oversight

Federal Internal Control and Financial Management Systems: Major Reform Efforts Are Needed

Published by the Government Accountability Office on 1990-04-18.

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

                   UnitedStates   General AccountingOfRce
                   Testimony
GAO


For Release         Federal   Internal  Control  and
on Delivery         Financial    Management Systems:
Expected at         Hzyjor Reform Efforts    Are Needed
2:00 p.m.
Wednesday
April   18,
1990




                    Statement  of
                    Donald H. Chapin
                    Assistant  Comptroller     General
                    Accounting   and Financial    Management
                    Before the
                    Subcommittee     on HUD/Moderate  Rehabilitation
                       Investigation
                    Committee on Banking,     Housing and Urban Affairs
                    U.S. Senate




GAO/T-AFMD-90-14                       i
Mr. Chairman                and Members of                 the     Subcommittee:


          I am pleased                to       be here        today        to     provide              GAO's perspective
on the         condition            of     internal           control           and financial                   management
systems         in the         federal           government              and actions                   needed        to     help
eliminate            the     system          weaknesses            that         exist           throughout                the
government.


          In    1982,        the      Congress           passed          the      Federal              Managers'            Financial
Integrity            Act     to     strengthen             internal             control              and accounting
systems         throughout               the     federal          government                   and reduce            fraud,
waste,         abuse,        and mismanagement.                          At that               time,     audits            of
government               programs          and media             reports          had identified                     a large
number         of    serious          problems           in      areas         that       cut        across         all     agencies
and programs.                  Unfortunately,                    as discussed                   in     our    November              1989
report,         Financial             Integrity            Act:          Inadequate                  Controls             Result      in
Ineffective                Federal         Programs           and Billions                     in    Losses         (GAO/AFMD-90-
101,      7 years           after        passage         of the          act,         little           has changed.
Agency         reviews,            audits,         and newspaper                  and other              media            reports
continue            to     identify            serious        problems            that          paint        the     picture          of     a
government               unable       to       manage its          programs,                   protect        its         assets,      or
provide         taxpayers             with       the     effective              and economical                      services          they
expect         and deserve.
WEAK INTERNAL CONTROL SYSTEMS
EXIST THROUGHOUTTHE GOVERNMENT


          Despite        the     performance                    of thousands                 of    internal               control
evaluations             and agency              plans           to     correct            the     material               internal
control         weaknesses             identified,                    we see little                overall'improvement
in the        condition           of     controls               throughout                the     government                since
passage         of the         Financial              Integrity               Act.         Frequently,                   agency
actions         to     improve         controls             have        taken          the       form        of    systems
improvement             plans         that      were        not        well         executed.                In addition,                many
systems         have     continued              to     deteriorate                   or failed               to    keep pace             with
new demands             and additional                     control            weaknesses             have          appeared.
Some long-standing                     weaknesses,                    hidden         before,         have          been
identified.              The Financial                     Integrity                Act    has opened                our         eyes    to
the   problems            of    government,                 and we now have                       identified                most        of
the   weaknesses               that      put        the     government                 at high           risk        to     fraud,
abuse,        waste,          and mismanagement.                             But,      we have           not       done enough                to
correct         the     problems             that         are        being      reported.


          Mr.        Chairman,          to     illustrate                   a point,            I would           like      to      read      an
excerpt         from      an article                entitled,                "The      Stench           at    FHA."


          "FHA has approved                     marginal               or hopeless                projects,                let
           promoters            milk         them.         . . and then                   abandon            them.          And
            while        FHA has sat                 dumbly           by,     other          promoters             have gone
            from       city      to     city         defaulting               on project                after        project.

                                                                        2
            It     has permitted                            still           others            to     default               on loans              but
            continue              to         collect                rents          for        up to           five         years.          . . .
            In the             last          30 months,                     the            GAO has submitted                     to
            Congress              11 reports                        indicting                 FHA for              derelictions
            ranging              from             misrepresentations                               of       its      income           to
            slovenly              neglect                   of      its        own foreclosed                        property."


         That           quotation                     is    similar               to        many others                written             over        the
past     year.             However,                    there           is      one significant                         difference.                      It
comes from               an April                     1966 Reader's                         Digest          article.


