prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: The technology sector has major employment hubs across the country, including the San Francisco Bay area, the greater New York City region, and the Washington-Arlington-Alexandria region (see fig  1)  In addition, technology workers are employed at companies outside the technology sector, such as in the retail or financial services industries  For example, a large retail company may require technology workers to create and manage their online sales activities, but the company itself would be considered part of the retail industry  Private companies are generally prohibited by federal law from discriminating in employment on the basis of race, color, religion, sex, national origin, age, and disability status  Additionally, federal contractors and subcontractors are generally required to take affirmative action to ensure that all applicants and employees are treated without regard to race, sex, color, religion, national origin, sexual orientation, and gender identity, and to employ or advance in employment qualified individuals with disabilities and qualified covered veterans  EEOC is responsible for enforcement of federal antidiscrimination laws, and OFCCP enforces affirmative action and nondiscrimination requirements for federal contractors  EEOC and OFCCP have some shared activities and have established a memorandum of understanding (MOU) to minimize any duplication of effort  For example, under the MOU, individual complaints filed with OFCCP alleging discrimination under Title VII are generally referred to EEOC  In addition, on occasions when EEOC receives a complaint not within its purview, such as cases that involve veteran status, but over which it believes OFCCP has jurisdiction, it will refer the complaint to OFCCP  The EEOC, created by Title VII of the Civil Rights Act of 1964, enforces federal laws that prohibit employment discrimination on the basis of race, sex, color, religion, national origin, age, and disability  As the nation’s primary enforcer of antidiscrimination laws, EEOC investigates charges of employment discrimination from the public, litigates major cases, and conducts outreach to prevent discrimination by educating employers and workers  In fiscal year 2016, EEOC received about 91,500 charges, secured more than $482 million for victims of discrimination, and filed 114 lawsuits  According to EEOC, many states, counties, cities, and towns have their own laws prohibiting discrimination, usually similar to those EEOC enforces, as well as agencies responsible for enforcing those laws, called Fair Employment Practices Agencies  However, in some cases, these agencies enforce laws that offer greater protection to workers  An individual can file a charge with either the EEOC or with a Fair Employment Practices Agency  When an individual initially files with a Fair Employment Practices Agency that has a worksharing agreement with the EEOC, and the allegation is covered by a law enforced by the EEOC, the Fair Employment Practices Agency will dual file the charge with EEOC (meaning EEOC will receive a copy of the charge), but will usually retain the charge for processing  If the charge is initially filed with EEOC and the charge is also covered by state or local law, EEOC dual files the charge with the state or local Fair Employment Practices Agency (meaning the Fair Employment Practices Agency will receive a copy of the charge), but EEOC ordinarily retains the charge for processing  EEOC also pursues a limited number of cases each year designed to combat systemic discrimination, defined by the agency as patterns or practices where the alleged discrimination presented by a complainant has a broad impact on an industry, profession, company, or geographic location  EEOC can also initiate a systemic investigation under Title VII with the approval of an EEOC commissioner, called a “commissioner charge”, provided the commissioner finds there is a reasonable basis for the investigation  In addition, EEOC district directors can approve systemic investigations, called “directed investigations” which are initiated by EEOC field office directors under the Age Discrimination in Employment Act and the Equal Pay Act  Under Title VII, EEOC generally requires that large employers and non- exempt federal contractors file Employer Information Reports (EEO-1 reports) annually, which collect employees’ demographic data by business location on sex, race, and ethnic group for 10 occupational job categories  According to EEOC documentation, EEO-1 data are used in investigations of Title VII violations, litigation, research, comparative analyses, class action suits, and affirmative action plans  The OFCCP is responsible for ensuring that the nearly 200,000 federal contractor establishments comply with federal nondiscrimination and affirmative action requirements  Under Executive Order 11246 and other federal laws and regulations, covered federal contractors and subcontractors are prohibited from discriminating in employment on the basis of race, color, religion, sex, sexual orientation, gender identity, or national origin and are required to take affirmative action to help ensure that all applicants and employees are treated without regard to these factors  In general, OFCCP’s regulations require covered contractors to comply with certain recordkeeping and reporting requirements, and provide for enforcement procedures such as compliance evaluations and complaint investigations to assist OFCCP in ensuring federal contractor compliance with these regulations  Among other provisions, OFCCP’s regulations generally require that covered contractors prepare and maintain an affirmative action program (AAP)  Under OFCCP’s regulations, an AAP is a management tool that is designed to ensure equal employment opportunity, with an underlying premise that the gender, racial, and ethnic makeup of a contractor’s workforce should be representative of the labor pools from which the