.S., or one trillion dollars annually.

                            Our work on health services quality and public health issues generally
                            includes these issues:

                        •   Determining whether the public health agencies are ensuring the public’s
                            health and safety efficiently and effectively,
                        •   Identifying opportunities for improving the quality of health care under
                            fee-for-service and managed care payment arrangements,
                        •   Identifying opportunities for improving the nation’s access to health care,
                            and
                        •   Assessing the implications of emerging health care technologies.

Access to Health Care       Residents of some areas in the United States have difficulties accessing
                            health care services because of a shortage of health care providers in their
                            communities. The National Health Service Corps is the federal
                            government’s main program for placing physicians and other health care
                            providers in locations with identified shortages of health professionals.
                            The National Health Service Corps includes a scholarship program for
                            students who agree to serve in shortage areas after their health
                            professions training is completed, and a loan repayment program that



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                                 repays a set amount of educational loan debt for each year of service in a
                                 shortage area. We found the loan repayment program costs the federal
                                 government less than the scholarship program for a year of promised
                                 service, while also showing a higher rate of retention after providers
                                 complete their service obligation and a lower rate of breach of contract.

                                 We also identified problems with allocating National Health Service Corps’
                                 providers to areas requesting them. We recommended that the Secretary
                                 of HHS take several actions to better target limited resources, including
                                 (1) using the loan repayment program to the maximum extent allowed by
                                 law, (2) expanding technical assistance and other efforts to address
                                 potential barriers to accessing this program, and (3) modifying placement
                                 criteria to, among other things, count non-physician providers and
                                 National Health Service Corps providers currently in service. In response
                                 to our recommendations, HHS has used the loan repayment program to the
                                 maximum extent allowed by law, taken steps to provide technical
                                 assistance through a contract and by working with state agencies, and
                                 initiated measures to count both non-physician providers and National
                                 Health Service Corps physicians as providers currently in service when
                                 making National Health Service Corps provider placements.

Safety Issues Related to Blood   FDA has responsibility for overseeing the safety of biological products,
and Tissue Banking               including blood for transfusion and human tissues for transplant. In two
                                 separate reports, we reviewed safety issues related to these products and
                                 made recommendations for improvement. While the U.S. blood supply is
                                 safer today than at any time in recent history, we reported that FDA can
                                 strengthen the safety of the blood supply in some areas. For example,
                                 unlicensed facilities—those that do not sell or exchange blood products
                                 across state lines—are not required to report errors and accidents;
                                 confirmatory tests to identify those donors who were truly infected with a
                                 virus (and not those who just had a false-positive screening test result)
                                 were not always performed, so that donors to be deferred from future
                                 donations could be appropriately notified and counseled; recipients of
                                 blood from a donor who subsequently tested positive for a virus were not
                                 always notified so that they could seek testing and treatment, if needed;
                                 guidance documents that the agency used to quickly disseminate its
                                 expectations for best practices to the industry were often ambiguous and
                                 subject to misinterpretation; and FDA inspections of blood facilities
                                 appeared inconsistent in focus, scope, and documentation.

                                 In response to our recommendations, FDA has proposed a rule to require
                                 unlicensed blood facilities to report all errors and accidents, has issued



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                        guidance to require confirmatory testing for hepatitis C, has issued
                        guidance to blood establishments directing them to notify recipients of
                        blood products from donors who tested positive for hepatitis C, and has
                        published “Good Guidance Practices” to clarify the appropriate uses of
                        guidance documents. In addition, the agency has established a cadre of
                        specialized investigators with the goals of improving consistency,
                        timeliness, and quality in inspections of blood facilities.

                        Approximately 600,000 Americans receive human tissue transplants each
                        year. Recipients include burn victims, the visually impaired, and persons
                        living with cancer and heart defects. With respect to human tissue
                        banking, we found that FDA was just beginning to exercise its authority to
                        improve tissue-banking safeguards in the growing field of tissue-based
                        therapy. We identified several safety problems, including the lack of a
                        registry of tissue facilities to allow for inspection by the FDA or
                        dissemination to tissue banks of information related to public health
                        emergencies. In response to our recommendation, FDA has proposed a rule
                        requiring all human tissue banking facilities to register with the agency.

Hospital Construction   FHA’s Hospital Mortgage Insurance Program insures loans to finance
                        hospital renovation and construction. Its mortgage insurance protects
                        lenders against losses they might incur if hospitals fail to make their
                        mortgage payments. However, we found that the lack of portfolio
                        geographic diversification and the large individual unpaid loan balances in
                        New York pose a risk to the program. A single default of a large loan could
                        lead to insurance claims that could significantly burden the program, since
                        FHA does not limit the number of projects in a particular state nor does it
                        cap individual loan amounts it insures as a means of controlling risks to
                        the program.

                        A 1992 HUD report stated that the concentration of FHA-insured projects in
                        a single state and large loan amounts are major controllable risks to the
                        program that should be avoided or minimized. To minimize potential
                        financial losses from future projects, we recommended that the Secretary
                        of HUD pursue risk-sharing arrangements in which a private or public entity
                        would share in potential financial losses from hospital defaults on future
                        FHA-insured projects after a thorough evaluation of the benefits and
                        drawbacks of risk-sharing ventures. FHA is in the process of revising draft
                        regulations for risk-sharing of mortgage insurance to finance the new
                        construction or rehabilitation of or improvements to hospitals.




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Key Open
Recommendations
Health Professional Shortage   A growing number of programs for alleviating access problems use the
Areas                          health professional shortage areas and Medically Underserved Areas
                               designations to determine who can receive federal assistance. In 1995, we
                               reported that these designation systems do not effectively identify areas
                               with primary care shortages or help target federal resources to benefit
                               those who are underserved. As a result, there is little assurance that the
                               $1 billion spent annually on programs using these designations is used
                               where most needed. We found widespread data and methodology
                               problems that severely limit the systems’ ability to pinpoint the extent of
                               need in underserved areas. In addition, the systems often do not provide
                               the information needed to decide which programs are best suited to the
                               area’s particular need.

                               In order to better match federal program resources with needy
                               communities, and to eliminate funding where there is not a demonstrated
                               need for federal assistance, we recommended that the Congress
                               (1) remove legislative requirements for health professional shortage areas
                               or Medically Underserved Areas designations as a condition of
                               participation in federal programs, (2) direct the Secretary of HHS to
                               develop and use program-specific criteria to match the program strategy
                               with the type of access barrier, and (3) direct the Secretary to suspend
                               funding for one program, the Medicare Incentive Payment program, until
                               HHS can ensure that the program’s funding is better targeted. In
                               September 1998, acknowledging the flaws we brought to the Department’s
                               attention, HHS proposed changes that would address a number of the
                               problems we identified, including revising the requirements for counting
                               health professionals and for providing more timely updates of shortage
                               designations. (GAO/HEHS-95-200)

Health Professions Education   During the past decade, the supply of nearly all health professionals has
                               increased faster than has the population. For most health professions,
                               however, data are unavailable to show whether this increased supply has
                               translated into more access to care in rural and underserved areas.
                               Specifically, regarding minority recruitment, although the number of
                               minority health professionals is increasing, data are inconclusive about
                               whether further increases will improve access to health care for
                               underserved populations. Although nearly $2 billion has been provided to
                               30 programs under title VII and VIII of the Public Health Service Act during
                               the last 10 years, HHS has not gathered the information necessary to



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                         evaluate whether these programs have had a significant effect on changes
                         in the national supply, distribution, and minority representation of health
                         professionals, or their impact on access to care.

                         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 goals, outcome measures and reporting
                         requirements. We recommended that Congress establish, or direct the
                         Secretary of HHS to establish, more specific goals, outcome measures, and
                         funding criteria. Our work was used as the basis for proposed legislation
                         (currently under consideration) for reauthorizing the programs.
                         (GAO/HEHS-94-164)

Mammography Quality      Quality mammography services are a key tool in the early detection of
Standards                breast cancer, significantly increasing the possibility of survival for the
                         estimated 180,000 women who are diagnosed with this devastating disease
                         each year. The Mammography Quality Standards Act of 1992 was enacted
                         in response to the growing incidence of breast cancer and its associated
                         mortality rates. The Act established minimum national quality standards
                         for the nation’s approximately 10,000 mammography facilities, as well as
                         an accreditation and inspection program to help ensure that these
                         standards are met. In October 1997 and in subsequent testimony, we
                         reported that the Act had a positive impact on improving the quality of
                         mammography services. During congressional hearings on reauthorizing
                         the Act, we recommended that Congress consider these positive impacts
                         in its deliberations; legislation to reauthorize the Act is pending in the
                         Senate. (GAO/HEHS-96-17, GAO/HEHS-97-25)

Inspections of Foreign   According to FDA, as much as 80 percent of the bulk pharmaceutical
Pharmaceutical Plants    chemicals used by U.S. manufacturers to produce prescription drugs are
                         imported. Moreover, the number of finished drug products manufactured
                         abroad for the U.S. market is increasing. FDA inspects foreign
                         manufacturers to help ensure that pharmaceutical products entering the
                         United States are safe, pure, and high in quality. Over the last 10 years, two
                         FDA evaluations have identified serious problems with its foreign
                         inspection program. While FDA has taken several actions to address these
                         problems, we found indications that certain aspects of the program still
                         need improvement. FDA continues to experience problems in ensuring that
                         inspection reports are submitted in a timely manner, and that necessary
                         enforcement actions are promptly initiated to prevent contaminated and
                         adulterated pharmaceutical products from entering the United States.
                         Moreover, in some instances, FDA is not conducting reinspections to verify



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                          the corrective actions that foreign manufacturers have promised to take to
                          resolve serious manufacturing deficiencies.

                          While FDA has implemented a risk-based inspection strategy aimed at
                          increasing the frequency of routine inspections, foreign inspections
                          continue to be driven by new drug applications, and FDA acknowledges
                          that it may never inspect most foreign manufacturers exporting
                          pharmaceuticals to the United States. We recommended that FDA’s
                          inspection strategy include, at a minimum, timely follow-up inspections of
                          all foreign manufacturers that have promised to correct serious
                          manufacturing deficiencies and periodic inspections of all foreign
                          manufacturers, not just high-risk manufacturers. (GAO/HEHS-98-21)

Medical Device Tracking   FDA is responsible for reviewing, approving, and monitoring medical
                          devices to ensure that they are safe and effective for human use. Among
                          the more than 65,000 different types of medical devices on the market
                          today are those that FDA characterizes as critical—such as heart valves,
                          pacemakers, and other permanently implantable devices—because they
                          are used to support life. The Safe Medical Devices Act of 1990 requires
                          manufacturers of certain critical devices to establish and maintain systems
                          capable of tracking devices through the manufacturing and distribution
                          networks to patients so that in the event of a device failure, manufacturers
                          and FDA can expeditiously conduct recalls and patient notifications. FDA
                          ensures compliance with the tracking requirements through good
                          manufacturing practice inspections of device manufacturers’ facilities. FDA
                          also oversees manufacturers’ efforts to recall problem medical devices to
                          ensure that unsafe and ineffective medical devices are promptly removed
                          from the market.

                          We found several weaknesses in FDA’s approach for determining whether
                          device manufacturers are operating tracking systems capable of quickly
                          locating and removing defective devices from the market and notifying
                          patients who use them, which threatens the agency’s ability to adequately
                          protect the public. We made recommendations to the FDA Commissioner to
                          improve the agency’s ability to monitor manufacturer compliance with the
                          medical device tracking regulation and conduct recalls of tracked devices
                          in a timely manner. FDA has several actions underway to address our
                          recommendations, among them are steps to complete and close all
                          outstanding recalls initiated from 1994 through 1996, and to update its
                          recall database with current information on the status of all recalls.
                          (GAO/HEHS-98-211)




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Emerging Drug Problems   In the mid-1980s, when crack cocaine use in the U.S. was reported to have
                         reached epidemic proportions, Congress raised questions about the public
                         health agencies’ ability to detect and respond to the problem. In response
                         to these concerns, new drug detection mechanisms were added and new
                         agencies were created at the federal level, including the Substance Abuse
                         and Mental Health Services Administration and the Office of National Drug
                         Control Policy. Despite these changes, we found that concerns still remain
                         about the adequacy of the nation’s drug detection systems and the lack of
                         a strategy for determining when and how to best respond to changes in
                         patterns of drug use. We recommended that the Director of the Office of
                         National Drug Control Policy implement changes that would further
                         improve the accuracy and usefulness of systems for analyzing and
                         disseminating information; and develop a defined strategy for determining
                         the timing, magnitude, and nature of actions needed to appropriately
                         respond to potential drug crises or epidemics. In response, the Office
                         reports that its Data Subcommittee has begun identifying and supporting
                         several improvements to the federal drug data system and has inventoried
                         existing data. The Office is considering developing a strategy for
                         appropriately responding to potential drug crises. (GAO/HEHS-98-130)

Methadone Maintenance    Methadone maintenance is the most commonly used treatment for heroin
                         addiction. Many methadone programs are established by private
                         not-for-profit organizations, while others are private for-profit or public
                         programs. In looking at a number of different programs, we found wide
                         variation among program policies with respect to urine testing, dismissing
                         patients, counselor staffing levels, and methadone dosage levels. For
                         example, in the 24 programs we visited, average methadone dosage levels
                         ranged from 21 to 67 milligrams. Nearly one-half of the programs we
                         visited did not successfully provide the full benefits of methadone
                         maintenance. We recommended that the Secretary of HHS direct FDA or the
                         National Institute on Drug Abuse to monitor and assess methadone
                         maintenance programs. The National Institute on Drug Abuse is testing the
                         feasibility and utility of implementing a performance evaluation system for
                         narcotic addiction treatment programs and anticipates issuing a report in
                         January 1999. (GAO/HRD-90-104)

                         See also Chapter 5, Financial and Information Management Programs,
                         Financial Management and Accountability Issue Areas as well as
                         Information Management Issue Areas.




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                         GAO   Contact: Cynthia M. Fagnoni, 202/512-7215
Income Security Issue
Area (Budget
Functions 600, 650)
Impact of GAO’s Work     Millions of Americans rely on income security programs for support.
                         Programs designed to assist our most vulnerable citizens, such as Social
                         Security, Disability Insurance, Supplemental Security Income, and foster
                         care, have been and will be the subject of increased scrutiny. The Social
                         Security and disability programs, in particular, face continued financial
                         pressures and are the subject of considerable public debate. Moreover,
                         congressional concern about the effect of major legislative changes in the
                         principal welfare program for families and children—Temporary
                         Assistance for Needy Families—will continue.

                         Our work provided information and recommendations directed at
                         (1) ensuring that public funds for income security programs are spent
                         efficiently and protected from fraud and abuse, (2) improving SSA’s service
                         to the public with constrained resources, (3) evaluating the adequacy of
                         Social Security and public and private pension systems for future retirees,
                         (4) redesigning the nation’s disability programs to ensure the validity of
                         the needs determination process and to encourage work, (5) monitoring
                         implementation of the 1996 welfare reform legislation, and (6) assessing
                         government efforts to protect children’s welfare.

                         Areas of major emphasis in 1998 have included Social Security reform, the
                         management of the Supplemental Security Income program, and
                         evaluations of the Temporary Assistance for Needy Families program.

Social Security Reform   Our nation’s aging population is placing serious pressure on Social
                         Security and other forms of retirement income. Without a change in
                         current policies, the Old-Age and Survivor’s Trust Fund assets will be
                         insufficient to pay all benefits by 2032. Because Social Security affects so
                         many Americans and their planning for the long-term future, the President
                         and the Congress are considering approaches to reforming the program’s
                         financing. We have completed work that provides information on the
                         potential impacts of different reform choices. For example, we issued a
                         report identifying and discussing the issues and relationships among the
                         various sources of retirement income in the United States, reported and
                         testified on the potential effects of financing reform on women, and
                         testified three times on the elements to consider in evaluating possible
                         changes to Social Security.



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Management of the               Over the years, our work has shown that the Supplemental Security
Supplemental Security Income    Income program has experienced several long-standing problems that
Program                         have affected SSA’s ability to protect the financial integrity of the program
                                and provide effective management direction. We recently completed a
                                review to look at the underlying causes of these long-standing problems
                                and found that to a great extent, SSA’s inability to address its most
                                significant Supplemental Security Income problems is attributable to two
                                underlying causes: an organizational culture or value system that places a
                                greater priority on processing and paying claims than on controlling
                                program expenditures, and a management approach characterized by SSA’s
                                reluctance to fulfill its policy development and planning role in advance of
                                major program crises. We made several recommendations to the SSA
                                Commissioner, which, if implemented, should result in a change in SSA’s
                                organizational culture and enhance the financial integrity of the
                                Supplemental Security Income program, as well as facilitate a change in
                                SSA’s management approach and improve the Supplemental Security
                                Income program direction.

Evaluations of Temporary        In one of the most significant federal policy changes of the last 30 years,
Assistance for Needy Families   the Temporary Assistance for Needy Families program is being
                                implemented across the nation, passing responsibility for welfare program
                                design and funding levels from the federal government to the states. In
                                1998 we issued a report on welfare reform implementation in seven states.
                                We found that states are (1) moving away from a welfare system focused
                                on entitlement to assistance to one that emphasizes finding employment as
                                quickly as possible and becoming more self-sufficient, and (2) enhancing
                                support services for recipients. While welfare dependence has decreased,
                                we noted that it is too early to draw definitive conclusions about the
                                success of states’ programs. Moreover, little is known about program
                                impacts, such as the effect the programs have had on the well-being of
                                children and families.

Results                         Many of our recommendations have been implemented and, thus, our
                                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, based on our work related to SSA’s
                                disability programs, SSA decided to increase the number of continuing
                                disability reviews in the Disability Insurance and Supplemental Security
                                Income programs. The reviews resulted in savings of $446 million in 1996
                                and $957 million in 1997 by removing from the rolls persons who had
                                become ineligible. In addition, influenced by continuing GAO work on such
                                continuing disability reviews, the Congress enacted legislation that further



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increased the number of such reviews. These changes, combined with the
fact that SSA has changed its estimates of savings for each termination and
the costs of each disability review, resulted in savings in 1996 and 1997 of
$1.52 billion.