         In this               respect,                    we have             learned             little            in       24 years.            -Also,
we have           accomplished                         little             in the             7 years              since        the     passage                of
the     Financial                Integrity                      Act.           We must             have           a new and larger
commitment               from         all             levels           of      agency          management,                     the     Office                of
Management               and Budget                        (OMB),           and the             Congress               to      take        appropriate
and timely               actions                  to make a real                            change          that       will      materially
reduce           the      number                 of    serious              internal               control             weaknesses.
Commitment               means people,                           new ways of                    doing             things        over         a
sustained               period              of time,                and money.                     The debacle                  at the
Department                of     Housing                   and Urban               Development                      (HUD) has had one
positive               result:              it        has refocused                         needed          governmentwide
attention               on the              importance                    of      strengthening                      the       Financial
Integrity               Act.           If         we are never to                           achieve           the      act's          objectives,
however,               emphasis                  must       shift           from            merely          reporting                under        the         act
to     correcting                long-standing                            weaknesses.                       The situation                    at    HUD has

                                                                                       3
also      opened       many eyes           to       the       need for            additional             legislative                  and
administrative               actions          to     strengthen              financial                 management               in    the
federal          government.            I will               mention        these         actions             later         in my
testimony.


FINANCIAL          MANAGEMENTSYSTEMS ARE
WEAK AND IMPROVEMENTS ARE SLOW,
COSTLY, AND OFTEN INEFFECTIVE


          As with        internal          controls,              we see very                little            progress              in
the     government's             efforts            to       strengthen            its      financial             management
systems.           Many of the             existing              systems           are      weak,        outdated,               and
inefficient,             and cannot                routinely            produce           relevant,              timely,             and
comprehensive              information.                      We have        old      systems            that          provide         a
flood      of     information           but         little          reliable             operational                  and cost
data      that     are     essential            to        monitor          program          performance,                    control
costs * anticipate                  overruns,                and provide             a basis            for      program             and
budget         planning.


          The ever         increasing               size       and complexity                     of    federal             programs
and overall            pressures           to        reduce         the     budget          deficit            will         require
the     availability             of    adequate               and accurate                financial              information
for     the      successful           performance                of       program         management                  and
oversight           functions.             As the             President's                fiscal         year          1989
Management           Report         stated,              "Once      a leader             in the         early          days      of
automation,            the    Government's                    financial            systems             and operations

                                                                    4
have eroded            to        the      point       that      they        do not               meet generally              accepted
standards."


         The federal                government               has planned                   corrective            actions       and
provided        billions                of dollars             for        financial               management           improvement
programs.             However,             these          efforts          to   improve             existing           systems        and
develop        and acquire                 new automated                   systems               have   and continue             to
experience           massive              problems.             For example,                      design      flaws,
misjudgments                in     requirements,                and poor              program           management            caused
the    Navy to         halt            installation             of        a new automated                  management
information            system             after       spending             an estimated                 $230 million             over
9 years        to     develop             the     system.             Unfortunately,                    the      Navy's
experience            is     not        uncommon.


         If    the     government                 is to        strengthen                  its     programs         and run them
in    an efficient                and economical                     manner,          it         must   better         manage its
system        improvement                 projects.


A STRONG WORK FORCE IS NEEDED TO
MEET CURRENT AND FUTURE CHALLENGES


         A key factor                   in the        development,                implementation,                      and
maintenance            of        sound          federal        programs           is        a strong          federal         work
force.         Today,            the      federal          government             needs            to   attract,
motivate,            and retain                 committed            people      at         all     levels         who can
develop        new ideas                and innovative                    approaches               and see them through

                                                                      5
to     effective             implementation.                        Concern          is mounting                  over         the    impact
that      both         the     federal           pay structure                   and the               turnover           in
leadership              positions            are having                on the          government's                     ability          to
acquire          and retain               top      quality           people          to      carry         out     its         programs.