contractor recruits and selects  Companies must create an AAP for each business establishment—generally, a physical facility or unit that produces the goods or services, such as a factory, office, or store for the federal contractor  An AAP will also include any practical steps to address underrepresentation of women and minorities, such as expanding employment opportunities to underrepresented groups  Covered contractors must also comply with certain recordkeeping requirements, including records pertaining to hiring, promotion, lay off or termination, rates of pay, and applications, among other records  OFCCP’s enforcement program represents the majority of the agency’s activity and is carried out primarily by using compliance officers, who evaluate contractors’ compliance with various requirements, according to agency officials  In addition to conducting compliance evaluations, OFCCP also conducts investigations in response to complaints  In 2016, we reported that according to OFCCP officials, responding to complaints accounted for close to 16 percent of OFCCP’s enforcement activities  OFCCP selects contractor establishments for evaluations based on a number of neutrally applied factors, such as employee count at the establishment, contract value, or contract expiration date  We previously found that OFCCP reviews, on average, 2 percent of federal contractor establishments annually  As we previously reported, as part of its compliance evaluations, OFCCP is to review the selected contractor’s hiring, promotion, compensation, termination, and other employment practices to determine whether contractors are maintaining nondiscriminatory hiring and employment practices  OFCCP conducts evaluations at the establishment level  When a contractor establishment is selected for evaluation, OFCCP sends the contractor a “scheduling letter” requesting the AAP and supporting data, such as the percentage of women and minority staff at the workplace by job group  Then, a compliance officer is to conduct a desk audit, which is an off-site review of the submitted materials  If necessary, the compliance officer may also conduct an on-site review or further off-site analysis to make a final determination as to whether the contractor is in compliance  In addition to looking at whether federal contractors maintain nondiscriminatory hiring and employment practices, which can result in finding discrimination violations, OFCCP also frequently finds other types of violations, such as failure to keep necessary records or conduct annual reviews of equal employment and affirmative action efforts  These findings by the agency often require administrative changes on the part of the contractor, such as improved record-keeping  There are many different forms of remedies for discrimination violations, including financial, employment, and organizational change remedies  Although rare, under some circumstances, OFCCP may bar a contractor from doing business with the government  From 2005 to 2015, the estimated number of workers in the technology workforce—people who worked in mathematics, computing, or engineering occupations—increased at a higher rate (24 percent) than the estimated number of workers in the general workforce (9 percent), according to ACS data  In 2015, the technology workforce comprised an estimated 7 5 million workers, an increase of slightly over 1 4 million workers since 2005  (For a complete list of the occupations we include as technology occupations, see appendix II)  Most technology workers have a college degree and have a higher median income than workers in the general workforce  Specifically, in 2015, an estimated 69 percent of technology workers held at least a bachelor’s degree, compared to 31 percent of workers in the general workforce  In 2015, the estimated median income for technology workers was $81,000 compared to $42,000 for the general workforce  From 2005 to 2015, the percentage of women in the technology workforce remained flat and women remained a smaller proportion of the technology workforce compared to their representation in the general workforce  In 2015, women represented 22 percent (about 1 6 million workers) of workers in technology occupations, compared to 48 7 percent of workers in the general workforce (see fig  2)  Although the estimated percentage of minority technology workers as a whole had grown since 2005, we found that this trend did not apply to Black technology workers  Specifically, from 2005 through 2015, although the number of Black workers increased as the technology workforce grew, there was no statistically significant change in their representation as a percentage of the entire technology workforce  In contrast, from 2005 to 2015, Hispanic and Asian technology workers had statistically significant increases in their representation in the technology workforce  Even with the increase in their numbers in the technology workforce, Black and Hispanic technology workers remained a smaller proportion of these workers compared to their representation in the general workforce  In contrast, Asian workers were an increasing share of the technology workforce, where they remained more represented than they were in the general workforce (see fig  3)  We found that when we examined gender representation for each minority group, both Black and Hispanic men and women were less represented in the technology workforce compared to their representation in the general workforce  The same was true for White women, whereas White men, Asian men, and Asian women were more represented in the technology workforce compared to their representation in the general workforce (see fig  4)  We defined the technology sector as those companies that have the highest concentration of technology workers and are in such industries as computer systems design and software publishing  Companies categorized as outside the technology sector, for example, retail or finance companies, may still employ some technology workers  