Our work also resulted in better protection for retirees who receive
pension plan benefits in the form of insurance annuities. We had
recommended that the Pension Benefit Guaranty Corporation require plan
administrators, who are terminating their plans and purchasing annuities,
to provide participants with detailed information about the state
guarantees that apply to these annuities. As a result of that
recommendation, the Corporation promulgated a regulation to require that
administrators of terminating plans provide participants with general
information on state guarantee coverage of annuities and instructions on
how to contact the applicable state guaranty association offices.

Our work has also resulted in several actions taken to improve agency
operations. For example, we had recommended that the Secretary of HHS
direct the Office of Child Support Enforcement to develop its own
long-term strategies in support of the national program’s goals and
prioritize its own roles and responsibilities. In response to our
recommendation, the office began to strengthen the linkage between its
own roles and responsibilities and national goals contained in the strategic
plan by focusing its oversight and technical assistance on strengthening
and improving child support enforcement in the eight states with the
largest child support enforcement caseloads. These actions put the Office
of Child Support Enforcement in a better position to foster improved
program results.

HHS also acted on recommendations we made to improve child protective
services. Based on our recommendations, HHS developed new strategies
for disseminating and delivering the results of local efforts on child
protective services reforms. In addition, HHS took several actions in
response to our recommendation that it develop specific techniques to
promote community-based approaches to child protective services.

SSA has taken action on two of our recommendations related to better
service the public via its 800 number. For example, it established
additional performance measures to more fully assess the promptness and
completeness of its 800-number service and took steps to expand its
automated services.




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                      In response to our recommendation that SSA acquire information systems
                      based on a thorough analysis of mission, needs, costs, and benefits, SSA
                      began work on an accountability methodology and has recently
                      incorporated this methodology into its fiscal year 1999 budget cycle. This
                      new process requires SSA to clarify how proposed initiatives conform to its
                      core mission and priorities, as well as assess the costs, benefits and risks
                      of alternatives.


Key Open
Recommendations
Social Security       In April 1998, we reported that SSA needed to upgrade the payment
                      controls it uses for administering certain benefit reduction provisions. The
                      Social Security Act requires SSA to reduce benefits payable to persons who
                      also receive a pension from non-covered employment. However, we found
                      that SSA did not have sufficient ways to verify, in a timely or complete
                      manner, whether beneficiaries are receiving pensions earned through
                      non-covered employment. The absence of such verifications had resulted
                      in overpayments between 1978 and 1995 that we estimated to have ranged
                      from $160 to $355 million.

                      We recommended that SSA (1) make better use of available information on
                      pensions being paid to federal retirees to verify that proper reductions are
                      made and (2) work with the Internal Revenue Service (IRS) to revise the
                      reporting of pension income for tax purposes so that persons receiving
                      pensions from non-covered employment can be identified and the
                      accuracy of its benefit payments can be verified. SSA agreed with our
                      recommendations and advised us that it will establish a post-eligibility
                      matching program for federal retirees by early 1999. It has also been
                      working with IRS to revise the reporting of pension income. IRS has advised
                      SSA, however, that it needs a technical amendment to the Tax Code to
                      implement our recommendation and is seeking such an amendment. SSA
                      has stated that it will keep abreast of IRS efforts. (GAO/HEHS-98-76)

Disability Programs   SSA’s Plan for Achieving Self-Support (PASS) program was established in
                      1972 as a Supplemental Security Income work incentive program to help
                      Supplemental Security Income and Disability Insurance recipients achieve
                      self-support, 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 managing the PASS program. We found that, among other



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things, the impact of the program on employment is unknown because SSA
lacks basic data on program participation and outcomes. We
recommended that SSA gather additional management data on program
participation and impact and use these data to evaluate the impact of
program participation on employment. SSA has experienced many
technical problems establishing such a database and does not consider the
data to be reliable. SSA officials, however, are continuing efforts to obtain
customized software that would provide needed data for managing the
PASS program. In addition, we recommended that the Congress consider
legislation to eliminate Disability Income beneficiary eligibility for
Supplemental Security Income benefits through the use of the PASS
program. While SSA has proposed such legislation, no action has been
taken to date. (GAO/HEHS-96-51)

In April 1996, we reported that weaknesses in the design and
implementation of Disability Insurance and Supplemental Security Income
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 more accurately identify
and expand beneficiaries’ work capacities and (2) better implementing
existing return-to-work mechanisms.

Similarly, in July 1996, we reported return-to-work strategies and practices
employed by the private sector in the United States and by social
insurance programs in Germany and Sweden may hold the potential for
improving federal disability programs by helping people with disabilities
return to productive activity in the workplace and at the same time reduce
program costs. We recommended that, in line with placing greater
emphasis on return to work, SSA should develop a comprehensive
return-to-work strategy that integrates, as appropriate, earlier intervention,
earlier identification and provision of necessary return-to-work assistance
for applicants and beneficiaries, and changes in the structure of cash and
medical benefits. In both reports, we also recommended that SSA identify
legislation needed to implement the recommended program changes.



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SSA noted that it is currently placing a high priority on return to work,
citing its expansion of the pool of vocational rehabilitation providers,
training of state vocational rehabilitation agencies in SSA disability
program work incentives and reimbursement procedures, forthcoming
contracts with state agencies to research ways to improve service
integration for beneficiaries attempting to return to work, and its proposed
“tickets to independence” (vouchers for vocational rehabilitation) as a
new demonstration to attempt to improve return-to-work outcomes. In
addition, SSA has affirmed its interest in determining whether
return-to-work practices of other systems could help improve the
return-to-work rate in its disability programs.

These steps indicate that SSA has placed greater priority on return to work
as it moves to expand the pool of vocational rehabilitation providers
beyond state vocational rehabilitation agencies and give providers greater
incentive to employ beneficiaries. However, these efforts would have
greater impact if (1) cash and medical benefits were structured to give
beneficiaries greater impetus to use vocational rehabilitation services and
attempt work and (2) return-to-work assistance was provided earlier in the
decisionmaking process. Finally, SSA emphasized that efforts to improve
the return-to-work rate in its disability programs can be fruitful only if all
parties affecting federal disability policy are involved. While we agree that
all relevant parties must be involved, we believe that, as the primary
manager of the disability programs and the entity with fiduciary
responsibility for the trust funds, SSA must take the lead in forging the
partnerships and cooperation needed to redesign federal disability
programs. (GAO/HEHS-96-62, GAO/HEHS-96-133)

In August 1996, we reported that for many years, SSA has lacked an
effective program to detect Supplemental Security Income recipients in
county and local jails. It has relied primarily on (1) recipients or their
representative payees to voluntarily report incarceration and
(2) redetermination. Neither of these mechanisms has been completely
effective; as a result, SSA has erroneously paid millions of dollars to
thousands of prisoners in county and local jails. While SSA had initiated
action to obtain better information on Supplemental Security Income
recipients currently in jail, it had not attempted to develop information on
similar recipients who may have been incarcerated and received payments
in prior years. We recommended that SSA obtain information on former
prisoners from county and local facilities and identify and attempt to
recover any erroneous payments. SSA has initiated a pilot project to




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determine the feasibility and cost benefit of implementing our
recommendations. (GAO/HEHS-96-152)

In June 1997, we reported that although benefits paid to persons receiving
Supplemental Security Income must be reduced when they enter nursing
homes covered by Medicaid, SSA is not always notified of the change and
full benefits continue to be paid. These overpayments may exceed
approximately $100 million annually. We recommended that SSA
electronically obtain nursing home admissions data directly from states. In
lieu of obtaining nursing home admissions directly from states, in the fall
of 1998, SSA will begin semiannual computer matching with data from
HCFA’s Resident Assessment Instrument System. However, SSA’s plans for
semiannual matching fall short of the objectives of our recommendation to
obtain state data as soon as possible to prevent overpayments or detect
them sooner. We believe SSA should obtain the Resident Assessment
Instrument System data monthly to further reduce overpayments.

We further recommended that SSA determine the reliability of state data for
implementing an automated computer interface to automatically adjust the
benefits of Supplemental Security Income recipients admitted to nursing
homes. SSA plans to assess the reliability of HCFA’s Resident Assessment
Instrument System data to determine whether it can be used for automatic
benefit reductions. Based on this assessment and advice from its General
Counsel, SSA will determine by the end of 1999 whether to initiate a study
on the feasibility of automatically reducing benefits for Supplemental
Security Income recipients in nursing homes. (GAO/HEHS-97-62)

We reported in March 1998 that approximately 40 percent of the
overpayments that SSA identified in fiscal year 1996 were caused by
Supplemental Security Income clients either not reporting or
underreporting their earnings and financial accounts. Specifically, about
$380 million in overpayments resulted from the nondisclosure of earnings,
and about $268 million resulted from the nondisclosure of financial
accounts. Many of these overpayments could be prevented if SSA were able
to obtain more current and comprehensive information than it does now.
Two new data bases managed by SSA for the Office of Child Support
Enforcement contain more up-to-date earnings information. SSA plans to
use one of these data bases in computer matches to more quickly and
efficiently detect the undisclosed earnings of recipients already on the
rolls. The agency is also in the beginning stages of providing its field
offices with direct access to these data bases. Such access would prevent




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overpayments by allowing field staff to check during the application
process for earnings that applicants neglected to report.

Both of these actions are steps toward implementing our recommendation
that SSA develop computerized interfaces necessary to access the Office of
Child Support Enforcement’s data bases to detect undisclosed earnings
during initial and subsequent determinations of eligibility. SSA may also be
able to obtain more up-to-date information on the financial accounts of
Supplemental Security Income clients from financial institutions by
accessing the nationwide telecommunication network, which links all
financial institutions. Accordingly, we also recommended that SSA study
the feasibility of obtaining computerized information from financial
institutions to detect financial accounts that Supplemental Security
Income clients do not report during the application process and during
subsequent determinations of eligibility. SSA has submitted a legislative
proposal to Congress that would facilitate its acquiring financial account
information and has drafted an implementation plan for obtaining
computerized information on the bank accounts of recipients.
(GAO/HEHS-98-75)

In May 1998, we reported that SSA was not assessing children’s eligibility
for Supplemental Security Income disability benefits against a uniform
standard of severity. Welfare reform, enacted in August 1996, defined
childhood disability as an impairment that results in “marked and severe
functional limitations,” which SSA regulations, in turn, defined as an
impairment that meets or medically or functionally equals one of its
medical listings. Under the regulation to be considered “marked and
severe,” an impairment must generally result in “two marked or one
extreme” functional limitation.

SSA  identified 28 listings which are set below the “two marked or one
extreme” threshold, and these listings are used to adjudicate cases as well
as the listings set at the “two marked or one extreme” threshold. We
recommended that SSA act immediately to update and modify its medical
listings to incorporate advances in medicine and science and to reflect a
uniform standard of severity. SSA agreed that it should periodically update
its medical listings and is developing a schedule to do so. It estimates that
it would take several years to complete the update, which it describes as a
complex task requiring significant research and analysis to ensure that the
update reflects state-of-the-art medical practice. SSA has not taken a
position on whether the updated listings should or would reflect a uniform
severity standard. (GAO/HEHS-98-123)



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Child Support Enforcement   In June 1992, we reported on the opportunity to defray the burgeoning
                            federal and state non-Aid to Families with Dependent Children costs in the
                            child support program by charging a minimum percentage fee on
                            collections. Non-Aid to Families with Dependent Children administrative
                            costs increased from $644 million in 1990 to $1.7 billion in 1996, while
                            recovered costs remained stagnant at about $37 million in 1996. Key
                            congressional staff believe that the concept of charging fees for child
                            support services provided to families not receiving Temporary Assistance
                            for Needy Families, which replaced the Aid to Families with Dependent
                            Children program, continues to have merit. (GAO/HRD-92-91)

                            See also Chapter 5, Financial and Information Management Programs,
                            Financial Management and Accountability Issue Areas as well as
                            Information Management Issue Areas.




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Chapter 4

Improving Justice and General Government
Programs

                        GAO   Contact: Norman J. Rabkin, 202/512-8777
Administration of
Justice Issue Area
(Budget Function 750)
Impact of GAO’s Work    Americans continue to rank crime and the fear of crime among their top
                        national concerns. We provide analysis and information on, and
                        recommendations for improvements to, federal criminal justice programs.
                        Included among the issues we assess are (1) law enforcement; (2) grant
                        programs supporting criminal justice research and evaluation and
                        assisting states and localities in meeting their public safety needs;
                        (3) immigration; and (4) litigative and judicial activities.

Law Enforcement         Money laundering provides the fuel for drug dealers, terrorists, arms
                        dealers, and other criminals to operate and expand their activities. In 1990,
                        the Financial Crimes Enforcement Network (FinCEN) was established in the
                        Department of the Treasury to combat money laundering. Most federal
                        investigators using FinCEN’s services have found them useful in their
                        investigations. However, we found that many investigators in federal field
                        offices were not aware of the products and services that FinCEN offered. In
                        response to our work, FinCEN updated its Internet site to include product
                        and service information and offer viewers the opportunity to send
                        comments and questions via electronic mail.

                        Criminal organizations and syndicates often launder large amounts of
                        cash. Under the Internal Revenue Code any person engaged in a trade or
                        business who receives more than $10,000 in cash in one transaction or a
                        series of related transactions must file an information return to the
                        Internal Revenue Service (IRS). We recommended to Congress that certain
                        temporary disclosure provisions of the Code—which give the Secretary of
                        the Treasury authority to disclose information provided in these returns
                        for use by law enforcement agencies investigating money laundering—be
                        made permanent. Subsequently, Congress passed legislation permitting IRS
                        to disclose this information on a permanent basis and to allow law
                        enforcement and regulatory agencies access to it. IRS has initiated a
                        process for providing agencies access to the information.

                        The Bank Secrecy Act and its implementing regulations, in general, require
                        financial institutions to maintain certain records and to file certain reports
                        that are useful in criminal, tax, or regulatory investigations, such as money
                        laundering cases. Since 1994 FinCEN has been responsible for assessing civil
                        penalties for violations of the act and, since then, the time it has taken to



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                 process these penalties has grown significantly. Lengthy processing times
                 can lessen the credibility and deterrent effects of the act and, in some
                 cases, the statute of limitations could expire. In response to our
                 recommendation, FinCEN revised its procedures to establish strict timelines
                 for processing civil penalty referrals and incorporated increased oversight
                 of the process.

                 Due to the high volume of cargo entering the U.S., the Customs Service
                 faces a major challenge in effectively carrying out its drug interdiction and
                 trade enforcement missions while facilitating the flow of persons and
                 cargo. To address this challenge, Customs has initiated and encouraged
                 ports of entry to use several programs to identify and separate “low-risk”
                 cargo shipments from those with apparently a higher smuggling risk.
                 However, we identified internal control weaknesses in these programs at
                 the ports we visited. Furthermore, we found that a program to designate
                 low-risk shipments and target high-risk shipments had not proven itself
                 effective. We recommended, among other things, that Customs
                 (1) strengthen its internal controls with regard to its risk assessments, and
                 (2) suspend its program to identify low-risk shipments and target high-risk
                 shipments until more complete and comprehensive data is available for
                 making these assessments. Customs agreed and said it will issue national
                 criteria and guidance to strengthen its risk assessment internal controls
                 and it will suspend its targeting program until more reliable information is
                 available for classifying low-risk importations.

                 We also reported on, among other things, how Customs assesses the need
                 for inspection personnel and allocates such personnel at ports of entry
                 along the Southwest border. Of Customs 301 ports nationwide, 24 are
                 located along the Southwest border. About 28 percent of Customs’
                 inspectors and 62 percent of its canine enforcement officers are located at
                 these ports. However, we found that Customs does not have an
                 agencywide process for annually determining its need for inspection
                 personnel and for allocating these personnel among the ports of entry
                 nationwide. We recommended that Customs establish a systematic
                 process to ensure, to the extent possible, that inspection personnel are
                 properly aligned with Custom’s goals, objectives, and strategies and that
                 the process include conducting annual assessments to determine
                 appropriate staffing levels for processing cargo at ports of entry. Customs
                 indicated that it has already begun implementing this recommendation.

Grant Programs   The Public Safety Partnership and Community Policing Act of 1994,
                 established what Justice Department officials described as the largest



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              grant program ever administered by the Department. The act authorized
              $8.8 billion in grants to be used from fiscal year 1995 to fiscal year 2000 to
              enhance public safety, including the addition of 100,000 officer positions
              to the streets of communities nationwide. The Attorney General
              established the Office of Community Oriented Policing Services (COPS) to
              administer the grants. We looked at several issues related to the program’s
              design, operation, and management. We found that during the first two
              and a half years of the program, monitoring of the program by the COPS
              Office was inconsistent. Over $2.6 billion in grants was awarded during
              this time. As a result of our work, the COPS Office began taking steps to
              enhance its monitoring activities and subsequently a new division was
              created dedicated exclusively to grant monitoring.

Immigration   Illegal immigration has been a long-standing problem. The Illegal
              Immigration Reform and Immigrant Responsibility Act of 1996 included
              provisions establishing an expedited removal process for dealing with
              aliens who attempt to enter the U.S. by engaging in fraud or
              misrepresentation or who arrive with fraudulent, improper, or no
              documents (e.g., visa or passport). Under this expedited removal process
              Immigration and Naturalization Service (INS) officers, instead of
              immigration judges, are authorized to formally order violating aliens
              removed from the country. Aliens found subject to expedited removal and
              who express a fear of being persecuted or tortured if they are returned to
              their home country are to be provided an interview to establish whether
              their fear is credible. If the interview establishes a credible fear, the alien
              is referred to an immigration judge who determines whether the alien
              should be granted asylum. We reviewed the implementation of the Act at
              five INS offices, including the implementation and results of the process for
              making credible fear determinations and provided information on the
              results of the process over the first 7 months that the process was in place.
              Our reported information was used in the debate over the expedited
              removal process.