          As experienced                    employees               retire        or        leave         government              service
and additional                   staffing            needs          develop,           it         is    becoming
increasingly                 difficult             to    hire        individuals                   with     the         experience
and qualifications                        needed         to        accomplish               the        government's               mission.
The government's                    general             pay scale              causes         additional                 problems
because          it     severely            restricts               the       financial                incentive             programs            an
agency       can        implement            to      reward          and retain               quality             personnel.                  In
addition,              we do not            really        have            a governmentwide                    training               program
for     accountants               and financial                     management               systems          personnel.                    We
have to make an investment                                    in    people,          both          in terms             of
compensation                 and training.                     Otherwise,              I am afraid                 problems              will
continue              to manifest               themselves.


ACTIONS NEEDED TO STRENGTHEN
CONTROLS AND ACCOUNTING SYSTEMS


          The legislative                       and executive                  branches                of government                 must

form      a partnership,                    with        the        common goal               of        achieving             effective
and economical                   federal           programs               through,           in part,             the        development
of     sound          internal           control         and financial                      management             systems.                 We
cannot       merely            think        in terms               of tomorrow,               waiting             for        something

                                                                          6
to     happen.          The poor           state        of the           government's            systems        demands
that      we think            and act        today.


The Problems                 Should       Not
Be Left       to       the     Auditor


          Agency        top     management              must     be committed               to    strong        internal
control       and financial                  management                 systems        and should        be directly
involved          in    ensuring           that      needed         corrective             actions       are
identified             and implemented                  in a timely               manner.         With     this
commitment             must     also       come increased                   coordination             between         agency
management             officials           and those           in        audit     organizations            such as the
Offices       of       Inspectors            General          and GAO.             For     example,        last       year
GAO and the             Inspector            General          and top            agency     officials           at    the
Department             of Transportation                   worked           closely        together        to     identify
agency       programs            needing          management              attention         and actions              that
could      help        resolve         the      existing         problems.                We need more of this
interaction             where         management           and auditors                 come to grips             with
major      agency            problems.


The Administration                     Must Strengthen
the     Financial             Integrity           Act    Program


          The government's                   basic       internal            control        and financial
management             deficiencies               are    known and,               in    many instances,               have
been known for                 many years,              but    they         remain        uncorrected.               The

                                                                    7
identification            of     deficiencies                is     an important                    step,        but      it     is
not   enough.           Agencies          must       also     act     effectively                     to      correct          them.
In the      past,       no effective              mechanism           existed                to     ensure         that
agencies         took    the     needed          corrective           actions.                     In our        November
1989 report,            we urged,              among others,           the            following               actions.


       --    Agencies          should           be required           to        link         the     Financial
             Integrity           Act      internal          control             review             and reporting
             process        with         the     budget       process.                 Agencies               should
             identify          corrective             actions         that            require            incremental
             funding       and major              reprogramming                  in     the         current            budget.
             This       should       assist         senior         decisionmakers                        in    assessing
             the    magnitude             of     corrective           action            funding               requirements.


       --    Agencies          should          establish           senior-level                    policy         committees

             or take       other          steps      to     provide          top        management                oversight
             of the       internal             control        and reporting                       process.              This
             should       result          in better           anticipation                    and consideration                       of
             critical          issues          and more actions                   to         resolve           them.


       --   Agencies           should          be encouraged               to     include             a narrative
             statement           in their          Financial           Integrity                   Act        reports
            explaining             the     processes              used to         ensure             that       completed
             corrective            actions         'were effective.                      The validation
            process        should          provide          assurance             that            material             weaknesses
             no longer           exist         and allow           managers             to        focus        their

                                                              8
                  attention             and resources                 on other            issues.


          The administration                         is     clearly          aware        that      serious          problems
exist       in the          federal         government.                    As the         Director           of     the    Office
of Management                  and Budget             stated          in     testimony            before          the     Senate
Committee            on Governmental                       Affairs,


          "The       recently            exposed             HUD problems                are     not    unique,           not
            merely          peculiar           to     a particular                     agency     under       what        some
            describe             as absentee                management.                 . . . There           are
            analogous             problems            in other             agencies."