However, we found differences in median incomes for technology workers within and outside the technology sector  In 2015, technology workers employed in the technology sector earned an estimated median income of $89,000 compared to median incomes of $78,000 for those working outside the technology sector  We also compared the characteristics of technology workers within the technology sector and outside the technology sector, and found male and Asian technology workers were relatively more represented in the technology sector than outside the technology sector  Similar to the lower representation of female, Black, and Hispanic technology workers in technology occupations, we found technology workers from these groups were also more likely to work outside the technology sector than in the technology sector  For example, according to our analysis of 2015 ACS data, women represented an estimated 18 percent of all technology workers employed in the technology sector, compared to 25 percent of all technology workers employed outside the technology sector (see fig  5)  White technology workers were also more represented outside the technology sector than within the technology sector  Companies in the technology sector also employ non-technical workers such as sales people, and the lower representation of women and certain minorities in the technology sector was also present in such non-technical job categories  According to our analysis of EEO-1 data, women were less represented across the full range of management and non- management positions at companies within the technology sector, including at leading technology companies, compared to their representation in companies outside the technology sector  We determined this by comparing specific occupations at companies both within and outside the technology sectors using 2015 EEO-1 data  For example, women held about 19 percent of senior-level management positions at companies in the technology sector compared to nearly 31 percent of such positions at companies outside the technology sector in 2015  Women were also less represented in all of the remaining job categories (mid-level managers, professionals, technicians, and all other jobs) in the technology sector  (See fig  6 ) Comparing EEO-1 data at three points in time for 2007, 2011, and 2015, we found women’s representation in management positions as well as among professionals and technicians at companies within the technology sector remained at about the same level, and decreased for “all other jobs” (see table 1)  Similar to women, Black and Hispanic workers were less represented across multiple job categories in companies within the technology sector compared to those outside the technology sector (see fig 7)  For example, 1 8 percent of senior level managers in the technology sector were Black compared to 3 4 percent of senior level managers in all other sectors  Appendix IV provides percentages for each minority group in different job categories within and outside the technology sector  The lower representation of Black workers in the technology sector relative to their representation in other sectors was consistent across all job categories (mid-level managers, professionals, technicians, and “all other jobs”)  Hispanic workers were less represented in the technology sector compared to outside the technology sector across all job categories (senior and mid-level managers, professionals, technicians, and “all other jobs”)  Compared to their representation across job categories within the technology sector in general, Black and Hispanic workers had slightly greater representation at the leading technology companies in senior management and technician categories, and lower representation among mid-level managers, professionals, and holders of “all other jobs ” Asian workers comprised a greater proportion of managerial and professional roles in the technology sector than in other sectors, according to our analysis of 2015 EEO-1 data  Asian workers represented 11 0 percent of senior level managers in the technology sector compared to 4 3 percent in industries outside the technology sector  This higher representation of Asian workers in the technology sector was consistent among mid-level managers, professionals and technicians  Asian workers were more represented in the same categories at the leading technology companies  However, a lower proportion of Asian workers held senior management positions compared to their representation in professional positions in both the technology sector and leading technology companies  Further, the proportion of Asian workers in mid-level management positions was also lower than their representation in professional positions, from which mid-level managers might be selected, in both the technology sector and leading technology companies  In contrast, a higher proportion of White workers were in senior and mid- level management positions compared to their representation in professional positions in both the technology sector and leading technology companies  Comparing EEO-1 data at three points in time—2007, 2011, and 2015— we saw varied representation across job categories in the technology sector by race/ethnicity  For example, Black workers decreased in their representation in all job categories in the technology sector from 2007 to 2015  In contrast, Hispanic and Asian workers increased in their representation in all job categories we examined from 2007 to 2015 (see table 2)  Several factors may contribute to the lower representation of female, Hispanic, and Black workers in the technology workforce and at companies in the technology sector, based on research and interviews with researchers and representatives from workforce and industry organizations and technology companies  These include the lower diversity of degree earners in technology-related fields, and company- based factors such as hiring practices and retention of women and underrepresented minorities  The smaller