              In addition to the considerable public attention and national focus illegal
              immigration has received in recent years, concerns were also raised that
              some aliens who applied for and became citizens may have been
              improperly naturalized. To judge if this had occurred, INS reviewed case
              files of 16,858 aliens after receiving criminal history records from the
              Federal Bureau of Investigation which indicated a felony arrest or
              conviction of a serious crime by those naturalized between August 31,
              1995 and September 30, 1996. The Executive Office of Immigration Review
              was to provide quality assurance that INS’ judgments were unbiased by



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                                     reviewing a sample of cases evaluated by INS. As a result of its review, INS
                                     is examining the potential citizenship revocation of 6,323 aliens—cases
                                     that INS adjudicators judged as requiring further action or presumptively
                                     ineligible. However, INS did not plan to review 72 cases that the Executive
                                     Office of Immigration Review believed may have involved improper
                                     naturalization decisions. As a result of our discussions with INS, these
                                     additional cases have been included by INS for revocation review.

                                     The number of applications received by INS has been growing and there are
                                     indications that some INS field offices are faster than others at processing
                                     applications. In fiscal year 1996, INS received almost 5.4 million new
                                     applications and completed processing about 5.6 million applications. A
                                     backlog of applications to be processed had increased to about 2.5 times
                                     the backlog that existed in fiscal year 1989. We found that statistically
                                     significant differences existed in production rates for five predominant
                                     types of applications processed by INS district offices and three
                                     predominant types of applications processed by INS service centers. INS
                                     suggested, among other reasons, that these differences may be due to the
                                     way field units reported the data that was used to calculate production
                                     rates and processing times and the varying experience level and degrees of
                                     specialization of district office and service center adjudications officers.
                                     As a result of our findings, INS, among other things, was streamlining and
                                     revising the reports district offices and service centers submit to
                                     headquarters and has begun training to promote consistency and the
                                     accuracy of the data submitted.

Litigative and Judicial Activities   We were asked to evaluate the Credit Research Center’s report on
                                     personal bankruptcies. That report addressed a major public policy
                                     issue—the amount of income that those who file for personal bankruptcy
                                     have available to pay their debts. We examined the report’s research
                                     methodology and formula for estimating the income that debtors have
                                     available to pay debts. Depending on the chapter of the bankruptcy code
                                     under which individuals filed, debtors either seek discharge of all eligible
                                     dischargeable debts or submit a repayment plan for paying all or a portion
                                     of their debts. While overall, the Center’s report represented a useful first
                                     step in analyzing the ability of debtors to pay their debts, our evaluation
                                     found five areas of concern that could affect interpretation of the report’s
                                     conclusions. Among our findings were (1) the report’s assumptions about
                                     the information debtors provide at the time of filing bankruptcy regarding
                                     their income, expenses, and debts and the stability of their income over a
                                     5-year period were not validated; (2) payments on nonhousing debts that
                                     debtors stated they intended to voluntarily repay were not included in



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                      debtors’ expenses in determining the net income debtors had available to
                      pay nonpriority, nonhousing debts; and (3) a scientific, random sampling
                      methodology was not used to select the 13 locations or the bankruptcy
                      petitions used in the analysis.


Key Open
Recommendations
Law Enforcement       In our report on the Counterdrug Technology Assessment Center, in the
                      Office of National Drug Control Policy, we reported on the Center’s
                      coordination efforts. These efforts include the coordination with
                      counterdrug research and development agencies at the federal, state, and
                      local levels. These efforts also include identifying both technology needs
                      and projects for Center funding, as well as prioritizing these needs. We
                      reported that the Center’s coordination could be more effectively carried
                      out. We therefore recommended that the Director, Office of National Drug
                      Control Policy, direct the Chief Scientist to work with the Science and
                      Technology Committee to improve coordination. Specifically, the
                      Committee with representatives from 21 law enforcement and demand
                      reduction agencies and bureaus, should ensure that it

                  •   meets regularly to exchange information on technology needs for drug
                      supply and demand,
                  •   recommends to the Chief Scientist the selection and funding of the highest
                      priority projects, and
                  •   ascertains that projects selected for Center funding have
                      transitional/acquisition plans.

                      The Office of National Drug Control Policy generally agreed with our
                      findings and conclusions. The Office is taking action, although none are
                      fully implemented as yet, on all of our recommendations. (GAO/GGD-98-28)

Immigration           In our report on criminal aliens, we recommended that the Commissioner
                      of INS establish a nationwide data system. This system would include the
                      universe of foreign-born inmates reported to INS by the Bureau of Prisons
                      (BOP) and state departments of corrections. It should be used to track the
                      status, according to the Institutional Hearing Program, of each inmate. We
                      also recommended that the Commissioner establish controls to ensure
                      that aliens serving time for aggravated felonies are identified from among
                      the universe of foreign-born inmates, placed into deportation proceedings,




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    and taken into custody on release. In addition, we recommended that the
    Commissioner develop a workload analysis model to identify

•   Program resources needed to achieve overall Program goals, and
•   the portion of those goals that would be achievable with alternate levels of
    funding.

    We also recommended that the Commissioner (1) use the alternate levels
    of funding to support Program funding requests, (2) identify the causes of
    attrition among immigration agents, and (3) takes steps to ensure that
    staffing is adequate to achieve Program goals. We recommended that INS
    establish and effectively communicate a clear policy on the role of special
    agents. We also recommended that INS use a workload analysis model to
    set Program goals for district directors with Program responsibilities. In
    addition, we recommended that INS document any actions taken to correct
    problems that prevent Program goals from being met. (GAO/T-GGD-154)

    In our report on INS management, we recommended that the INS
    Commissioner provide written guidance in two areas, with the first
    directed to all INS managers: (1) the responsibilities and authority of the
    Executive Associate Commissioner for Field Operations in relation to
    those of the Executive Associate Commissioner for Programs and (2) the
    appropriate coordination and communication methods and channels
    between offices. We also recommended that the Commissioner establish
    milestones for the issuance of manuals or parts of manuals if the parts can
    stand alone. Finally, we recommended that the Commissioner incorporate
    into INS’ current evaluation the reorganization issues raised in this report;
    thus, these issues can be addressed as INS attempts to fully achieve the
    goals of the reorganization. The reorganization issues include determining
    whether staffing levels need to be adjusted so that the Office of Programs,
    the Office of Field Operations, and regional offices can fulfill their
    prescribed roles. These issues also include developing a strategy and
    schedule for periodically evaluating the new deployment planning process.
    Such evaluation will help to ensure that the process is compatible with INS’
    overall planning. It also provides managers with the information needed to
    adequately plan for resource needs and decisions. (GAO/GGD-97-132)

    In our report on the Justice Department’s Southwest border strategy, we
    recommended that the Attorney General develop and implement a plan for
    a formal, cost-effective, comprehensive, systematic evaluation of the
    strategy to deter illegal entry across the Southwest border. This plan
    should describe (1) the indicators that would be required for the



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                                     evaluation, (2) the data that needs to be collected, (3) mechanisms for
                                     collecting the data, (4) controls intended to ensure accuracy of the data
                                     collected, (5) expected relationships among the indicators, and
                                     (6) procedures for analyzing the data. (GAO/GGD-98-21)

                                     In our report on INS user fees, we recommended that the Attorney General
                                     establish policies and procedures for (1) accounting for Executive Office
                                     of Immigration Review fee revenues INS collects; and (2) making these
                                     funds available to Executive Office of Immigration Review, as appropriate.
                                     INS agreed with our findings and recommendations and plans to meet with
                                     the Executive Office to address these costs and how INS will reimburse
                                     them. (GAO/GGD-94-101)

Litigative and Judicial Activities   In our report on how the Judicial Conference assesses the need for more
                                     judges, we recommended that the Conference and the Federal Judicial
                                     Center should move to develop a better work-load measure for the courts
                                     of appeals. (GAO/GGD-93-31)

                                     See also chapter 5, Financial and Information Management Programs,
                                     Financial Management and Accountability as well as Information
                                     Management Issue Areas.




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                       GAO   Contact: L. Nye Stevens, 202/512-8676
Federal Management
and Workforce Issue
Area (Budget
Function 800)
Impact of GAO’s Work   We conduct evaluations focused on cross-cutting management, workforce,
                       regulatory, and statistical issues. These include government performance
                       measurement and goals, restructuring and downsizing, regulatory reform,
                       privatization, oversight of the civil service, human resource management,
                       and the quality, reliability, and dissemination of census and other social
                       and economic statistical data. Principal agencies involved with such issues
                       include the Office of Management and Budget, Office of Personnel
                       Management, Merit Systems Protection Board, Office of Special Counsel,
                       Federal Labor Relations Authority, Office of Government Ethics,
                       Department of Commerce, Federal Trade Commission, Government
                       Printing Office, Bureau of Labor Statistics, Library of Congress, and the
                       National Archives. However, managerial, regulatory, personnel, and
                       statistical issues often involve other agencies as well.

                       In fiscal year 1998, we supported Congress’ oversight of initiatives
                       intended to ensure proper government accountability to its citizens. We
                       issued our summary assessment of the September 30, 1997 strategic plans
                       that agencies submitted under the Government Performance and Results
                       Act. That report highlighted the progress agencies had made since they
                       developed their draft plans and outlined key strategic planning issues that
                       continued to need agency and congressional attention. At the request of
                       the congressional leadership, we also issued a guide to facilitate the
                       congressional use of agencies’ fiscal year 1999 annual performance plans.
                       We evaluated those plans and issued a summary assessment that identified
                       an agenda for improving the usefulness of annual plans.

                       Our testimony on the Federal Advisory Committee Act contributed to
                       legislation that redefined the Act’s coverage of certain federally chartered
                       organizations. We estimate that the change saved $33 million that would
                       have been spent by these organizations to comply with the Act. We also
                       contributed substantially to congressional oversight of the Government
                       Printing Office (GPO). As mandated by the Legislative Appropriations Act
                       of Fiscal Year 1998 (P.L. 105-55), GAO contracted for a management audit
                       of the GPO. The May 1998 report included numerous recommendations for
                       improving GPO’s management and operations. The Appropriations




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                  Committees directed the Public Printer to implement the
                  recommendations of the management audit as appropriate and report
                  periodically on actions taken to implement them.

                  We also continued to assist Congress as it deliberated on a wide variety of
                  federal personnel management issues. For instance, our earlier work on
                  Sunday premium pay culminated in a $33 million savings in fiscal year
                  1998 as Congress passed governmentwide legislation prohibiting the
                  payment of Sunday premium pay to employees who use leave on their
                  scheduled Sunday workdays. Similarly, our past work on federal
                  downsizing resulted in an estimated savings of $22 million in fiscal year
                  1998 as agencies followed our guidance on choosing the most
                  cost-effective approach to downsizing.

                  In the regulatory arena, we identified a number of issues in need of
                  congressional attention. For example, in several reports and testimonies
                  on the Paperwork Reduction Act, we pointed out that the governmentwide
                  burden-reduction goals are not being met and that OMB’s Office of
                  Information and Regulatory Affairs had not fully implemented its
                  responsibilities under the Act. In January 1998, we reported that the
                  recently enacted Unfunded Mandates Reform Act had little effect on
                  federal agencies’ rulemaking actions.


Key Open          In October 1997, we recommended that the Consumer Price Index
Recommendations   expenditure weights be updated more frequently than at the current rate
                  of approximately every 10 years. This would change the proportionate
                  emphasis given to the items in the market basket of goods and services
                  used as the basis of the Consumer Price Index to more accurately reflect
                  current consumer expenditure patterns, and thus enhance the overall
                  accuracy of the index. The Bureau of Labor Statistics has generally agreed
                  with this recommendation and has undertaken research to determine the
                  optimal frequency for updating expenditure weights. (GAO/GGD/OCE-98-2)

                  We have noted that it was not always clear whether a proposed regulation
                  would have a significant impact on a substantial number of small entities.
                  As a result, it was not clear whether requirements of the Regulatory
                  Flexibility Act and the advocacy review panel requirements of the Small
                  Business Regulatory Enforcement Fairness Act of 1996 applied to a
                  proposed rule. We therefore recommended that Congress consider
                  (1) providing the Small Business Administration or some other entity with




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interpretative authority, and (2) requiring some other entity to establish
criteria to define key phrases in the statutes. (GAO/GGD-94-105, GAO/GGD-98-36)

Our February 1998 report on the experiences major federal credit
programs have had in measuring the results of their activities
recommended several steps to improve the availability of measures that
would allow comparison of results across these programs. (GAO/GGD-98-41)

In reviewing the fiscal year 1997 buyout programs of six agencies, we
found that they had been better managed than was generally the case
governmentwide during the 1994 and 1995 non-defense buyout window.
However, we also concluded that opportunities for still further savings
might have been identified if OMB had required agencies not only to
estimate the savings generated by buyouts, but to compare them to
estimated savings produced by alternative separation strategies, such as
reductions-in-force. To achieve the full potential savings consistent with
other organizational objectives, we recommended that the Director of OMB
require all agencies to include in any future requests for buyouts
information comparing the costs and savings of buyouts versus other
separation strategies for the separation year and a reasonable number of
subsequent years for which accurate assumptions and estimates could be
made. (GAO/GGD-97-124)

In the area of equal employment opportunity, our recommendations
addressed guidance that the Equal Employment Opportunity Commission
provides to federal agencies for affirmative employment planning.
According to the Commission, it has made substantial revisions to its
proposed management directive and continues to discuss these changes
with the Department of Justice. Once these discussions are complete and
the proposed management directive is approved within the Commission,
the directive will be sent to external agencies for comment. (GAO/GGD-91-86,
GAO/T-GGD-92-2, GAO/GGD-94-71)


Our summary assessment of agencies’ fiscal year 1999 annual performance
plans developed under the Results Act provided a framework to improve
the usefulness of future versions of those plans. We recommended that
OMB develop and implement a concrete agenda aimed at substantially
improving the usefulness of the agencies’ plans for congressional and
executive branch decisionmaking. We identified five key opportunities
that could serve as core elements of the improvement effort. We also
suggested that the OMB Director work with Congress and the agencies to




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identify specific program areas that could be used as best practices in the
implementation of the Results Act. (GAO/GGD/AIMD-98-228)

And our June 1998 report documented that hundreds of federal advisory
committees were established or continued without required supporting
information or without independent assessment of the continuing need for
the committees by the General Services Administration (GSA). Further, the
potential improvements recommended by 13 of 17 presidential advisory
committees were at risk because GSA did not ensure that follow-up reports
were issued to Congress. We recommended that GSA fully carry out its
Federal Advisory Committee Act responsibilities in a timely and accurate
manner. (GAO/GGD-98-124)

See also chapter 5, Financial and Information Management Programs,
Financial Management and Accountability as well as Information
Management Issue Areas.




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                         GAO   Contact: Thomas J. McCool, 202/512-8678
Financial Institutions
and Markets Issue
Area (Budget
Function 800)
Impact of GAO’s Work     Supervision of the financial services industry is taking place in a period of
                         rapid change as formerly clear and distinct industry definitions become
                         less relevant. 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
                         consolidation of financial institutions from different segments of the
                         industry is resulting in large financial service conglomerates that offer a
                         range of financial services beyond the mission of any one regulator. As
                         markets become more global, foreign and domestic institutions perform
                         similar functions and interact with savers and investors in similar ways.
                         Our work involving financial institutions and markets explores the
                         implications of these changes for Congress and the regulators, as well as
                         for the industry and its customers.

                         We examine these issues to provide information, analyses, and
                         recommendations to Congress and regulators on changes in and oversight
                         of the financial services industry. We analyze: 1) how effectively regulators
                         oversee financial institutions to ensure the integrity of the financial
                         system; 2) how effective regulatory policies and procedures are in
                         ensuring competition among financial services providers; 3) what federal
                         regulators are doing to measure the effectiveness of their policies and
                         programs; 4) whether regulators ensure that customers and businesses
                         have open and nondiscriminatory access to financial services and that
                         consumers are protected against fraud; and, 5) the ability of financial
                         regulators to effectively respond to the increasing predominance of
                         conglomerates, the continuing global interdependence of financial
                         markets, and advances in information technology and financial innovation.

                         Our work has improved the operation of the financial system as a whole
                         and individual components of it. One primary mission—working 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




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customers get what they pay for and that associated agency operations
improve their effectiveness.

We have conducted a series of assignments on the oversight provided to
housing government-sponsored enterprises and reported on weaknesses in
the safety and soundness and mission compliance oversight provided to
the Federal National Mortgage Association (Fannie Mae), the Federal
Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home
Loan Bank System. This body of work has led to our conclusion that the
three housing regulators who supervise these government-sponsored
enterprises should be merged creating a single housing
government-sponsored enterprise regulator that could more effectively
oversee the safety and soundness and mission compliance oversight of
these enterprises. These reports helped to spur an ongoing debate in this
Congress on how to reform the system.

Our work on over-the-counter derivatives market has provided the
framework for debating the complex issue. We 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. We also identified major gaps in the regulatory
structure.

Regarding technology issues, we have helped to alert Congress to the need
for the Securities and Exchange Commission to improve its monitoring
and reporting of the securities industry’s progress in achieving year 2000
compliance. We have also reported on the projected growth in on-line
banking systems and the considerable challenges banks are facing in
implementing and maintaining secure and dependable on-line banking
services to their customers. Other technology work has included a
comprehensive assessment of the effects of the Small Order Execution
System on the operation of the Nasdaq Stock Market. This work has
identified the need to ensure that the planned design of a new electronic
trading system provides for fair access to the market while ensuring
immediate, automatic execution of investors’ orders at the best possible
prices.