          For      its      part,        OMB has established                            a management              integrity
program           that      is      intended          to         minimize         and prevent               fraud       and waste
in      federal          programs         and operations.                         It     has assigned
responsibility                   to     deputy        secretaries                 and deputy            administrators                 in
each agency               to     ensure        the         success         of     this      program.              Through        the
reviews           and evaluations                   conducted               under        this     effort,           OMB has
identified               over         100 high            risk     areas        in the          16 largest           and many
smaller           federal           agencies          and plans              oversight            and agency              reporting
on the        actions            to     correct            the     problems.


Increased            Congressional                   Oversight              and
Financial            Management             Legislation                   Needed


           The Congress                 can also             significantly                 contribute             to effective

                                                                      9
corrective           action          through            its      oversight               role.          We have
recommended           that          its      authorizing,                  appropriations,                    and oversight
committees           hold      annual           hearings              using        Financial              Integrity            Act
reports,        plans         for         corrective             actions,            and audited                 agency
financial         statements                 as the           focal        point       in    the        process          of
reviewing         agency            actions         to        correct         internal             control          and
accounting           system          weaknesses.                  Such hearings                    could         help      assure
the    Congress         that         corrective                measures            are      implemented                 and that
they     are    effective.


         In this        connection,                 the        widespread              occurrence                and
significant           dollar              and programmatic                    impact         of        federal          accounting
system        weaknesses,                 in particular,                   highlight             the     need for             a new
approach        to    federal              financial             management.                 We have             long      been a
strong        advocate         of         legislation             which        would


         --    establish             a chief            financial             officer            (CFO) structure                  for
               the    federal              government,                with      counterpart                chief         financial
               officers             in     each of the                major        agencies             and


         --    require         the         annual         preparation                and audit             of     agency
               financial              statements               and a report                 to     the     President             and
               the    Congress.


         The legislatively                      established                  chief        financial              officer        would
develop        a long-range                  governmentwide                   financial             management                plan.

                                                                      10
The supporting                   structure            would          provide               direction              and continuity
when leadership                   changes            occur          in    the         administration                      as well             as at
the     agency          level.           Establishing                    a CFO structure                         would       help         give
financial           management               the       prominence,                    permanence,                 and continuity
necessary           to        achieve          reform         and enable                   the        government             to        better
manage its              financial              affairs,             save billions                      of      dollars,           and help
restore          the      accountability                   of managers                     and the             credibility                of
government.


          The report              to     the        President             and the               Congress            would         include
(1)     the      annual          financial             statements,                     (2)      the      audit          report          on
those         financial           statements,                 (3)        a summary of                    the      Financial
Integrity           Act        reports          on the         systems                of      internal            control,              (4)      a
report         summarizing               the        corrective                 actions            taken          with      respect              to
the     material              weaknesses             identified                 in      the       Financial               Integrity              Act
reports,          and (5)           other           information                 the        agency           head considers
appropriate               to     fully         inform         the        President                and the           Congress
concerning              the      agency's            financial                 management.


          The preparation                      of    audited             financial                statements               is     an
essential              part      of the         solution.                 It      is       critical              because          it
demonstrates                  whether          an organization's                             financial            systems              and
personnel              are     capable          of     accumulating,                       analyzing,               summarizing,
and reporting                  on its          financial             condition                   and operating                  results.
Preparing              the     statements              also         forces            agencies              to    acknowledge
their         systems          problems.

                                                                         11
         For years,            the        federal        government                 has    insisted                 that        publicly
traded      companies,               as well        as state               and local             governments,                    submit
their      financial           statements               to    the        scrutiny          of        an independent
audit.        The federal                 government           should          do no less.                      Annual           audits
promote       discipline              in the        recording               and processing                      of       data
simply      because           people         know that              the     information                 is         subject         to
review.         Further,             the     improved          quality              of    the        financial
information            that     can be obtained                       when accurate                    financial
statements           can be prepared                    enables            agencies          to        place         greater
reliance           upon this          information              in making                 decisions                 and
monitoring           program          implementation.                       Hopefully,                 until         legislation
is passed,           the      administration                  will         continue             to     work         with        GAO to
expand       the     number          of    agencies           and departments                        preparing               financial
statements           and submitting                 them        for        audit.