proportion of women in the technology workforce may reflect the number of women earning technology-related degrees  Slightly over two-thirds of technology workers report having earned their bachelor’s degree in a computer, engineering, mathematics, or technology field  However, according to our analysis of 2014 IPEDS data, the percentage of technology-related bachelor’s and master’s degrees earned by women is far less than for men, although women were comparable to men in their receipt of science, technology, engineering, and math (STEM) degrees, and surpassed men in obtaining degrees in all other fields  In 2014, about 60,000 women were awarded technology-related bachelor’s or master’s degrees (compared to about 50,000 in 2004) and about 190,000 men were awarded such degrees (compared to about 147,000 in 2004)  (See fig  8 ) An estimated 218,000 technology workers were added to the technology workforce in 2015, according to our analysis of 2015 American Community Survey data from the U S  Census Bureau  In addition, technology degrees are also issued at the associate’s level  Two researchers told us that women often have the academic preparation to enter into technology-related degree programs, but they may choose not to pursue such degrees because of instances of gender bias within technology classes  Our prior work reported on studies that found women leave STEM fields at a higher rate than their male peers, citing one study that found women leave STEM academic positions at a higher rate than men in part due to dissatisfaction with departmental culture, faculty leadership, and research support  Further, a 2012 consulting firm report found that businesses viewed as male-dominated tended to attract fewer women at the entry level  In addition, according to our analysis of 2014 IPEDS data, three minority racial or ethnic groups each constituted 10 percent or fewer of bachelor’s and master’s degree earners in a technology-related field  Specifically, among the 202,200 earners of degrees in a technology-related field in 2014, there were about 20,000 Hispanic recipients, 13,000 Black recipients, and 18,000 recipients who were Multiracial or other race, which includes American Indian or Alaska Native, Other or Unknown Race, and Two or more Races, i e  respondents who selected one or more racial designations  Among all minority groups, Asian students, including Pacific Islander, earned the highest proportion of technology- related degrees (about 24,000 individuals)  (See fig  9)  One barrier to entry into technology degree paths for Black and Hispanic students may be lower likelihood of access to preparatory academic programs in secondary school  In 2016, we reported that the K-12 public schools in the United States with students who are mostly Black or Hispanic offered disproportionately fewer math and science classes for their students  One researcher told us some colleges and universities, to help these students be academically successful, provide additional academic support such as tutoring to help bridge knowledge gaps  To address the uneven access to preparatory math and science classes, representatives from five technology companies told us they have started to invest in exposing Black and Hispanic children to technology occupations by, for example, developing online resources targeted to them and their parents and creating partnerships with secondary schools to improve their academic preparation in computer science  However, we have previously also reported that the number of students graduating with STEM degrees may not be a good measure of the supply of STEM workers because students often pursue careers in fields different from the ones they studied  For example, a lower percentage of women who obtained technology-related degrees became technology workers compared to men who earned the same degrees, according to our analysis of 2015 ACS data  Specifically, among women who earned technology degrees, an estimated 33 percent worked as a technology worker compared to 45 percent of men who earned technology degrees  Several representatives we interviewed from workforce and industry organizations and technology companies told us that recruitment practices may also have affected diversity in the technology workforce  For example, representatives from three workforce and industry organizations said technology companies tend to recruit from a select number of universities and colleges, thereby limiting their pool of potential applicants  To address this, representatives from several of the technology companies we interviewed told us they had changed recruitment practices and offered internships targeted to underrepresented groups  For example, representatives of four technology companies told us that their companies had expanded recruitment to include more schools  Representatives from two companies told us they offer programs such as summer and semester internships for which the company actively recruits from Historically Black Colleges and Universities and other specific schools to increase its pool of diverse candidates  In addition, representatives from workforce organizations and technology companies discussed concerns and strategies to address companies’ hiring practices and internal cultures that may limit workforce diversity  For example, one of these representatives said that technology companies often offer financial incentives to current employees to make referrals for new hires, which can result in reliance on social networks  These networks may be largely comprised of the same race and this practice therefore makes it harder for potential candidates from demographically different groups to have their resumes reviewed  Another workforce organization representative reported that some hiring managers filter out eligible candidates if their background and qualifications are not the same as those of previously successful employees  To address these concerns, representatives from one technology company told