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Key Open
Recommendations
Financial Institution Reforms   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. In a separate report we
                                recommended that the Federal Housing Finance Board improve its
                                oversight of System banks. Both reports recommended a single regulator
                                for all three housing-related government-sponsored enterprises. The
                                Administration and Congress have been working on a legislative plan to
                                address our recommendations. (GAO/GGD-94-38, GAO/GGD-98-203)

                                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 Home Mortgage
                                Disclosure Act data. In addition, we suggested that 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, GAO/GGD-96-145)

                                We found the Office of Federal Housing Enterprise Oversight lacked
                                risk-based capital standards and a stress test model. We recommended
                                that—until that office had completed work on these critical safety and
                                soundness tools for overseeing Fannie Mae and Freddie Mac—the Office
                                of Federal Housing Enterprise Oversight periodically report its progress to
                                Congress. (GAO/GGD-98-6, GAO/T-GGD-98-25)

                                Our report assessing HUD’s mission oversight of Fannie Mae and Freddie
                                Mac found the need for improvement in several areas. To strengthen HUD’s
                                oversight of these housing enterprises we recommended HUD 1) develop a
                                better understanding of whether the housing goals are enhancing housing
                                affordability and opportunities for targeted groups as intended by
                                Congress and 2) coordinate with the Office of Federal Housing Enterprise
                                Oversight on reviews of enterprise compliance data. We also suggested
                                that HUD determine the cost of overseeing the enterprises and develop a
                                legislative package for Congress that would require the enterprises to pay
                                HUD’s oversight expenses. To insure nonmortgage investments are
                                consistent with the purposes expressed in their charters, we



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             recommended, in this report as well as another, that HUD closely monitor
             the enterprises’ use of nonmortgage investments. (GAO/GGD-98-173,
             GAO/T-GGD-98-177, GAO/GGD-98-48)


             Our testimony and report on modernizing the U.S. bank structure made
             suggestions that incorporate many of the practices we found in foreign
             bank regulatory systems. We noted that consolidation of agencies
             responsible for oversight was one logical step in modernization. We
             recommended that the Federal Reserve System and Treasury be part of
             the oversight structure in any financial modernization effort. Congress is
             considering these proposals as part of proposed financial services
             modernization legislation. (GAO/GGD-97-23, GAO/T-GGD-97-117)

Securities   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
             implemented several of our recommendations, but others remain to be
             implemented. (GAO/GGD-94-133)

             Over-the-counter derivative sales practices continue to need oversight. We
             recommended that regulators monitor the development of this market and,
             if necessary, introduce specific federal sales practice requirements. We
             also recommended that regulators assist the industry in determining the
             degree to which derivative dealers are responsible for disclosing the risks
             in derivatives they are selling to those wishing to purchase them
             (end-users). We believe that regulators should ensure enforcement of the
             sales practice provision of the Framework for Voluntary Oversight
             developed by the major derivative dealers. (GAO/GGD-98-5)

             We reported that the Commodity Futures Trading Commission needs to
             develop formal training plans for its Division of Enforcement personnel.
             We also recommended that the Division of Enforcement expand its
             procedures manual to include all of the major polices and procedures
             applicable to its investigative and litigation processes. (GAO/GGD-98-193)

             We examined the Small Order Execution System and its effects on the
             Nasdaq Stock Market. This system was developed to allow small orders



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placed through it to be automatically executed against Nasdaq market
makers at the best bid or ask price displayed on the Nasdaq system.
Nasdaq is in the process of developing a system to replace the Small Order
Execution System. We recommended that the Securities and Exchange
Commission ensure that the new system correct trading advantages the
Small Order Execution System provides some users, while maintaining the
ability to automatically execute small orders at the best possible price.
(GAO/GGD-98-194)

See also chapter 5, Financial and Information Management Programs,
Financial Management and Accountability as well as Information
Management Issue Areas.




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                               GAO   Contact: Bernard L. Ungar, 202/512-4232
Government Business
Operations Issue Area
(Budget Function 800)
Impact of GAO’s Work           We conduct audits and evaluations focused on civilian agency business
                               activities, including asset management (typically facilities) and the
                               procurement of goods and services. We focus predominantly on the
                               government’s two largest business entities—the General Services
                               Administration (GSA), which influences the management of assets valued
                               at nearly $500 billion, controls or oversees over $60 billion in annual
                               government spending, and in 1999, through its various business lines will
                               generate nearly $13 billion in revenue; and the United States Postal Service
                               (USPS), which has revenue of more than $58 billion annually. In 1998, our
                               work has also involved the Kennedy Center for the Performing Arts,
                               Federal Prison Industries (FPI), the Treasury, Bureau of Engraving and
                               Printing, Agriculture, Forest Service, Administrative Office of the U.S.
                               Courts, Federal Communications Commission, the Architect of the
                               Capitol, and the District of Columbia government.

Facilities Management Issues   To help Congress evaluate the operations of the Federal Buildings Fund,
                               we verified, to the extent possible, the overestimation of its rental revenue
                               for fiscal years 1996, 1997, and 1998; determined whether the actions taken
                               by GSA appeared to address the overestimation problem and recommended
                               additional actions that GSA should take. In addition, we assessed the
                               budgetary impact of the overestimation on projects and programs in the
                               Federal Buildings Fund. We noted that it was not clear how many, if any,
                               of the proposed new construction or modernization projects would have
                               been included in the President’s budget or funded by Congress in fiscal
                               year 1998 had it not been for the overestimation problem. However, to the
                               extent the overestimation problem resulted in lack of funding for new
                               projects and these proposed projects are funded in the future, the
                               government could experience cost changes. Delays in basic repair and
                               alteration work could also result in additional future cost to the extent
                               prices for these services increase in the future and to the extent delays
                               cause further deterioration of the assets.

                               We also assisted Congress in its efforts to evaluate the need for specific
                               facility acquisitions. We issued two reports on the acquisition of the
                               Portals II building in Washington, D.C. for the Federal Communications
                               Commission and delays in the commission’s move into the new facility. We
                               reported on GSA’s acquisition of a new facility for the consolidation of



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                         Agriculture’s natural resources research activities into a single facility in
                         Fort Collins, Colorado. We also evaluated and testified on GSA’s upgrading
                         of security of federal buildings under its operations in response to the
                         bombing in Oklahoma City.

Procurement              In response to a provision of the 1997 Emergency Supplemental
                         Appropriations Act and numerous congressional requests, we provided an
                         assessment of (1) the optimum circumstances for the procurement of
                         distinctive currency paper, (2) the effectiveness of the Bureau of
                         Engraving and Printing’s efforts to encourage competition in the
                         procurement of currency paper, (3) the fairness and reasonableness of
                         prices paid for currency paper by the bureau and the quality of the paper
                         purchased, and (4) the potential for disruption to the U.S. currency paper
                         supply from the Bureau of Engraving and Printing’s reliance on a single
                         source. In our report we included matters for congressional consideration
                         and recommendations to the Secretary of the Treasury. Also, we assisted
                         Congress in the procurement area by evaluating FPI’s performance in
                         providing goods and services to federal agencies. We issued reports
                         addressing pricing, timeliness, and customer satisfaction in which we
                         made a number of recommendations aimed at improving FPI’s
                         performance.

Postal Service           Our postal work has continued to make substantial contributions to the
                         Congress’ ongoing postal reform deliberations and oversight hearings on
                         the Postal Service. Our report on labor-management relations received
                         broad media coverage, as well as a hearing by the Chairman of the House
                         Subcommittee on Postal Service that brought together representatives
                         from the Postal Service, the employee unions, management associations,
                         and a mediator from the Federal Mediation and Conciliation Service to
                         discuss how to improve progress in labor-management relations. We also
                         reported on issues related to concerns about whether the Postal Service
                         has an unfair advantage due to its government status over private
                         competitors in providing international parcel delivery services.

Management Improvement   At the request of the House leadership, we provided our observations on
                         GSA’s and the Postal Service’s strategic plans and fiscal year 1999 annual
                         performance plans which they were required to prepare by the
                         Government Performance and Results Act of 1993. In each instance, we
                         made recommendations to improve the plans which the agencies agreed to
                         implement.




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Key Open
Recommendations
Courthouse Construction   The Congress, the Judiciary, and GSA have embarked on a $10 billion
                          courthouse construction initiative. In response to various criticisms about
                          inadequate management and oversight, GSA established a courthouse
                          management group to develop a more disciplined approach that would
                          reduce costs 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 that 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. GSA and the
                          Judiciary still need to establish specific measures for assessing the
                          progress of actions they have taken and evaluating their overall
                          effectiveness. (GAO/T-GGD-96-19)

                          In our report on courtroom usage, we recommended that the
                          Administrative Office of the U.S. Courts, the Federal Judicial Center, and
                          the Judicial Conference of the U.S. should design and implement
                          cost-effective research to fully examine the courtroom usage issue to form
                          a better basis for determining the number and type of courtrooms needed,
                          as well as whether each district judge needed a dedicated courtroom. The
                          Administrative Office of the U.S. Courts has deferred action on the
                          recommendations until it assesses the implementation of the new Judicial
                          Conference policies related to courtroom sharing among some senior
                          judges and circuit councils considering more closely the existing
                          courtrooms before planning to add new courtrooms. It believes this effort
                          will provide information relatively quickly and on a broad scale. This
                          approach, however, does not consider active judges sharing courtrooms.
                          (GAO/GGD-97-39)

Procurement Issues        FPI needs to institutionalize internally an assessment of overall customer
                          satisfaction with the services it provides and to use this assessment to
                          measure and improve its performance. We recommended the Director,
                          Bureau of Prisons, should direct FPI’s Chief Operating Officer to:
                          (1) examine available approaches to collect and use customer satisfaction
                          data to determine the most cost-effective approaches for FPI; (2) develop a
                          plan for collecting customer satisfaction data that would allow for
                          supportable conclusions about federal customers’ views on timeliness,



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                prices, and quality; (3) develop a timetable for implementing the plan; and
                (4) set performance goals for the levels of customer satisfaction that FPI
                wants to attain and measure results against these goals. (GAO/GGD-98-50)

Postal Issues   USPS, unions, and management associations should develop a long-term
                framework agreement to change the workplace climate in mail processing
                and delivery functions. The agreement should provide for the following
                principles and values: (l) 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 facilitators/
                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 participated in a national summit on October 29, 1997, and
                agreed to continue meeting quarterly to discuss postal labor relations and
                initiatives to be jointly undertaken to improve workplace relationships. We
                believe these meetings are a positive step toward reaching agreement on
                overall objectives and approaches for improving the workroom climate,
                but that more specific actions are needed to determine whether these
                discussions result in meaningful improvements. (GAO/GGD-94-201A)

User Fees       In our report on agency compliance with user fee review requirements, we
                recommended that the Director, OMB, clarify the user fee reporting
                instructions by specifying how agencies should report the results of their
                user fee reviews and address the issues of compliance with the biennial
                review requirements, including the requirements regarding statutorily set
                fees and agencies’ consideration of potential new user fees. OMB noted in
                its July 1998 revision of OMB Circular A-11 the requirement for the biennial
                review of user charges for agency programs and stated that agencies
                should ensure that estimates are developed in accordance with the full
                cost recovery policy set forth in OMB Circular A-25. While the July 1998
                revision to OMB Circular A-11 does emphasize the biennial review
                requirement and full cost recovery, it does not address how agencies
                should report the results of the biennial review. (GAO/GGD-98-161)




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See also chapter 5, Financial and Information Management Programs,
Financial Management and Accountability as well as Information
Management Issue Areas.




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                       GAO   Contact: James R. White, 202/512-9110
Tax Policy and
Administration Issue
Area (Budget
Function 800)
Impact of GAO’s Work   We conduct evaluations of tax policy and administration to provide the
                       Congress, the executive branch, and the public with timely, accurate, and
                       objective analyses and information to improve the operation and
                       administration of our nation’s tax system. This entails the revenue side of
                       the budget—the estimated $1.6 trillion in tax receipts that finance the
                       federal government’s operations and the over $545 billion in tax
                       expenditures that promote numerous social and economic objectives—as
                       well as the federal agency responsible for tax administration, the Internal
                       Revenue Service (IRS).

                       The federal government has realized over $3.5 billion in savings over the
                       last 2 years as a result of statutory and administrative changes we
                       recommended. Of that total, (1) $2.1 billion comes from a reduction in IRS’
                       Tax Systems Modernization program budget that resulted from IRS’
                       establishment and use of explicit decision criteria when planning and
                       evaluating its technology investments, (2) $1.1 billion comes from a
                       phaseout of the Section 936 tax credit in U.S. possessions, (3) $175 million
                       comes from a reduction in IRS’ fiscal year 1998 budget submission for a
                       multi-year capital account—the Information Technology Investments
                       Account, and (4) $131 million comes from a reduction in IRS’ fiscal year
                       1998 budget submission for systems development.

                       These savings represent only one aspect of the impact of our work. Our
                       reports and testimonies have recommended ways to improve the
                       efficiency and effectiveness of the tax system by addressing such subjects
                       as collecting delinquent taxes and identifying unreported income,
                       responding to taxpayers’ inquiries and reducing the burden of complying
                       with the tax laws, modernizing IRS to achieve greater productivity and
                       better management of its operations, and revising IRS’ performance
                       measures for compliance and enforcement activities.

                       Because of our recommendations in these subjects, IRS has (1) taken steps
                       to deny tax refunds and credits on returns with missing or incorrect social
                       security numbers; (2) modified its management and information systems
                       to include information on tax assessments for business partners’ tax




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                          returns and on changes in the allocation of profits and losses among
                          partners; (3) contracted with a commercial reporting service to provide
                          information on long-term Original Issue Discount bond issuances that
                          were not reported to IRS and were not included in IRS’ Publication 1212;
                          (4) developed and published detailed instructions on how to use its
                          Telephone Routing Interactive System and improved the system’s
                          interactive menus and scripts; (5) increased its efforts to answer telephone
                          inquiries during the filing season to 16 hours a day, six days a week, in
                          1998 and plans to take telephone inquires 24 hours a day, seven days a
                          week, in 1999; (6) utilized a voice message system to record complex tax
                          questions so that knowledgeable assistors can contact the taxpayers
                          within 2 days of the initial calls; (7) developed a new form for requesting
                          innocent spouse relief and revised its publications to better inform
                          taxpayers about the criteria and procedures for requesting innocent
                          spouse relief; (8) centralized the processing of innocent spouse relief
                          claims and is training its Examination and Collections staff and telephone
                          assistors in the criteria and procedures for obtaining innocent spouse
                          relief; (9) established Cooperative Strategy Working Groups to manage,
                          monitor, and track all research projects; (10) developed computer-based
                          training to meet research training needs and to measure training
                          effectiveness; (11) designated its Compliance Research Information
                          System as the primary analytical tool for conducting research;
                          (12) established Compliance Planning councils in all districts to oversee
                          the districts’ compliance programs; and (13) revised the way it measures
                          the accessibility of its telephone service. IRS is implementing a nationwide
                          call router center in Atlanta, Georgia, to receive and route telephone
                          inquiries to available assistors on a real-time basis.


High-Risk Areas           In February 1997, we reported on certain high-risk areas throughout the
                          government. At IRS, the areas included the management and collection of
                          billions of tax dollars in accounts receivable as well as significant levels of
                          tax filing fraud.

Tax Revenue in Accounts   Since many taxpayers are either unable or unwilling to pay their taxes
Receivable                when due, IRS has accumulated accounts receivable estimated to be in the
                          tens of billions of dollars. For years, IRS’ efforts to collect these delinquent
                          taxes have been seriously hampered, primarily, by outdated equipment
                          and processes, old accounts that are difficult to collect, incomplete
                          taxpayer information for targeting collection efforts, and the absence of a
                          comprehensive strategy and detailed plan to address the systemic nature
                          of the underlying problems.



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                                 IRS has attempted to deal with these problems, in part, by correcting errors
                                 in the accounting records of tax receivables, developing more information
                                 on the makeup of the inventory of tax debts, developing research systems
                                 to identify characteristics of delinquent taxpayers and appropriate
                                 collection techniques, attempting earlier telephone contact with
                                 delinquent taxpayers, revising the format of bills sent to taxpayers, and
                                 automating many of the collection processes performed by collection
                                 employees in field offices. However, IRS still needs a comprehensive
                                 strategy, involving all aspects of its operations, that sets collection
                                 priorities, modernizes outdated equipment and processes, and establishes
                                 goals, timetables, and a system to measure progress.