          Our recent           financial            audit           of the          Federal            Housing
Administration                (FHA)         is   a good         example             of    why accurate                     and
audited        financial             statements              are      needed.             FHA's          financial
reports,           which      identified            losses            of    $858 million                     for      fiscal         year
1988,       were misleading                  in the          extreme.               In    fact,          after           making         the
 required          adjustments              identified               during         the     audit,             the       losses         were
 $4.2     billion,         or almost             five        times         greater          than         management's                   best
 information           showed them to be.


          Our initial            financial              audits            throughout                 government              have

                                                                    12
revealed           problems              with         financial             systems.              Frequently               they        are     so
severe          that          information              needed          to manage agency                        operations,              as
well      as to          prepare              agency         financial          statements,                    is     unreliable              and
seriously              deficient.                Generally,                 these     problems             are         more serious
and deep-seated                        than     either          we or agency                managers                realized           before
our      audits.               Subsequent              audits          of the        same agencies                     show
improvements,                   but      also         show that             systems         cannot         be fixed
overnight.                   Many times,               it     takes         2 or     3 years          to        cure       some of
these          situations.                    Subsequent           audits           serve     to      monitor              the
improvement               effort,              give         guidance,          and keep the                pressure              on.          We
believe          that          the      preparation               of     audited        financial                   statements            has
had a major               positive              impact          on the         improvement                of        systems        and,
correspondingly,                        the     reduction              in the        government's                    exposure           to
fraud,          waste,          and abuse.


HUD's Leadership                        Has Recognized                   the
Department's                   Financial              Management             Needs


          For      its         part,          HUD's leadership                 has recognized                        the    need        for
central          direction               and qualified                   leadership           in     the            financial
management               of     its      programs.                HUD reported               in     its         1989 Financial
Integrity              Act      report,          and the           Secretary           has publicly                     announced,
that      in order              to      bring         financial           integrity           to     agency             programs,
it


          --     had established                       a special            task      force         on Program                  Financial

                                                                       13
               *Management headed               by an under             secretary               to     strengthen
               financial          management           in    26 program           activities:


        --     would       soon appoint           a chief           financial           officer          for      the
               Department           who will         be responsible               for       overhauling
               accounting           and financial             reporting           policies,              ensuring
               the      development           and operation             of      a sound          financial
               management           system,       and establishing                 comptrollers                   for     the
               major       HUD activities              such as FHA; and


        --     would       prepare       annual        financial          statements                 and have them
               audited          by an independent                  accounting            firm        beginning           with
               fiscal       year      1990.


        Further,           in    December       1989,        the     Congress            passed         legislation
that,        among other           things,      created            a CFO position                 in    HUD, created
comptrollers             in each       of     HUD's major            programs,            and required                  annual
audited        financial           statements          for    each of           HUD's major              programs.
Legislation             such as this           should        have      a very      positive              effect          on
HUD and is           needed        across      the     government.


Improvements             Will      Require
Monetary         Investment


          One final         point       needs     to    be stressed:                it      will        take      a
substantial             monetary        investment           across       the     government               to     acquire

                                                             14
the    financial          management                 systems        that     are        needed       and to             attract
and train          personnel            to     operate            them.       In       an era      of      severe           budget
restraint,            there         may be a temptation                     to     take      shortcuts                to    hold
down these            costs.           I strongly             believe,            however,         that          new systems
will     ultimately             pay for          themselves.                The payoff             will          come       not
only     in terms         of        better       efficiency               and prevention                of       loss       from
fraud,        waste,      abuse,             and mismanagement,                    but      also     in        greater
confidence            in the         integrity             of government                operations               and program
decisions.


GAO'S "HIGH RISK"                    PROGRAM


         Are there             other         HUDs today?                Unfortunately,               I believe               there
are.         To what      extent,             we are         not    quite         sure,      but     there            are
unexploded            bombs out              there     that        need to            be defused           before           they
explode.           We have developed                        a "high        risk"         program          that        focuses        on
what we think             are        some of the              more vulnerable                  areas           in the
government            today.           Under         the     program,            we


         --    have      identified              14 major           areas          (see     attachment                I)    we
               believe          to     be highly             vulnerable;


         --    are      focusing,             in conjunction                with         efforts          of     agency
               management              and the             inspectors            general,          on the         root
               causes          of     serious          long-standing                  weaknesses           to     develop
                approaches             to      solve        the    problems            associated              with        these

                                                                   15
                 programs:


          --     are      monitoring           agency        corrective               actions         and reporting
                 the      results       to the          appropriate             congressional                committees;
                 and


          --     will       recommend          legislative            actions           necessary            to    ensure
                 that      corrective           measures           are        implemented.




          Mr.     Chairman,           the      active        involvement               of    the     Congress         and
hearings           such      as this        one,     directed            at     improving            HUD's programs,
are critical               to    correcting          the      internal           control           and financial
management               systems      problems            facing      the       government             today.         Without
strong         congressional             oversight,             the      changes            needed      to    safeguard
federal          assets         and ensure          the      efficient           and economical                   operation
of     federal           programs       will       not     occur.           I look          forward      to working
with      you and other               interested             members of the                  Congress         to    achieve
the     internal           control       and financial                management                improvement
initiatives               discussed         today.


          This          concludes       my formal            statement.                I will       be happy          to
answer         any questions                you or members of                   the     Subcommittee               may have.




                                                               16
ATTACHMENT I                                                                ATTACHMENT I

                             INITIAL AREAS SELECTED
                        FOR SPECIAL GAO AUDIT OR REVIEW

Resolution     Trust Corporation       - The management and            disposal      of
approximately       $200 to $300 billion       of thrift    assets         will    pose
unprecedented       management problems.         A sale of this          magnitude      is
unparalleled      in history.       The desire    and potential          to acquire
these assets      at bargain    basement prices       will  make       this     area
highly    susceptible     to fraud,    waste,    and abuse.
Internal     Revenue Service        Receivables      - The existence   of accounts
receivable     rn excess of       $60 billion       which have grown about 300
percent    since 1980 places         this    issue in the significant       potential
loss area.       In light  of     the budget deficit,       the potential      for
reducing    or stabilizing        the growth rate offers         major dollar
savings    and thus warrants         special     review and oversight.
Management of Seized and Forfeited            Assets - This issue has been
characterized       by mismanagement     which has been the subject           of
considerable      press attention.       Responsibility      for managing the
program rests with the Customs Service              and the U.S. Marshall's
Service.      Both organizations      have been identified         by their
respective     departments     as having significant       internal     control
weaknesses.       Improvements     in the management and control            of this
program will      lend support     to the war on drugs and increase             public
and congressional       confidence    in the program.
Medicare Questionable         Claims - The tens of billions              of program
dollars    coupled      with considerable      potential      for fraud and abuse
indicates    a high potential        for financial       savings    from our
efforts.      Identified     payments of $527 million            by Medicare    in 1985
that should have been paid by private                insurance     carriers
illustrate      the magnitude     of potential       savings.
                - The Department        of Labor's     and IRS's enforcement           of
==P
ERISA as
plans are
              a significant      impact on ensuring
              free of mismanagement,
                                                            that employee benefit
                                               fraud and abuse that place plan
assets at risk and threaten             the benefits     of plan participants.
The adequacy of their         oversight       has a direct      financial     effect     on
the potential       for loss by the Pension Benefit               Guaranty
Corporation,      an organization         that has been unauditable           in the
past.     The underfunding       of approximately         20 percent       of the plans
insured    by PBGC is estimated           at $20 to $30 billion           but is
concentrated      in particular       industries      where downturns        could have
a significant       impact.     The potential        $2.2 billion       impact on the
fund of one company's         bankruptcy,        LTV Corporation,         demonstrates
the vulnerability        of this    program,      and thus the taxpayers'
exposure to potential         losses.
                                             17
ATTACHMENT I                                                                ATTACHMENT I