Filing Fraud                     Since our high-risk series was issued, IRS has released a report on the
                                 results of its study of earned income credit (EIC) claims on tax year 1994
                                 individual tax returns. That study showed that of the $17.2 billion in EIC
                                 claims on returns filed in tax year 1994, 25.8 percent was erroneously
                                 claimed. Our evaluation of IRS’ study methodology concluded that IRS’
                                 estimate was reasonably accurate and representative of EIC claimants filing
                                 between January 15 and April 21, 1995. With new enforcement tools
                                 provided by Congress and an increase in funding specifically designated
                                 for EIC-related activities, IRS began implementing in fiscal year 1998 a plan
                                 that, over a 5-year period, calls for attacking EIC noncompliance through
                                 expanded customer service, strengthened enforcement, and enhanced
                                 research. Many parts of that initiative are targeted at the primary sources
                                 of EIC noncompliance identified in IRS’ tax year 1994 study. We reviewed
                                 IRS’ efforts for tax year 1997. Although most of the efforts had not
                                 progressed far enough for us to make any judgment about their
                                 effectiveness, we identified several implementation issues that could
                                 diminish the compliance initiative’s impact. (GAO/GGD-98-150)


Key Open
Recommendations
Accounts Receivable Collection   We studied private sector and state collection techniques to determine
                                 whether IRS could improve its collection of delinquent taxes. We
                                 recommended, among other things, 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, and identify ways to increase
                                 cooperation with state governments. (GAO/GGD-93-67)




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                      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, the program has not
                      demonstrated that its objectives of increased collections and improved
                      compliance will be met. We recommended that IRS develop the indicators
                      necessary to evaluate the Offer-in-Compromise Program as a collection
                      and compliance tool. IRS is studying the program and plans to make
                      modifications, including the development of performance indicators.
                      (GAO/GGD-94-47)

Taxpayer Compliance   The Low-Income Housing Tax Credit is the largest federal program to fund
                      the development and rehabilitation of rental housing for low-income
                      households. Under the program, states allocate federal tax credits as an
                      incentive to the private sector to develop these projects. The annual cost
                      of the credits could be as much as $3 billion. IRS is responsible for ensuring
                      that taxpayers take no more credits than allowed and that the states
                      allocate no more credit that they are authorized to allocate. We
                      recommended that IRS (1) establish clear requirements to ensure
                      independent verification of sources and uses of funds submitted to states
                      by developers that form the basis of decisions about the value of tax
                      credits granted low-income housing projects; (2) require that states report
                      sufficient information about monitoring inspections or reviews, including
                      the number and types of inspections made so that IRS can determine
                      whether states have complied with their monitoring plans; (3) require that
                      states’ monitoring plans include specific steps that will provide
                      information to permit IRS to more efficiently ensure that the Internal
                      Revenue Code’s habitability requirements are met; and (4) explore
                      alternative ways to obtain better information to verify that states’
                      allocations do not exceed tax credit authorizations and to evaluate
                      taxpayers’ and housing projects’ compliance with the requirements of the
                      Code. IRS is taking steps to address these recommendations. (GAO/GGD-97-55)

                      Sole proprietors, who account for about 13 percent of individual
                      taxpayers, are responsible for an estimated 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, for example, to extend withholding and information reporting



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requirements to cover independent contractors. We testified annually from
1992 to 1996 concerning these issues. Since January 1995, at least four
legislative proposals for clarifying the rules have been submitted.
(GAO/GGD-92-108)

As of 1994, about two-thirds of all additional tax assessments
recommended as a result of IRS’ audits were attributable to the nation’s
1,700 largest corporations. Although audits of these large corporations
consumed about 20 percent of IRS’ Examination resources, IRS collected
only about $1 out of every $5 in recommended tax assessments. We
recommended that IRS attempt to ensure collection of the proper amount
of tax by (1) providing more authority over budget and staffing allocations
in the field to the National Office executive who manages the audit
program and (2) analyzing the recurring tax disputes and proposing
legislative changes for minimizing such recurrence. IRS is taking steps to
address these recommendations. (GAO/GGD-94-70)

IRS also has an audit program that deals with tax returns filed by about
45,000 other large corporations. Between 1988 and 1994, IRS invested
additional time in doing these audits but recommended fewer additional
taxes per hour invested. Since IRS had only been collecting about $1 of
every $4 in additional taxes recommended during these audits, the results
raised concerns about the productivity of such audits. Our
recommendations strove to improve that productivity. For example, we
recommended that IRS develop more specific criteria to guide the selection
of tax returns and tax issues on those returns with high audit potential.
(GAO/GGD-97-62)

Through negative withholding, low-paid wage earners may receive a
pro-rated portion 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 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
taxpayer reporting, but we believe that IRS needs to do more to identify
and deal with those who do not file correct returns. (GAO/GGD-92-26)




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                   Concerns about continued overall 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 the current estimated level of 87 percent, and IRS believes its new
                   compliance research approach will uncover ways to help meet this goal.
                   We recommended that IRS take steps to ensure that reliable compliance
                   data is available when needed. (GAO/GGD-96-109)

                   Available compliance data indicate that overstated deductions by small
                   businesses are a significant noncompliance area—about $40 billion
                   annually. We 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’ monitoring and administration of the filing compliance of
                   U.S. citizens residing abroad. In that regard, we made several
                   recommendations aimed that increasing and improving the data that could
                   be used to enhance IRS’ ability to monitor the filing compliance of these
                   taxpayers. We also suggested ways for IRS to educate this group as to their
                   filing requirements. (GAO/GGD-98-106)

Taxpayer Service   IRS plans to serve more taxpayers by telephone, primarily through the use
                   of its Telephone Routing Interactive System. The interactive system is
                   designed to allow taxpayers with certain questions to obtain the
                   information or service they need without speaking to a representative,
                   thereby allowing customer service representatives to assist taxpayers with
                   more complex, time-consuming questions. Unfortunately, few taxpayers
                   are using the system other than to check on the status of their refunds
                   (information that can be obtained from another automated system). Some
                   taxpayers feel that the Telephone Routing Interactive System offers too
                   many menus to remember or prevents them from using certain
                   applications. We recommended that IRS conduct a cost-benefit analysis to
                   determine whether multiple toll-free numbers would overcome the
                   problem of having to remember too many menu options. (GAO/GGD-96-74)




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                    We also recommended that IRS re-examine its plans for using interactive
                    telephone applications. At a minimum, IRS needs to (1) analyze the services
                    taxpayers need, want, and will use; (2) determine why taxpayers are not
                    using the existing interactive applications; (3) reevaluate the costs and
                    benefits of its Telephone Routing Interactive System; and (4) delay the
                    further development and implementation of any interactive applications
                    until the re-examination is completed. (GAO/GGD-98-152)

                    For years, IRS’ plans for improving customer service have included the
                    implementation of a one-stop service initiative to reduce the time and
                    frustration associated with making numerous contacts with IRS to resolve a
                    single problem. In August 1994, we reported 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.
                    (GAO/GGD-94-131)

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 various 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. (GAO/GGD-89-1)

                    IRS is undergoing a major effort to modernize its information systems and
                    restructure its organization. Part of this effort involves improving IRS’
                    interactions with taxpayers by folding parts of its field structure into
                    customer service centers. These centers would interact primarily by
                    telephone to provide customer service, take orders for tax forms, collect
                    unpaid taxes, and adjust taxpayer accounts. 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 service centers
                    belong to two separate IRS organizations, we recommended that IRS clarify
                    its criteria for assigning process owners. Second, since we found instances
                    in which “products” were being developed for use in the customer service
                    sites that had no clearly designated process owners, we recommended
                    that IRS define the process owners’ roles and responsibilities. And third, we
                    recommended that IRS emphasize the need for timely input for the data it
                    needed to evaluate its systems’ performance. (GAO/GGD-96-03)




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                     We reviewed IRS’ plans to maximize electronic filing, which is the
                     cornerstone of IRS’ plan to move away from traditional paper-based return
                     filing. We found that (1) if electronic filing continues at the current pace,
                     IRS will fall far short of its goal of 80 million electronic returns by 2001;
                     (2) IRS has had 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-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. IRS is developing a strategy that should be
                     finalized by the end of 1998. (GAO/GGD-96-12)

                     For years, IRS has sought to develop effective measures to gauge its
                     performance in collecting federal taxes at the least cost to the taxpayer
                     and the government. Recently, IRS has attempted to develop and
                     implement results-oriented performance measures as required by the
                     Government Performance and Results Act in order to assist in meeting
                     legislative requirements to improve customer service and reduce the
                     burden on taxpayers associated with paying their taxes. In doing so, IRS
                     must measure the elements of burden it can influence and devise a means
                     to capture the costs taxpayers incur when preparing and filing their tax
                     returns. We recommended that IRS develop performance indicators that
                     cover the full range of IRS’ customer service program. (GAO/GGD-98-59)

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

                     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, businesses need to be able to readily distinguish between workers
                     who are “employees” and those who are “independent contractors.”
                     However, IRS’ rules for classifying workers are unclear and subject to



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conflicting interpretations. This situation puts employers at risk of
incurring large penalties and retroactive tax assessments. We
recommended that Congress and IRS work together to clarify the rules.
(GAO/GGD-92-108, GAO/T-GGD-96-130)

See also chapter 5, Financial and Information Management Programs,
Financial Management and Accountability as well as Information
Management Issue Areas.




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                                   GAO   Contacts:
Budget Issue Area
(Budget Function 990)              Paul L. Posner, 202/512-9573
                                   Susan J. Irving, 202/512-9142


Impact of GAO’s Work               During fiscal year 1998, GAO’s work relating to the federal budget focused
                                   on improving the budgetary information available to policymakers and the
                                   public on the government’s overall fiscal position and on the cost and
                                   performance implications of budgetary decisions. In examining federal
                                   budgetary structures and processes, we bring new information from our
                                   own audit and evaluation work to the attention of budget decisionmakers
                                   and identify improvements in executive and legislative budget processes
                                   that promise to better highlight important tradeoffs implicit in budgetary
                                   choices.

Assessing the Fiscal Position of   We have continued work to help Congress address the difficult budgetary
the Federal Government             choices associated with reducing the budget deficit and, recently,
                                   achieving a budget surplus. For the fifth year, we have provided a
                                   compendium of options for achieving budgetary savings based on GAO’s
                                   work during the year, identifying approaches to address performance
                                   problems in a budgetary context. The report has prompted widespread
                                   interest in the House and Senate Budget Committees, who have requested
                                   us once again to work with the Congressional Budget Office to provide
                                   savings estimates for our options. We also worked to facilitate the use of
                                   our work by new oversight task forces convened by the Senate Budget
                                   Committee to review specific program performance issues.

                                   We have continued to provide periodic simulations of the long-term
                                   implications of current fiscal policy for the nation’s economic and
                                   budgetary future looking out some 50 years, based on a long-term
                                   economic model we first prepared in 1992. A report and testimony in early
                                   1998 pointed to substantial fiscal progress made in recent years, capped by
                                   the 1997 Balanced Budget Act, but also revealed the dimensions of the
                                   long term fiscal challenges continuing to face the nation prompted by
                                   escalating health and Social Security costs associated with the baby boom
                                   retirement. The model also helps decisionmakers understand the
                                   consequences of alternative fiscal policy paths for such outcomes as the
                                   nation’s capital stock, Gross Domestic Product per person, public debt
                                   and associated interest costs.




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                              The budget surplus itself has prompted many in Congress to ask new
                              questions about current budget presentations and policies which we are
                              addressing in our work. Some have proposed to use the period of budget
                              surplus as an opportunity to address perennial concerns about whether
                              the budget numbers adequately reflect the long-term implications of
                              federal commitments. Our work on federal insurance programs illustrates
                              that cash reporting of these programs in the budget often misstates the
                              long-term federal commitment and risks and we recommended that both
                              Congress and OMB focus more attention on developing reliable
                              accrual-based numbers estimating the government’s risks. The budget
                              process reform legislation introduced in 1998 by the co-chairs of the
                              House Process Reform Task Force of the Budget Committee includes a
                              section prompted by our report to shift insurance budgets to an accrual
                              basis. Another long-term commitment receiving increased attention is
                              Social Security. We issued the first comprehensive report to address the
                              budgetary and economic implications of investing in the stock market, the
                              surpluses currently building up within the Social Security program, and
                              the report highlighted the effects of current and alternative investment
                              policies on the government’s overall fiscal position. The report was well
                              received in Congress, culminating in testimony before the Senate’s Special
                              Committee on Aging.

                              Finally, the surplus triggered widespread interest in how changes in
                              annual government fiscal position affect public debt and the issues
                              involved in how the Treasury Department is managing the reduction in
                              debt. We were asked to testify before the Ways and Means Committee on
                              the overall nature and implications of federal debt for the budget and the
                              economy. The Senate Budget Committee has asked us to update a
                              widely-read 1996 primer on the federal debt adding issues raised by the
                              existence of a budget surplus.

Improving Budgetary Choices   Although neither the structure of the budget nor the budget process itself
                              determines the outcome of budget deliberations, each can influence what
                              the debate is about by highlighting particular types of tradeoffs and
                              information. Building on a long-standing GAO presence in budget
                              accounting and presentation issues, the group made progress in 1998 in
                              strengthening the linkage of budget with performance and financial
                              accounting information and in helping policymakers understand the
                              implications of proposed changes in budget concepts and structures.

                              Working from the strong foundation established by recent statutory
                              reforms that require federal agencies to produce audited financial



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statements and annual performance plans, we have focussed on the
challenge of integrating these new perspectives and information with the
budget. Recognizing the essential synergy between management reforms
and the budget, we have identified gaps between performance goals,
financial statements and budget accounting and appropriations
perspectives that need to be addressed if the new reforms are to achieve
sustainable changes in both management and resource allocation
practices. We have prepared the guides for both Congress and evaluators
to assess the relevance and usefulness of individual agency performance
plans and their linkage with the budget. We worked closely with
congressional appropriations staff to help them develop
performance-oriented questions for hearings and report language
suggesting the need for stronger linkage of performance information in
agency budget submissions. Our work assessing the status of budget
integration was summarized in a report setting forth an agenda for
improving the agencies’s annual performance plans and in a separate
report evaluating the first governmentwide performance plan prepared by
OMB. Beginning with work done in the past several years, we also
continued to identify ways to use the performance planning and budgeting
processes to identify fragmentation and overlap among government
programs and agencies pursuing common or similar outcomes,
culminating in reports on the usefulness of budget functions as a
framework for comparing the efficacy of related governmental programs
and tools.

We have also sought to identify ways to make information in financial
statements and financial audits more relevant to budgeting. Although the
budget is largely based on annual cash flow principles, we have long felt
that resource allocation can be improved by considering audited
accrual-based information derived from financial accounting disclosing
selected assets, liabilities and net costs. We have helped make the
consolidated governmentwide audit report useful to budget debates. We
have, moreover, continued to develop a new set of reports interpreting the
budget relevance of selected agency financial audit reports for the House
Budget Committee at their request, and are now developing an approach
for auditing the numbers used in the budget itself. We have also explored
the use of accrual concepts for recording selected budgetary transactions,
culminating in a report evaluating the experience with the use of accrual
budgeting for federal credit programs since 1990 and the insurance report
mentioned above. We are now exploring lessons we might learn from
initiatives underway in several nations to adopt full-scale accrual-based
budgets.



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                        Finally, work on budget structures and intergovernmental fiscal relations
                        have borne fruit in 1998. In testimony before the President’s Commission
                        on Capital Budgeting, members expressed strong interest in the agenda we
                        have developed over a number of years for “middle range” reforms for
                        improving agency capital budgeting practices and for adopting targets or
                        goals for federal “investments” in infrastructure, human capital and
                        research and development. While falling short of a full-scale capital
                        budget, these reforms were seen by many as offering the potential to
                        improve capital budgeting within the familiar constraints of the unified
                        budget. Parallel work identifying best practices in capital planning in
                        private business and state and local governments has been reflected in our
                        exposure draft which has been leveraged by OMB in its guidance to federal
                        agencies and in a conference jointly sponsored by us and OMB on best
                        practices in capital planning and budgeting. Our report on the early fiscal
                        effects of welfare reform has been hailed by Congressional requestors and
                        federalism observers for credibly identifying the fiscal choices states have
                        made in designing their new welfare programs.


Key Open
Recommendations
Federal Credit Reform   We have issued a series of reports examining some 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. Both the fiscal year 1998 and
                        fiscal year 1999 budgets included some change in budgetary treatment for
                        the GNMA, but the action taken will not result in full compliance with the
                        Federal Credit Reform Act. GNMA has hired an advisor and has met with
                        OMB officials to develop a budget treatment that will comply with credit
                        reform. (GAO/AIMD-94-57)

                        In a 1998 report on cost estimation and the quality of re-estimates we
                        reported that re-estimates were often not done in a timely manner and
                        component data were incomplete. We recommended that the Secretaries
                        of Agriculture, Education, Housing and Urban Development, and Veterans
                        Affairs and the Administrator of the Small Business Administration



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                             improve oversight of credit reform implementation, including ensuring
                             that estimates are prepared accurately. We also recommended that the
                             OMB Director work toward identifying ways OMB could further assist
                             agencies to implement credit reform more rapidly and accurately. The
                             Secretaries of Agriculture, Education, Housing and Urban Development all
                             responded that they were taking steps to examine and deal with
                             weaknesses in implementation. The Administrator of the Small Business
                             Administration said she believed that the Small Business Administration
                             was making progress. OMB is developing a new credit subsidy calculator
                             that is expected to assist agencies in calculating subsidy components. We
                             remain convinced that consistent high-level attention to credit reform
                             implementation is necessary to assure that the estimates can be used for
                             consideration of any changes in credit programs. (GAO/AIMD-98-14)

Budgeting for Federal        In an examination of the budget treatment of Federal Insurance programs,
Insurance                    we reported that a cash-based treatment in which premiums are reflected
                             as inflows and expenditures are recorded later when claim payments are
                             made does not accurately represent either the impact of the insurance on
                             the economy or the full cost to the federal government. We recommended
                             that the Congress consider encouraging the development and subsequent
                             reporting of annual risk-assumed cost estimates in conjunction with the
                             cash-based estimates. We also recommended that OMB develop
                             risk-assumed cost estimation methods and report on these methods. As
                             part of a larger budget process reform bill, the House Budget Committee
                             included a revision of the budget treatment for federal insurance based on
                             this report. OMB has been working with the House Budget Committee task
                             force on this proposal. (GAO/AIMD-97-16)

Year-End Spending            In a review of agency spending in the fourth-quarter of the fiscal year
                             (“year-end spending”), we recommended that in order to improve
                             oversight of agencies’ execution of the budget, OMB reemphasize
                             compliance with OMB Circular A-34’s requirement that agencies provide
                             quarterly data no later than 20 days after the close of a calendar quarter
                             and that OMB examine quarterly reporting by agencies that varies
                             significantly from planned or historical rates. We also recommended that
                             OMB continue its efforts to integrate budget and accounting reporting at
                             year-end and report periodically on progress made. OMB indicates that it is
                             taking steps to improve data on quarterly spending patterns.
                             (GAO/AIMD-98-185)

Temporary Assistance for     In a review of early fiscal effects of the welfare reform block grant
Needy Families Block Grant   (Temporary Assistance for Needy Families—TANF), we found that more
Reserves


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federal and state resources were available for states’ low-income family
assistance programs since welfare reform passed in 1996 than would have
been available under the previous system of financing the welfare
programs consolidated in the TANF block grant. We concluded that states’
fiscal planning for any future increases in caseloads varied widely. We
recommended that the Secretary of Health and Human Services consult
with the states and explore options to enhance information regarding
states’ plans for their unused TANF balances. The Department concurred in
our recommendation. (GAO/AIMD-98-137)

See chapter 2, Improving Resources, Community, and Economic
Development Programs, Income Security Issue Area. See also chapter 4,
Improving Justice and General Government Programs, Financial
Institutions and Markets Issue Area.




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                                     GAO   Contacts:
Financial
Management and                       Lisa G. Jacobson—DOD, 202/512-9095
Accountability Issue                 Robert W. Gramling—Congressional Entities/Corporations, 202/512-9406
                                     David L. Clark—Audit Oversight and Liaison, 202/512-9489
Areas (Budget                        Gary T. Engel—Treasury, 202/512-3406
Function 990)                        Linda M. Calbom—Interior, Energy, Credit Subsidy, 202/512-9508
                                     Gloria Jarmon—Education and District of Columbia, 202-512-4476
                                     Gregory D. Kutz—IRS, 202/512-3406
                                     Robert F. Dacey—Consolidated Audit and Computer Security, 202/512-3317



Impact of GAO’s Work                 During 1998, we continued to make significant contributions to improving
                                     the reliability of financial management reporting, controls, and operations
                                     across government by (1) completing our first-ever audit of the
                                     consolidated financial statements of the federal government and
                                     identifying and recommending solutions to weaknesses that impair
                                     agencies’ ability to obtain unqualified audit opinions for the 24 agencies
                                     covered by the Chief Financial Officers (CFO) Act of 1990, (2) assisting the
                                     Congress in putting in place and overseeing efforts to improve financial
                                     management across government, and (3) carrying out Government
                                     Corporation financial audits and providing other financial audit and review
                                     assistance to the Congress.

Auditing the U.S. Government’s       On March 31, 1998, the Secretary of the Treasury, in consultation with the
Consolidated Financial               Director of OMB, issued the Consolidated Financial Statements of the U.S.
Statements                           Government for Fiscal Year 1997. These government-wide financial
                                     statements, the first in our nation’s history, were prepared and issued
                                     under provisions of the expanded CFO Act and included our first audit
                                     report as required by the act.

                                     Our report on the consolidated financial statements highlighted the most
                                     serious of many long-standing financial management challenges facing the
                                     federal government. Major problems include agencies’ inability to

                                 •   properly account for and report on billions of dollars of property,
                                     equipment, materials, and supplies;
                                 •   properly estimate the cost of most federal credit programs and the related
                                     loans receivable and loan guarantee liabilities;
                                 •   estimate and report material amounts of environmental and disposal
                                     liabilities and related costs;



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•   determine the proper amount of other liabilities, including post-retirement
    health benefits for military and federal civilian employees, veterans’
    compensation benefits, accounts payable, and other liabilities;
•   accurately report on major portions of the net costs of government
    operations;
•   determine the full extent of improper payments that occur in major
    programs and that are estimated to involve billions of dollars annually;
•   properly account for billions of dollars of basic transactions, especially
    those between government entities;
•   ensure that the information in the consolidated financial statements is
    consistent with agencies’ financial statements;
•   ensure that all disbursements are properly recorded; and
•   effectively reconcile the change in net position reported in the financial
    statements with budget results.

    We conducted the financial statement audits at the IRS and of the Schedule
    of Federal Debt Management by Treasury’s Bureau of the Public Debt, as
    well as of internal controls over cash receipts and disbursements. We also
    worked closely with the Inspectors General of DOD, SSA, and HHS and
    reviewed the results of financial audits performed by the Inspectors
    General at other agencies. This audit work has resulted in an identification
    and analysis of deficiencies in the government’s recordkeeping and control
    systems and recommendations to correct them. Our work has led to a
    number of material adjustments to the consolidated financial statements,
    both in terms of the dollar amounts reported and the classification of
    those amounts. For example, in reviewing the proposed allocation of
    about $100 billion in pension and other benefits expense contained in the
    draft fiscal year 1997 consolidated financial statements, we worked with
    Treasury to reallocate about $9 billion in employee contributions among
    federal agencies.

    A critical component of our financial statement audit work is the
    assessment of computer system security controls. We have been at the
    forefront in auditing computer security. We developed the Federal
    Information System Controls Audit Manual—GAO’s methodology for
    computer security reviews—which has been widely adopted across the
    federal audit community. Our work has identified widespread computer
    control weaknesses that, among other serious consequences, are placing
    financial information at risk of unauthorized access, modification, or
    destruction. For example, in September 1998, we issued a report entitled:
    Information Security: Serious Weaknesses Place Critical Federal
    Operations and Assets at Risk (GAO/AIMD-98-92), which summarized



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                                numerous computer security weaknesses throughout the government. We
                                recommended that the Director of OMB and the Assistant to the President
                                for National Security Affairs ensure that efforts to address federal
                                information security are coordinated under a comprehensive strategy.
                                Through our financial audits and in working with the Inspectors General,
                                significant information security weaknesses in systems that handle the
                                government’s unclassified information have been reported in each of the
                                major federal agencies.

Assistance to the Congress in   The Congress has reacted strongly to the results of our financial audit
Implementing and Overseeing     report. For example, in April 1998, the Subcommittee on Government
Financial Management            Management, Information and Technology of the House Committee on
Infrastructure Improvements     Government Reform and Oversight held a series of oversight hearings on
                                the results of the government-wide financial statement audit and of the
                                outcome of individual financial audits at IRS, DOD, SSA, and HCFA. Further,
                                on June 9, 1998, the House of Representatives unanimously passed a
                                resolution that underscored congressional demand for quickly resolving
                                outstanding accounting and reporting problems. The House Resolution,
                                which had the personal support of the House majority leadership,
                                reemphasized the deficiencies identified in our report.

                                The administration also has moved forward to increase attention on
                                improving government-wide financial management. Financial management
                                has been designated one of the President’s priority management
                                objectives, with the goal of having performance and cost information in a
                                timely, informative, and accurate way, consistent with federal accounting
                                standards. The administration has set goals for individual agencies, as well
                                as the government as a whole, to complete audits on time and to gain
                                unqualified opinions. To help achieve these objectives, the President
                                issued a May 26, 1998, memorandum to the heads of executive
                                departments and agencies on actions needed to improve financial
                                management.

                                In addition to helping the Congress ensure the expanded CFO Act’s
                                requirements are implemented effectively, we have been at the forefront
                                as a catalyst in assisting and advising the Congress as it explored the need
                                for financial management improvement legislation in other areas. For
                                instance, we worked with the Congress to oversee agencies’ efforts to
                                comply with the Federal Financial Management Improvement Act of 1996.
                                Our audit work has shown that significant challenges must be overcome if
                                agencies are to put in place the accounting standards and systems
                                requirements of the Federal Financial Management Improvement Act. In



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                            addition, as part of the House Committee on Government Reform and
                            Oversight’s Subcommittee on Management, Information and Technology’s
                            recent series of hearings on financial management issues, we participated
                            in exploring options, including legislative enhancements, to expedite
                            fixing the problems that hamper effective financial management across
                            government and in examining the important financial management work
                            of the Inspectors General under the Inspector General Act of 1978.

                            The Congress has also taken legislative action stemming from our work on
                            individual agency financial audits. For example, the Congress recently put
                            in place statutory requirements for DOD to prepare biennial financial
                            management improvement plans, to accelerate its planned timetable for
                            addressing long-standing problems in accurately and promptly accounting
                            for billions of dollars in disbursements, and to improve reporting of its
                            multi-billion dollar inventories and military equipment.

                            In addition, our analysis for the House Budget Committee of information
                            in agencies’ financial statements and related audit reports has served to
                            alert the Congress to developing trends that may have significant fiscal or
                            budgetary implications. For example, our analysis of the Navy’s and the
                            Federal Aviation Administration’s financial statements and related audit
                            reports, which even though they did not include all required information
                            and were not verifiable, still provided data that could be used to identify
                            financial issues of interest to the Congress as well as budget and program
                            managers. Our analysis highlighted for the Congress how the deficiencies
                            disclosed in the auditor’s reports impaired the agencies’ abilities to
                            efficiently and effectively manage programs and exposed the agencies to
                            increased risk of waste, fraud, and misappropriation of funds. Also, our
                            analysis of auditors’ reports on the Forest Service served to alert the
                            Congress to the inefficiency and waste that resulted from the lack of
                            reliable accounting and financial data.

Other Financial Statement   Our financial audits of Government Corporations, reviews of the financial
Audits and Financial        operations of the District of Columbia, and other financial management
Management Assistance       assistance have also served to improve the reliability of financial reports
Provided to the Congress    and controls across government. We have continued to work with
                            Executive Branch agencies, including CFOs and Inspectors General, to
                            strengthen agencies’ financial operations and reporting and the efficiency
                            and effectiveness of their financial audit procedures.

Government Corporations     We conducted financial statement audits of the Federal Deposit Insurance
                            Corporation’s (FDIC) three funds (Bank Insurance Fund, Federal Savings



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                               and Loan Insurance Corporation Resolution Fund, and Savings
                               Association Insurance Fund). These audits included assessments of the
                               entities’ internal control systems over financial reporting, safeguarding of
                               assets, and compliance with laws and regulations. In response to issues
                               identified through our audits, FDIC has improved its process for overseeing
                               contractors that service assets and make collections on FDIC’s behalf, thus
                               providing assurance that contracted asset services safeguard assets and
                               provide FDIC with accurate financial reporting information. FDIC also
                               improved review procedures and quality control in its process for
                               estimating the recoveries from assets from failed institutions, thus
                               improving the information used to record key estimates in the financial
                               statements. In addition, FDIC took actions to improve weaknesses we
                               identified in its electronic data processing controls, thereby providing
                               additional assurance that FDIC’s data base is properly restricted and
                               protected from unauthorized access.

District of Columbia Reviews   At the request of several congressional committees, we conducted
and Other Assistance to the    numerous financial management reviews of the District of Columbia
Congress                       Government. We performed the first financial statements audit of the
                               District’s Highway Trust Fund and identified material internal control
                               weaknesses in the expenditure and revenue functional areas. We
                               examined the District’s progress in acquiring a new financial management
                               system and made several recommendations to improve its financial
                               management systems needs. Further, we issued our report on the new
                               sports arena project and performed financial analysis involving the
                               District’s largest economic development project, the proposed new
                               convention center, which was a factor in the Congress’ approval of
                               legislation to move this project to the construction phase.

                               We assisted the Congress in obtaining financial audits for the Senate
                               Restaurants and the Government Printing Office. For these audits, we
                               contracted with independent public accountants and monitored the
                               independent public accountant’s work for compliance with professional
                               auditing standards. We also conducted financial statement audits of
                               several other congressional entities and provided a variety of
                               financial-related services, such as reconciliations of financial records and
                               developing internal control procedures to process and safeguard
                               donations to the U.S. Capitol Police Memorial Fund.




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Key Open
Recommendations
Department of Defense   As we testified in April 1998, DOD is struggling to meet the many challenges
                        brought about by decades of neglect and an inability to fully institute
                        sound financial management practices. The material financial management
                        deficiencies identified at DOD, taken together, represent the single largest
                        obstacle that must be addressed to achieve an unqualified opinion on the
                        U.S. government’s consolidated financial statements. These deficiencies
                        led us in 1995 to put DOD financial management on our list of high-risk
                        areas vulnerable to fraud, abuse, and mismanagement.

                        No major part of DOD has yet been able to pass the test of an independent
                        audit. However, the financial audits at DOD have served to further clarify
                        the scope and magnitude of DOD’s problems, and recommendations to
                        correct them. These problems range from an inability to properly account
                        for billions of dollars in assets, to not being able to accurately account for
                        basic transactions. Collectively, these problems leave DOD highly
                        vulnerable to the loss of assets and inefficient operations. Such
                        weaknesses also prevent DOD from generating the type of management
                        information needed to effectively and efficiently manage its day-to-day
                        operations and impede its ability to obtain the reliable and timely
                        information needed to make sound resource decisions. Effectively
                        addressing these long-standing problems will only be possible with the
                        sustained, demonstrated commitment of the DOD’s top leaders. The
                        following are among our most important recommendations that have yet
                        to be fully implemented.

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, DOD 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)

                        In September 1997, we reported on the need for DOD to expedite plans to
                        implement a deferred maintenance accounting standard to comply with
                        the new federal requirement beginning with fiscal year 1998. Accurate
                        reporting for DOD’s deferred maintenance, particularly for its estimated



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$590 billion investment in mission assets such as submarines, ships,
aircraft, and combat vehicles is particularly important. For example,
deferred maintenance on mission assets, if reliably quantified and
reported, can be an important performance indicator of mission asset
condition (a key readiness factor). However, both Army and Navy officials
informed us that they were reluctant to develop procedures to implement
the required accounting standard until DOD issues overall policy guidance.
While DOD officials stated that they have plans underway to develop
deferred maintenance guidance, we reported our concern that these plans
may not be in time to develop service-specific policies and procedures
needed to implement the new federal accounting standard by fiscal year
1998. We recommended that DOD take action to ensure that DOD-wide
policy is in place as soon as possible so that DOD can comply with the fiscal
year 1998 effective date for the deferred maintenance standard. DOD has
not taken action which will permit it to meet this requirement for 1998;
although DOD continues to state its intention to develop appropriate policy.
(GAO/AIMD-97-159R)

In September 1997, we reported on serious computer-related weaknesses
uncovered during a review of DOD’s Military Retirement Trust Fund. With
reported liabilities for fiscal year 1996 of $548 billion, the Fund is expected
to be material to the consolidated governmentwide financial statements.
The data security administration weaknesses found during the review
included inadequate control over access to information on pension fund
participants. Such uncontrolled access affects other sensitive personal-
and career-related information as well. While the auditors found that
compensating controls—largely dependent on the retention of key
employees—were in place, they cautioned against long-term reliance on
such controls. We recommended a series of actions to address these
weaknesses, including upgrading security to ensure that participants’ data
is adequately protected. (GAO/AIMD-97-128)

In November 1997, we reported that DOD has not yet implemented the
federal accounting standard that requires recognizing and reporting
liabilities such as those associated with aircraft disposal, nor has it
provided guidance to the military services in this area. We reported that
the cost of aircraft disposal can be reasonably estimated and that
information on the three major disposal processes—demilitarization,
storage and maintenance, and hazardous materials removal and
disposal—is available to develop cost estimates. In recognition of the
importance of this information, the Congress passed legislation requiring
DOD to develop life-cycle environmental costs, including demilitarization




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and disposal costs, for major defense acquisition programs. We
recommended that DOD take action to ensure the prompt issuance of
guidance on the recognition of a liability for aircraft disposal costs and to
include the estimated aircraft disposal liability in its fiscal year 1997
financial statements. To date, DOD has not provided guidance but has
expressed its intent to do so. (GAO/AIMD-98-9)

In December 1997, we reported that DOD has not yet implemented the
federal accounting standard that requires recognizing and reporting
liabilities such as those associated with ammunition disposal, nor has it
provided guidance to the military services in this area. We reported that
the cost of ammunition disposal can be reasonably estimated and that the
cost information developed in response to requests from congressional
committees can be used as a starting point. We recommended that DOD
take action to ensure the prompt issuance of guidance on the recognition
of a liability for ammunition disposal costs and to include the estimated
ammunition disposal liability in its fiscal year 1997 financial statements.
DOD has expressed its intent to issue such guidance. (GAO/AIMD-98-32)


In December 1997, we reported that of the $115.6 billion that DOD reported
as inventory, $113.7 billion should have been reported as operating
materials and supplies, or plant, property, and equipment. At the same
time, other items such as repair parts and consumables were not reported
at all. Such misclassification and underreporting will negatively affect the
reliability and usefulness of the military services’ and DOD’s financial
statements. One reason for these errors was that DOD’s financial statement
preparation and accounting policy guidance misinterpreted, and were
inconsistent with, federal accounting standards. We recommended that the
DOD Comptroller take action to revise its accounting policy guidance to be
consistent with federal standards. (GAO/AIMD-98-16)

In June 1998, we reported that, drawing on lessons learned from our
survey of state government and private sector organizations, training
should receive a strong emphasis as a means of upgrading workforce
knowledge of current financial management, accounting, and reporting
requirements. DOD’s financial personnel face the challenge of leading DOD’s
efforts to produce reliable financial data (1) throughout a large and
complex DOD organization with acknowledged difficult financial
deficiencies and (2) that build upon the existing requirements to include
recent, more comprehensive accounting standards and federal financial
management systems requirements. Yet, over half of the key DOD financial
managers we surveyed—who all held leadership positions—had received



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                no financial or accounting related training during 1995 and 1996. We
                recommended a number of actions to upgrade the technical accounting
                and related knowledge of DOD financial personnel, including the
                development and implementation of a formalized, structured training
                program for financial management personnel throughout DOD.
                (GAO/AIMD-98-126)

Army Programs   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. We recommended that the DOD CFO (1) evaluate and resolve
                budget execution and disbursement problems, and (2) implement existing
                security access policies and automated data processing contingency plans.
                (GAO/AIMD-94-12)

                In January 1998, we reported on our review of the accuracy of data in the
                Army’s Continuing Balance System-Expanded (CBSX). The Army uses CBSX
                not only for financial reporting, but as its central logistics system for
                reporting the types, quantities, and location of equipment; monitoring the
                equipment readiness of its warfighting units; and filling equipment
                shortages in those units scheduled for mobilization. We found that the
                Army does not have an effective process to ensure that equipment
                transactions from Army units are received by CBSX. Over 40 percent of the
                adjustments to CBSX were required due to transactions not received by
                CBSX. The Army’s ongoing efforts to improve CBSX address some of the
                causes of adjustments. However, these efforts do not fully address
                transactions that were not received by CBSX. Unless its improvement
                efforts include processes to ensure that transactions are received by CBSX,
                these efforts will not correct the largest cause of CBSX adjustments. We
                recommended that the Acting Secretary of the Army ensure that the
                specific corrective actions we advanced are taken to ensure that CBSX
                provides reliable data. (GAO/AIMD-98-17)

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



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financial operations. We concluded that the Navy and Defense Finance
and Accounting Service 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 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 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 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
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’



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                                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)

                                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)