Guaranteed    Student      Loans - The large number of banks, state
acyencles,   and schools       participating        in guaranteed      student    loan
piograms-coupled       with poor systems-to           protect    the federal
government's     financial      interest      creates    the potential      for
significant     abuses and losses.            A high proportion        of defaults     and
publicized    abuse by certain          proprietary      schools    suggest the need
for improved program controls.
State Department    Real Property      Management Overseas - There is
adequate evidence     of waste, mismanagement,         and poor controls         in
this area as illustrated        by the construction        fiasco     at the U.S.
Embassy in Moscow.       There is high potential         for financial       savings
through  better  property     management.     Corrective        action   over the
years has been minimal,        but recently   State has begun to show an
interest  in addressing      these issues.
DOD Inventory     Management Systems - Department                  of Defense
inventories     exceed $100 billion           of which unneeded or excess
inventory    exceeds $30 billion.             The excess inventory              along with
numerous other      indicators       (e.g.,     the failure      to cancel orders
where excess stock is already               on hand) reflect         financial
management problems.           Management incentives           focus on filling
orders and obligating          funds.       There is no corresponding               focus on
reducing    costs or controlling            or securing     stock,      i.e.,      economy
and efficiency.        The current        pressure    to reduce the DOD budget in
response to recent        world events provides            additional         incentives   to
make major improvements           in the supply system.
DOD Major Systems Acquisition              - The total     estimated     cost of
major systems currently           being developed        or produced     exceeds $900
billion;      Following     established       management controls        to deliver
capable and supportable           weapons to the user when and where
needed, and at reasonable            cost,    has been the exception          rather
than the rule.        As a result,        DOD continually      buys higher       cost
systems which substantially             exceed original       estimates,      are
delivered    much later      than originally        scheduled,     and do not meet
the capabilities        advertised.        GAO will    review the effectiveness
of management initiatives            to address these long-term            problems
and their     means of achieving          savings.

NASA Contract     Management - NASA will         spend $11 billion          in 1990 on
contracts    and has a very decentralized           contract      administration
process.     In this   environment,      there   is considerable         potential
for mismanagement,      fraud,   and abuse.        The  potential      for    large
savings   exists    if better   contract     controls     and oversight         can be
achieved.

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ATTACHMENT I                                                            ATTACHMENT I

Farmers Home Administration          Loan Programs - FmHA has made
billions    of dollars     of credit    available     to the nation's      farmers.
Delinquent    farm loan borrowers         held $11.1 billion;or         48 percent,
of the agency's       $23.3 billion     in outstanding        loans as of
September 30, 1989.         FmHA is responsible         for protecting    the
government's     interest,     as well as helping         farmers   who cannot get
help elsewhere.        Recognizing    congressional        concern to reduce the
deficit,    any potential      for controlling      loan losses warrants        added
review and oversight.
Superfund      Enforcement     and Contractor         Oversight     - The Congress has
authorized       $10 billion     for the Superfund         program but estimates     of
federal    funds needed to complete             the cleanups       are many times that
amount.      To avoid wasting         federal     resources,     the Environmental
Protection       Agency (EPA) needs to (1) ensure that parties                 who
contaminate       sites    pay their      fair  share of the clean-up        costs and
(2) effectively         manage clean-up        contractors      who get over 75
percent    of Superfund's        outlays.       GAO   will   explore   cost and
conflict     of interest      control       and whether     EPA uses its full
authority      to compel private          party cleanup.
Urban Mass Transportation           Administration       Grants - UMTA currently
manaaes active      arants   totallna      $30 billion       with over $3 billion
in &w grants      e&h year.         The-number      of staff     available      to UMTA
for project     oversight     is limited.        Based on recent        GAO survey
work, increased      oversight      of the grant application             review
process and adherence        to grant      provisions     is needed.         The
criteria    for deciding     what projects         get funded and in what
amounts is limited,        and, in some cases,         projects,are         funded at
the sole discretion        of the Administrator.
Department      of Energy Contractor         Oversight     - DOE relies      on
contractors       and consultants        for most of the work needed to
fulfill     its mission.        For example,      DOE obligated      about
$15 billion       for procurement        in 1988.    The Department        has had a
history     of inadequate       contractor    oversight     and bonus awards to
contractors       in situations       that would appear to be highly
questionable.         While this may be due in part to lack of expertise
or inadequate        staffing,     it also may be due to DOE's philosophy            of
"least    interference"        with its operating       contractors.        GAO will
examine DOE's potential            for improvements      in control,
accountability,         and efficiency.




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