Department of Education

Federal Family Education Loan   For the first time, the Department of Education received an unqualified
Program                         opinion on its fiscal year 1997 departmentwide financial statements.
                                Although the Department received an unqualified opinion, the audit
                                continued to identify internal control material weaknesses related to
                                determining the Federal Family Education Loan Program’s loan estimates,
                                effectively monitoring payments to Guaranty Agencies and lenders, and
                                ensuring accurate financial reporting. Because the Department has begun
                                corrective actions in these areas and has demonstrated a commitment to
                                resolving financial management problems, we believe the Department has
                                made progress. However, because Guaranty Agencies and lenders have a
                                crucial role in the implementation and ultimate cost of the Federal Family
                                Education Loan Program, the Department should complete steps
                                underway for improving oversight of Guaranty Agencies and lenders. In
                                August 1996, the Department issued revised audit guidance to all Guaranty
                                Agencies participating in the Federal Family Education Loan Program.
                                This guidance became retroactively effective for fiscal years on or after
                                June 30, 1996. In addition, in June 1997, OMB also issued this guidance in its
                                OMB Circular A-133 compliance supplement which will be effective for
                                Guaranty Agencies’ fiscal years ending on or after June 30, 1997. Both



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                             require auditors of Guaranty Agencies to specifically audit and report on
                             the integrity of the billings submitted to the Department. However, to use
                             this guidance as an effective monitoring tool, the Department needs to
                             receive reports on audits under this guidance and to perform quality
                             control reviews on these audits to ensure that the guidance has been
                             implemented properly. Audit reports under the OMB Circular A-133
                             compliance supplement had not been available to the Department until
                             fiscal year 1998. Until this guidance has been fully implemented, audits of
                             Guaranty Agencies may not provide sufficient information to verify the
                             integrity of Guaranty Agencies’ billings. Furthermore, the Department
                             needs to continue its plans for (1) establishing and maintaining subsidiary
                             ledgers for the Federal Family Education Loan Program, and (2) finalizing
                             reasonability edits and analyzing variances between the Department’s
                             Federal Family Education Loan Program subsystems and lenders’ billing
                             data. (GAO/AIMD-96-22)

Department of Energy         Our work at the DOE Power Marketing Administrations demonstrated that
                             the system for monitoring repayment of the Power Marketing
                             Administrations’ power-related costs does not ensure that the federal
                             government recovers all the costs that it is entitled to recover. We
                             recommended ways to improve the monitoring system in order to
                             maximize the federal government’s recovery of costs related to its
                             involvement in power-related activities. Specifically, GAO recommended
                             that DOE (1) require independent reviews of the Power Marketing
                             Administrations’ power repayment studies, upon which rates are based, to
                             ensure that they include all relevant costs, (2) include the full costs of
                             federal employee pension and postretirement benefits in rates,
                             (3) incorporate and maintain clear cost recovery policy guidance that
                             specifically states that the full costs of federal employee pension and
                             postretirement benefits be included in rates, (4) establish a process within
                             DOE for tracking and resolving repayment issues, and (5) revise the order
                             under which it delegates to the Federal Energy Regulatory Commission
                             authority for reviewing three of the Power Marketing Administrations’ rate
                             proposals to give the Federal Energy Regulatory Commission more
                             authority to review and challenge rate proposals. In addition, GAO
                             recommended that the Federal Energy Regulatory Commission utilize this
                             additional authority in reviewing rate proposals, including reviewing and
                             analyzing the results of the independent reviews of the Power Marketing
                             Administrations’ power repayment studies. (GAO/AIMD-98-164)

Department of the Interior   Our work at the Department of the Interior’s Office of the Special Trustee
                             for American Indians and its Bureau of Indian Affairs identified
Bureau of Indian Affairs


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                             implementation issues related to several proposed initiatives for improving
                             trust fund management, including the need for additional coordination and
                             planning for proposed major information technology investments. We
                             pointed out the need for the Secretary, in carrying out his trust
                             improvements project, to assure that (1) major information technology
                             investments comply with legal and regulatory requirements and
                             (2) detailed planning is done to ensure that all related business functions
                             and information requirements are identified. (GAO/T-AIMD-97-138,
                             GAO/AIMD-98-37)


Department of the Treasury

Customs Financial            Customs continued its efforts to address outstanding weaknesses in its
Management                   financial management and internal control systems. For example, Customs
                             is working on the integration of its accounts receivable subsidiary ledger
                             as part of the Automated Commercial Environment system initiative. The
                             prototype version was scheduled for testing in fiscal year 1999. In
                             November 1996, Customs also began phasing in its comprehensive
                             financial management and seized property tracking system—Seized Asset
                             and Case Tracking System. According to Customs, significant functions
                             within this tracking system will be completed in fiscal year 1999. In
                             addition, Customs made significant progress in designing an In-bond
                             Compliance Measurement Program which it plans to implement
                             nationwide for fiscal year 1999. Follow through on these ongoing actions
                             is critical to addressing weaknesses in Customs financial management and
                             removing this area from GAO’s high-risk list. (GAO/AIMD-94-119, GAO/HR-97-30)

Internal Revenue Service     Our work at IRS has identified several areas for improvement that are
                             needed to better manage, account for, and report tax revenues and
                             receivables. These include recommendations to (1) identify reporting
                             information needs, develop related sources of reliable information, and
                             establish and implement policies and procedures for compiling this
                             information; (2) monitor implementation of actions to reduce the errors in
                             calculating and reporting manual interest on taxpayer accounts, and test
                             the effectiveness of these actions; (3) ensure that system development
                             efforts provide reliable, complete, timely and comprehensive information
                             for evaluating the effectiveness of its enforcement and collection
                             programs; and, (4) establish and implement procedures to analyze the
                             impact of abatements on the effectiveness of assessments from IRS’ various
                             collection programs. (GAO/AIMD-94-22, GAO/AIMD-94-120)




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Consolidated Audit and     In September 1998, we issued a report which summarized numerous
Computer Security Issues   computer security weaknesses throughout the government. We
                           recommended that the Director of OMB and the Assistant to the President
                           for National Security Affairs ensure that efforts to address federal
                           information security are coordinated under a comprehensive strategy. The
                           objectives of such a strategy are to encourage agency improvement efforts
                           and measure their effectiveness through an appropriate level of oversight.
                           These recommendations have not yet been addressed. (GAO/AIMD-98-92)

                           For example, while progress has been made, serious weaknesses continue
                           to exist at five IRS facilities visited during our prior audit, and we identified
                           several additional weaknesses at those locations and at a sixth facility.
                           These weaknesses exist primarily because IRS has not yet fully
                           institutionalized its computer security management program. These
                           weaknesses affect IRS’ ability to control physical access to its facilities and
                           sensitive computing areas, control electronic access to sensitive taxpayer
                           data and computer programs, prevent and/or detect unauthorized changes
                           to taxpayer data or computer software, and restore essential IRS
                           operations following an emergency or natural disaster. Until these
                           weaknesses are mitigated, IRS continues to run the risk of its tax
                           processing operations being disrupted. Furthermore, sensitive taxpayer
                           data entrusted to IRS could be disclosed to unauthorized individuals,
                           improperly used or modified, or destroyed, thereby exposing taxpayers to
                           loss or damages resulting from identity fraud and other financial crimes.
                           (GAO/AIMD-99-3)

                           In September 1998, we issued a report that outlined numerous computer
                           security problems at VA. We made numerous recommendations to improve
                           specific aspects of computer security and periodically report on progress
                           in addressing these weaknesses including identifying information system
                           security weaknesses as material internal control weaknesses in the
                           Department’s Federal Managers Financial Integrity Act annual report.
                           These recommendations have not been addressed. (GAO/AIMD-98-175)

OMB Credit Subsidy Model   Our review of OMB’s credit subsidy model resulted in the following
                           recommendations for improving the model’s reliability and controls:
                           (1) revise the model’s discounting equations to follow standard finance
                           theory, (2) implement a structured software development methodology to
                           ensure the production of quality, reliable software, (3) improve
                           documentation, (4) enhance the model’s printed output to provide an audit
                           trail showing which data the model used to calculate the subsidy cost, and
                           (5) provide credit agencies with guidance to establish logical access



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                              controls surrounding use of the model. OMB has indicated that it plans to
                              take actions consistent with our recommendations when it develops a new
                              model that is tentatively expected to be completed in early 1999.
                              (GAO/AIMD-97-145)

Corporate Audits and
Standards

FDIC’s Internal Controls      In our 1997 financial audits of FDIC’s three funds, we found that the
                              corporation 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 estimating recoveries for securities and
                              other assets valued outside of the standard asset valuation process. FDIC is
                              currently working 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-98-204)

Audit Oversight and Liaison   Audits of employee benefit plans are a key safeguard for protecting assets
                              held by plans. As of 1988, the most recent 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 those audits
                              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 in the act.
                              (GAO/AFMD-92-14)

District of Columbia          In our review of the District of Columbia’s acquisition and implementation
                              of a new Financial Management System, we identified weaknesses in the
                              areas of (1) software acquisition planning, (2) requirements development
                              and management, (3) project management, (4) contracting and oversight,
                              (5) evaluation, and (6) acquisition risk management. Corrections the
                              District makes to these areas can be applied to future software
                              acquisitions. We recommended that the District (1) document its decisions
                              and update its planning documents to ensure that large acquisitions—such
                              as its Financial Management System—can be effectively managed,
                              (2) develop an organizational policy for establishing and managing
                              software-related requirements, and (3) develop written policies for the
                              execution of the software project, contract tracking and oversight
                              activities for the financial management system project, managing the
                              evaluation of acquired software products and software acquisition risk



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management. The District’s newly hired Chief Technology Officer and the
interim CFO have taken some steps to develop new policies and procedures
to implement our recommendations, but these recommendations have yet
to be fully implemented. (GAO/AIMD-98-88)

Our recent audit of the District of Columbia’s Highway Trust Fund for the
12-month period ended September 30, 1997, showed that the District had
upgraded its internal controls over receipt of fuel tax revenues. However,
some expenditure journal entry transactions were still being prepared,
approved, and validated by the same person without independent reviews
or approvals; tax receipts were not being deposited promptly; and minimal
improvements had been made in the general controls over the computer
system. (GAO/AIMD-98-254)




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                             GAO   Contacts:
Information
Management Issue             Jack L. Brock—DOD, 202/512-6240
Areas (Budget                Joel C. Willemson—Civil Agencies, 202/512-6408
Function 990)
Impact of GAO’s Work         Information systems are integral to nearly every aspect of the over $1.7
                             trillion in annual federal government operations and spending—from
                             national defense and air traffic control to revenue collection and benefit
                             payments. Yet the federal government faces tremendous challenges in
                             (1) ensuring that these systems will not fail because of the Year 2000
                             computing problem, (2) protecting sensitive data from computer attacks,
                             and (3) harnessing the full potential of information technology to improve
                             performance, reduce costs, and enhance responsiveness to the public.

                             To address these challenges, we have helped increase national attention
                             this year on the Year 2000 risks facing the government and the private
                             sector and offered roadmaps to fixing and testing systems and developing
                             business continuity and contingency plans. We have continued to assess
                             the agency efforts to protect their information resources and identified
                             practical, proven ways of strengthening information security. We have also
                             continued our efforts to uncover and remedy underlying weaknesses in
                             multibillion dollar problematic modernization efforts. Our recommended
                             solutions in these areas have not only contributed to over a billion dollars
                             in taxpayer savings, they have spurred agencies to expedite and strengthen
                             their Year 2000 and computer security initiatives and to implement more
                             efficient and effective information technology investment, development,
                             and acquisition processes.

Mitigating Year 2000 Risks   The public faces a high risk that critical services provided by the
                             government and the private sector could be severely disrupted by the Year
                             2000 computing crisis1. Financial transactions could be delayed, flights
                             grounded, power lost, and national defense affected. Moreover, because of
                             the complex and intricate nature of the information infrastructure, a single
                             failure could have adverse repercussions on public and private
                             enterprises.


                             1
                              The Year 2000 problem is rooted in the way dates are recorded and computed in automated systems.
                             For the past several decades, systems have typically used two digits to represent the year, such as “97”
                             representing 1997, in order to conserve on electronic data storage and reduce operating costs. With
                             this two-digit format, however, the year 2000 is indistinguishable from 1900, or 2001 from 1901. As a
                             result of this ambiguity, system or application programs that use dates to perform calculations,
                             comparisons, or sorting may generate incorrect results.



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    In view of its potentially devastating impact, we designated the Year 2000
    problem as a high-risk area for the federal government in February 1997.
    Since then we have been (1) assessing Year 2000 readiness at selected
    agencies and specific systems, (2) assessing governmentwide progress,
    (3) developing and disseminating Year 2000 guidance, and (4) assessing
    critical cross-cutting issues. As the following examples illustrate, this work
    has helped agencies to make significant strides in strengthening Year 2000
    program management and spurred actions to strengthen governmentwide
    and national Year 2000 oversight.

•   In 1998, we testified that federal progress in the Year 2000 arena was slow:
    government priorities for correcting systems had not been established,
    OMB’s assessment of federal Year 2000 progress was predominantly based
    on unverified agency self-reporting, end-to-end testing of systems across
    agency boundaries had not yet been defined or ensured, and business
    continuity and contingency planning across government had been
    inadequate. Several actions have been taken to implement
    recommendations we made to address these weaknesses. For example, 41
    additional agencies—including such critical agencies as the Postal Service
    and the Tennessee Valley Authority—were required, for the first time, to
    report on their Year 2000 status. Even more important, the Chair of the
    President’s Council on Year 2000 Conversion recently directed the
    Council’s sector working groups to perform assessments of their sectors.
    The Council plans to use these sector assessments as a basis for a public
    report to the President—the first time such an assessment of our nation’s
    readiness will be available.
•   In February 1998, we testified that the implications of FAA not meeting the
    Year 2000 deadline are enormous and could affect hundreds of thousands
    of people through customer inconvenience, increased airline costs,
    grounded or delayed flights, or degraded levels of safety. Nonetheless, FAA
    was severely behind schedule in completing basic Year 2000 awareness
    activities, including issuing a final, overall Year 2000 strategy. FAA agreed
    with our recommendations and, in implementing them, finalized an
    agencywide plan outlining a strategy for addressing the issue. The plan
    outlines the agency’s strategies, goals, and schedules—items that are
    critical to sound management.
•   In April 1998, we reported that DOD was lagging in its Year 2000 effort
    because it lacked key management and oversight controls to enforce good
    management practices, direct resources, and establish a complete picture
    of its Year 2000 progress. This increased the risk that mission-critical
    operations would be severely degraded or disrupted as a result of the Year
    2000 problem. In response, DOD agreed with all of our recommendations



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    calling for stronger management and oversight controls over its Year 2000
    initiative and is in the process of implementing these recommendations.
    Thus far, DOD has appointed a chief executive with responsibility for the
    program.
•   While we reported that the financial institution regulators have made good
    progress in helping to achieve industrywide Year 2000 compliance and
    remediate their own systems, we also identified concerns and problems
    with their efforts. For example, all regulators were late in initiating their
    Year 2000 oversight of institutions and in issuing key guidance on business
    continuity and contingency planning, corporate borrowers, and service
    providers and software vendors. The regulators were quick to respond to
    our recommendations. The National Credit Union Administration, for
    instance, implemented a quarterly reporting process whereby credit
    unions would communicate the status of their remediation efforts between
    examinations, and also hired additional contractor support to assist with
    exams of credit unions and service providers. The Federal Deposit
    Insurance Corporation and the Office of Thrift Supervision took
    immediate steps to implement our recommendation that they develop
    contingency plans for their mission-critical systems and core business
    processes.
•   Our work has identified Year 2000 issues that cut across traditional agency
    jurisdictions, such as in the areas of data exchanges, telecommunications,
    and personnel. In July 1998, for example, we highlighted the importance of
    electronic data exchanges by disclosing the hundreds of thousands of
    exchanges used by federal and state agencies to deliver services. At the
    time of our review, much work remained to ensure that federal and state
    data exchanges will be Year 2000 compliant. In response to our
    recommendations to strengthen data exchange efforts, OMB agreed that it
    needed to increase its attention to this area and has taken some actions,
    particularly related to federal/state exchanges.
•   Our detailed guidance on key Year 2000 remediation phases and
    transcending activities has been widely adopted nationally and
    internationally. For example, our first guide, Year 2000 Computing Crisis:
    An Assessment Guide, which offered a structured approach for reviewing
    the adequacy of agency planning and management of Year 200 programs, is
    being used by federal agencies, state and local governments and private
    sector organizations to initiate and organize their Year 2000 programs. In
    addition, this guide and our second guide, Year 2000 Computing Crisis:
    Business Continuity and Contingency Planning, were adopted by OMB and
    the Chief Information Officers (CIO) Council as standards for federal
    agencies to follow. Finally, our most recent guide, Year 2000 Computing
    Crisis: A Testing Guide, which presents a step-by-step framework for



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                         managing all testing activities related to the Year 2000 problem, is being
                         widely adopted in both the government and private sectors.

                         In response to the urging of our Executive Council on Information
                         Management and Technology to expand our Year 2000 scope beyond the
                         federal government and at the request of the Senate Special Committee on
                         the Year 2000 Technology Problem, our scope now includes sector-based
                         reviews (e.g., health, safety and emergency services; transportation; power
                         and water; and telecommunications). We are assessing the readiness and
                         risk of each sector and identifying problem areas that require attention.

Strengthening Computer   The risks to the security of our government’s computer systems are
Security                 significant, and they are growing. The dramatic increase in computer
                         interconnectivity and the popularity of the Internet, while facilitating
                         access to information, are factors that also make it easier for individuals
                         and groups with malicious intentions to intrude into inadequately
                         protected systems and use such access to obtain sensitive information,
                         commit fraud, or disrupt operations. Additionally, the number of
                         individuals with computer skills is increasing, and intrusion, or “hacking,”
                         techniques are readily available. These risks are exacerbated by the Year
                         2000 date change, which has increased the likelihood of system failures.

                         In September 1996, we reported that a broad array of federal operations
                         were at risk due to information security weaknesses and that a common
                         underlying cause was inadequate security program management.
                         Subsequently, in February 1997, we designated information security as a
                         new governmentwide high-risk area. Since then, we have worked with the
                         Congress to pursue a comprehensive strategy for addressing federal
                         information security problems. This strategy involves (1) continuing to
                         perform audits at selected agencies and develop specific
                         recommendations for improvement, (2) assisting agency Inspectors
                         General in conducting or arranging for information security,
                         (3) developing methodologies for evaluating federal agency information
                         security programs, (4) providing technical training to GAO and IG staff
                         involved in evaluating computer-based controls, (5) promoting a broader
                         understanding of the practices that make an information security program
                         successful, and (6) working with OMB and others to promote more effective
                         central leadership, oversight, and coordination.

                         During 1998, for example, we have continued to chronicle significant
                         information security weaknesses in federal agencies.




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•   In May 1998, we reported that weak computer security practices at FAA
    jeopardized flight safety. FAA’s air traffic control network is an enormous,
    complex collection of interrelated systems, including navigation,
    surveillance, weather, and automated information processing and display
    systems that reside at, or are associated with, hundreds of facilities. All the
    critical areas included in our review—facilities’ physical security,
    operational systems information security, future systems modernization
    security, and management structure and policy implementation—were
    ineffective.
•   In May we also reported that the Department of State did not have a
    program for comprehensively managing the information security risks
    associated with its many sensitive operations. Specifically, State (l) lacked
    a central management group to oversee and coordinate security activities,
    (2) did not routinely perform risk assessments, (3) relied on a primary
    information security policy document that was outdated and incomplete,
    (4) did not adequately ensure that computer users were fully aware of
    risks and their responsibilities for protecting sensitive data, and (5) lacked
    key controls for monitoring and evaluating the effectiveness of its security
    program.

    In September 1998, we reported that general computer weaknesses placed
    critical operations of the Department of Veterans Affairs, such as financial
    management, healthcare delivery, benefit payments and life insurance
    services at risk of misuse and disruption. In addition, sensitive information
    contained in VA’s systems, including financial transaction data and
    personal information on veteran medical records and benefit payments,
    was vulnerable to inadvertent or deliberate misuse, fraudulent use,
    improper disclosure, or destruction—possibly occurring without detection.

    To help State, FAA, and other agencies better protect their systems, we
    studied the security management practices of eight organizations known
    for their superior security programs. We found that these organizations
    managed their information security risks through a cycle of risk
    management activities, and identified 16 specific practices that supported
    these risk management principles. This work has been endorsed by the CIO
    Council and should provide agencies with a practical framework for
    protecting their systems.

    Several new governmentwide efforts to improve information security have
    been initiated since we reported on the need for more effective oversight
    in 1996. For example, in late 1997, the CIO Council designated information
    security as one of six priority areas, and established a security committee.



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                             This Committee, in turn, has developed a preliminary plan for addressing
                             various aspects of the problem, and established links with other federal
                             entities involved in security issues. In addition, OMB has continued to
                             monitor selected agency system-related projects, many of which have
                             significant security implications. Moreover, in May 1998, the
                             administration developed and issued Presidential Decision Directive 63 on
                             critical infrastructure protection. This directive provides for additional
                             central oversight of agency practices by the National Security Council in
                             the Executive Office of the President and it specifies several requirements
                             related to evaluating and coordinating federal agency information security
                             practices.

Improving Information        Despite making a huge investment in information technology, many
Technology Investments       government operations are still hampered by inaccurate data and
                             inadequate systems. Too often, federal information technology projects
                             have cost too much, produced too little, and failed to significantly improve
                             mission performance. Yet there is also general agreement that the
                             government’s ability to improve its service and performance will depend
                             heavily upon how well information technology can be integrated into
                             fundamental business/mission needs.

                             Recognizing the urgent need for improvement, the Congress passed
                             landmark reforms in information technology management, including the
                             Paperwork Reduction Act of 1995 and the Clinger-Cohen Act of 1996. The
                             Paperwork Reduction Act emphasizes the need for agencies to acquire and
                             apply information technology resources to effectively support the
                             accomplishment of agency missions and the delivery of services to the
                             public. The Clinger-Cohen Act repeats this theme and elaborates on
                             requirements for agencies to follow when managing information
                             technology. By continuing to identify weaknesses underlying problematic
                             information technology development efforts and recommend corrective
                             measures that will facilitate implementation of these reforms, our work
                             has helped to generated millions of dollars in taxpayer savings and prevent
                             future costly system development failures. For example:

                         •   Following our testimony recommending that about $1.1 billion of IRS’ fiscal
                             year 1998 and 1999 information technology-related budget requests be
                             denied, the Congress funded only $325 million of the request and later
                             reduced this amount by about another $20 million, resulting in hundreds of
                             millions of dollars in savings.
                         •   After we found that DOD had failed to adhere to its own decisionmaking
                             and oversight processes in its multi-billion dollar effort to develop



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    standard information systems for business operations, the Congress
    reduced DOD appropriations in fiscal year 1998 by $110 million. DOD itself
    began reevaluating the way it manages and performs acquisition oversight
    of its information technology investments.
•   Our reports on the benefits of using automated drug use review systems in
    the Medicaid program influenced many states to install these systems to
    deny or cancel inappropriate prescriptions as well as prevent
    inappropriate drug therapy and avoid hospitalizations. As a result, the
    Medicaid program has saved hundreds of millions of dollars annually.
•   As part of our review of HCFA’s Medicare Transaction System, we found
    that HCFA had not justified its plans to acquire two processing sites and a
    data operations center and therefore recommended that funding be
    withheld for these. HCFA subsequently cancelled its request for proposals
    for these sites and saved over $300 million in costs.
•   In response to our recommendation, the Department of the Interior
    identified and acted on opportunities to consolidate and optimize
    telecommunications services. These actions resulted in annualized cost
    avoidance and reductions totaling about $10.5 million.
•   After we raised concerns that the National Oceanic and Atmospheric
    Administration’s deferring the development of its next generation of the
    Geostationary Operational Environmental Satellite was risky because it
    did not take advantage of the opportunity to (1) design an architecture
    that would be more flexible, less costly, and better able to meet user needs
    and (2) incorporate advanced technologies, the National Oceanic and
    Atmospheric Administration reconsidered its strategy and initiated a series
    of activities to accelerate the development of the program to begin in fiscal
    year 2000.
•   Because agencies face challenges in improving both financial and
    information management, each management area requires full-time
    leadership by separate individuals with appropriate talent, skills, and
    experience in these two areas. However, at VA we found that the current
    Chief Information Officer also functioned as the Department’s Assistant
    Secretary for Management and Chief Financial Officer. In response to our
    recommendation, VA established a Chief Information Officer position
    reporting directly to the Secretary on all information resources issues. The
    newly established position should help VA ensure that information
    technology issues are addressed promptly and efficiently.
•   During 1998, we have worked closely with OMB and the CIO Council’s
    Capital Planning and IT Investment Committee to devise a new information
    technology budget format that will help (1) agencies to link their internal
    planning, budgeting, and management of information technology




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                             resources and (2) OMB to provide more effective oversight and review of
                             information technology and information resources management.

                             In addition to focusing on improving information technology management
                             practices, we have continued to advance our work in examining the
                             pricing and financial management practices of DOD’s working capital
                             funds. In responding to our recommendations, DOD began billing foreign
                             military sales customers who had previously been undercharged for
                             foreign military sales’ services. The Navy Ordnance business area revised
                             its pricing and workload forecasting practices and reduced overhead staff,
                             which resulted in annual savings of $34 million.


Key Open
Recommenadations
Mitigating Year 2000 Risks   In recognition of the fact that not all systems could be fixed in time and to
                             more effectively oversee the activities of federal agencies in addressing the
                             Year 2000 computing crisis, we recommended that the Chairman of the
                             President’s Council on Year 2000 Conversion establish governmentwide
                             priorities, using criteria such as the potential for adverse health and safety
                             effects, adverse financial effects on American citizens, detrimental effects
                             on national security, and adverse economic consequences.
                             (GAO/T-AIMD-98-278)

                             As of late 1998, however, the Chairman has not established such
                             governmentwide priorities, preferring to allow individual agencies to
                             continue with their own designations of mission-critical systems.
                             However, the Chairman agreed that it may be necessary at a later date for
                             agencies to further prioritize their systems. We believe such
                             priority-setting must occur now while there is still time to make sure that
                             our government’s most critical areas are addressed. We also believe that
                             agencies themselves need to devote more attention to setting priorities,
                             developing a complete and accurate picture of Year 2000 progress,
                             ensuring systems are adequately tested, ensuring the continuity of critical
                             core business processes, and recruiting and retaining information
                             technology personnel with appropriate skills for Year 2000-related work.
                             (GAO/T-AIMD-98-278)

Strengthening Information    To strengthen information security across the federal government, we
Security                     recommended that the Director of OMB and the Assistant to the President
                             for National Security Affairs ensure that the various existing and newly



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                         initiated efforts to improve federal information security are coordinated
                         under a comprehensive strategy. Among other things, this strategy should
                         (1) ensure that executive agencies are carrying out the responsibilities
                         outlined in laws and regulations requiring them to protect the security of
                         their information resources, (2) clearly delineate the roles of the various
                         federal organizations with responsibilities related to information security,
                         (3) identify and rank the most significant information security issues
                         facing federal agencies, (4) ensure the adequacy of information technology
                         workforce skills, and (5) provide for periodically evaluating agency
                         performance from a governmentwide perspective and acting to address
                         shortfalls. (GAO/AIMD-98-92)

                         We reported on significant weaknesses in FAA’s management of
                         information security and had a number of recommendations in the areas
                         of physical security, operational air traffic control systems, systems under
                         development, and the agency’s approach to managing this critical area. FAA
                         has acknowledged that major improvements are needed in all areas of its
                         computer security program but has not yet formulated a plan to strengthen
                         security. (GAO/AIMD-98-155)

                         See chapter 2, Improving Resources, Community, and Economic
                         Development Programs, Transportation Issue Area.

                         In response to our finding that its information systems were vulnerable to
                         unauthorized access, the Department of State has developed a security
                         plan and implemented physical security measures. However, additional
                         actions are needed to (1) strengthen its ability to react to intrusions and
                         attacks on its information systems and (2) ensure its central information
                         security unit has the responsibility and authority needed to facilitate,
                         coordinate, and oversee the department’s information security activities.
                         Additionally, State should defer the expansion of its Internet usage until
                         known vulnerabilities are addressed. (GAO/AIMD-98-145)

                         See chapter 1, Improving National Security and International Affairs
                         Programs, International Relations and Trade Issue Area.

Improving Information    Implementing the Clinger-Cohen Act of 1996 and the Paperwork Reduction
Technology Investments   Act and ensuring that they follow rigorous and disciplined system
                         engineering principles will not be easy for many agencies given the
                         weaknesses pervading current decisionmaking and oversight processes for
                         information technology investments. Nevertheless, strong actions need to
                         be taken to prevent future system development efforts from failing.



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For example, DOD needs to (1) ensure alternatives and risks are vigorously
examined before investments are made and that these analyses are
reviewed by qualified independent parties, (2) require
post-implementation reviews of information systems which compare
actual costs, benefits, risks and returns against original baseline estimates,
and (3) expedite the definition, coordination, testing, and implementation
of information management performance measures. (GAO/AIMD-98-5)

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

After acknowledging that its $3.4 billion Tax System Modernization
program had failed, the IRS has taken a good first step in developing a
blueprint to direct its future modernization efforts. However, it still needs
to implement our recommendations to ensure that the blueprint provides
sufficient detail and precision for building or acquiring new systems. For
example, it should complete the definition and implementation of all
system lifecycle processes, including those for ensuring disciplined
software development and acquisition and for validating system lifecycle
products. It should also provide its chief information officer with
responsibility for developing, and implementing, and enforcing system
lifecycle processes and products across IRS as well as budget and
organizational authority over all systems development and maintenance
activities.

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

The National Weather Service’s modernization remains a high risk area, in
part, because the agency has not yet implemented our recommendation to
develop a systems architecture for weather forecasting and warning
subsystems and to use the architecture as a guide in current subsystems
development. Likewise, until the Customs Service implements our
recommendations focused on ensuring its architecture is complete and
enforceable, it will lack adequate assurance that the standards, products,
and services selected will optimally support its needs across all business
areas.

To strengthen FAA’s management of its high-risk air traffic control
modernization, we recommended that FAA develop and enforce a complete
systems architecture and implement a management structure for doing so
that is similar to the Chief Information Officers provisions of the



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Clinger-Cohen Act. We also recommended that FAA institutionalize mature
software acquisition processes and defined processes for estimating
projects’ costs, and implement a managerial cost accounting capability.
FAA has not yet fully implemented these recommendations.


See chapter 2, Improving Resources, Community, and Economic
Development Programs, Transportation Issue Area.




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Key Products
Mitigating Year 2000 Risks   Medicare Computer Systems: Year 2000 Challenges Put Benefits and
                             Services in Jeopardy (GAO/AIMD-98-284, September 28, 1998).

                             Year 2000 Computing Crisis: Compliance Status of Many Biomedical
                             Equipment Items Still Unknown (GAO/AIMD-98-240, September 18, 1998).

                             Year 2000 Computing Crisis: Federal Depository Institution Regulators Are
                             Making Progress, But Challenges Remain (GAO/T-AIMD-98-305, September 17,
                             1998).

                             Year 2000 Computing Crisis: Significant Risks Remain to Department of
                             Education’s Student Financial Aid Systems (GAO/T-AIMD-98-302,
                             September 17, 1998).

                             Year 2000 Computing Crisis: Progress Made at Department of Labor, But
                             Key Systems at Risk (GAO/T-AIMD-98-303, September 17, 1998).

                             Year 2000 Computing Crisis: State Department Needs To Make
                             Fundamental Improvements To Its Year 2000 Program (GAO/AIMD-98-162,
                             August 28, 1998).

                             Year 2000 Computing Crisis: Progress Made in Compliance of VA Systems,
                             But Concerns Remain (GAO/AIMD-98-237, August 21, 1998).

                             FAASystems: Serious Challenges Remain in Resolving Year 2000 and
                             Computer Security Problems (GAO/T-AIMD-98-251, August 6, 1998).

                             Year 2000 Computing Crisis: Business Continuity and Contingency
                             Planning (GAO/AIMD-10.1.19, August 1998).

                             Year 2000 Computing Crisis: Actions Needed on Electronic Data
                             Exchanges (GAO/AIMD-98-124, July 1, 1998).

                             Year 2000 Computing Crisis: Telecommunications Readiness Critical, Yet
                             Overall Status Largely Unknown (GAO/T-AIMD-98-212, June 16, 1998).

                             Year 2000 Computing Crisis: Actions Must Be Taken Now to Address Slow
                             Pace of Federal Progress (GAO/T-AIMD-98-205, June 10, 1998).




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                            Year 2000 Computing Crisis: A Testing Guide (GAO/AIMD-10.1.21, June 1998,
                            Exposure Draft).

                            Year 2000 Computing Crisis: USDA Faces Tremendous Challenges in
                            Ensuring That Vital Public Services Are Not Disrupted (GAO/T-AIMD-98-167,
                            May 14, 1998).

                            Year 2000 Computing Crisis: Continuing Risks of Disruption to Social
                            Security, Medicare, and Treasury Programs (GAO/T-AIMD-98-161, May 7, 1998).

Strengthening Information   Information Security: Serious Weaknesses Place Critical Federal
Security                    Operations and Assets at Risk (GAO/AIMD-98-92, September 23, 1998).

                            Information Systems: VA Computer Control Weaknesses Increase Risk of
                            Fraud, Misuse and Improper Disclosure (GAO/AIMD-98-175, September 23,
                            1998).

                            Information Security: Strengthened Management Needed to Protect
                            Critical Federal Operations and Assets (GAO/T-AIMD-98-312, September 23,
                            1998).

                            FAASystems: Serious Challenges Remain in Resolving Year 2000 and
                            Computer Security Problems (GAO/T-AIMD-98-251, August 6, 1998).

                            Air Traffic Control: Weak Computer Security Practices Jeopardize Flight
                            Safety (GAO/AIMD-98-155, May 18, 1998).

                            Computer Security: Pervasive, Serious Weaknesses Jeopardize State
                            Department Operations (GAO/AIMD-98-145, May 18, 1998).

                            Executive Guide: Information Security Management: Learning From
                            Leading Organizations (GAO/AIMD-98-68, May 1998).

Improving Information       USDA Service Centers: Multibillion Dollar Effort to Modernize Processes
Technology Investments      and Technology Faces Significant Risks (GAO/AIMD-98-168, August 31, 1998).

                            VAInformation Technology: Improvements Needed to Implement
                            Legislative Reform (GAO/AIMD-98-155, July 7, 1998).

                            USDATelecommunications: Strong Leadership Needed to Resolve
                            Management Weaknesses, Achieve Savings (GAO/AIMD-98-131, June 30, 1998).




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                            Customs Service Modernization: Architecture Must Be Complete and
                            Enforced to Effectively Build and Maintain Systems (GAO/AIMD-98-70, May 5,
                            1998).

                            Social Security Administration: Information Technology Challenges Facing
                            the Commissioner (GAO/T-AIMD-98-109, March 12, 1998).

                            Tax Systems Modernization: Blueprint Is a Good Start But Not Yet
                            Sufficiently Complete to Build or Acquire Systems (GAO/AIMD/GGD-98-54,
                            February 24, 1998).

                            Defense IRM: Poor Implementation of Management Controls Has Put
                            Migration Strategy at Risk (GAO/AIMD-98-5, October 20, 1997).

                            High-Risk Program: Information on Selected High-Risk Areas (GAO/HR-97-30,
                            May 16, 1997).

Improving Defense Working   DOD Information Services: Improved Pricing and Financial Management
Capital Fund Operations     Practices Needed for Business Area (GAO/AIMD-98-182, September 15, 1998).

                            Air Force Supply Management: Analysis of Activity Group’s Financial
                            Reports, Prices and Cash Management (GAO/AIMD/NSIAD-98-118, June 8, 1998).

                            Navy Ordnance: Analysis of Business Area Efforts to Streamline
                            Operations and Reduce Costs (GAO/AIMD/NSIAD-98-24, October 15, 1997).




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