us that they had moved away from depending on referrals since this practice may result in leaders hiring people within their own networks, which generally does not increase diversity of gender or race/ethnicity  In addition, representatives from another company said they plan to begin reviewing resumes with names removed to limit bias by the reviewer  Further, representatives we interviewed from three technology companies told us they offer training to employees to help employees identify their own, unconscious biases  Other factors may affect retention of women and underrepresented minorities  For example, a representative from a workforce organization said that women leave technology occupations at a higher rate than men because they feel as if they have not been given the same opportunities for promotion and advancement within the company  A 2016 study that examined women in engineering and science found that women’s concerns about pay and promotion are often an issue in male-dominated fields regardless of the industry  Further, this study found that retention difficulties become more severe as the share of men in the workforce increased and that affected women’s pay and promotion  Representatives from one company told us another challenge is the lack of Black workers at the top levels, which might make it more difficult for Black employees in particular to see a leadership path  Representatives we interviewed from five technology companies told us they had implemented efforts to increase retention and promotion rates among minority and female workers, for example, by developing a diversity and inclusion newsletter, employee resource groups with executive sponsors, and internal training and classes for employees to improve their readiness to be promoted  Representatives from five technology companies told us that commitment of top leadership is an important factor that can help women and underrepresented minorities in the technology sector  For example, representatives from one company told us that top management support for diversity efforts, such as setting hiring goals, can help move a company in the direction of achieving representation goals and that leadership is very important to this effort  Representatives from several companies told us that there is often a business case for such changes: These companies work in a diverse, global environment and strive to make better products for diverse users  However, our prior work on workforce diversity in the financial services sector found that some diversity initiatives faced challenges gaining the "buy-in" of key employees, such as the middle managers who are often responsible for implementing such programs  According to EEOC officials, EEOC primarily oversees compliance with equal employment opportunity requirements by investigating workers’ individual charges of employment discrimination filed against companies  EEOC has publicly acknowledged the low levels of diversity in the technology sector  However, we were unable to identify a specific number of charges received by EEOC against companies in industries that are part of this sector because EEOC does not require investigators to record the industry of the charged company  EEOC’s database of charges and enforcement actions—the Integrated Mission System (IMS)—has a data field for the North American Industry Classification System (NAICS) industry code, the standard used by federal statistical agencies in classifying business establishments  However, we found that it is completed for only about half the entries in the system  EEOC officials in both the San Francisco and New York district offices told us that, while they cannot readily identify individual charges against technology companies, they believe they have received far fewer charges against technology companies than they would have expected given the public attention to the issue of diversity in the technology sector  In terms of systemic cases, according to EEOC, as of June 2017, the commission had 255 systemic cases pending since fiscal year 2011 involving technology companies (13 of these were initiated as commissioner charges and 8 were directed investigations involving age discrimination or pay parity issues)  Officials from the New York region reported that they had seen an increase in systemic cases against technology companies in the past 3 years, largely involving practices of information technology staffing firms  Several EEOC officials we interviewed noted that technology workers may be initiating few complaints at the federal level due to factors such as fear of retaliation from employers or the availability of other employment or legal options  According to EEOC officials, fear of retaliation can affect charges across sectors and, given the growth in the technology workforce, an individual who feels discriminated against may simply leave the company because there are many other opportunities for individuals with technical skills  They also said that technology workers may generally have greater wealth and can afford to hire private attorneys to sue in state court rather than go through the EEOC  Moreover, they said that some states, including California, have stronger employment discrimination laws that allow for better remedies than federal laws, which could lead employees to file charges at the state level rather than with the EEOC  In addition, EEOC has acknowledged in a 2016 report that binding arbitration policies, which require individuals to submit their claims to private arbiters rather than courts, can also deter workers from bringing discrimination claims to the agency, leaving significant violations in entire segments of the workforce unreported  The report stated that an increasing number of arbitration policies have added bans on class actions that prevent individuals from joining together to challenge practices in any forum  The report concluded that the use of arbitration policies hinders EEOC’s ability to detect and remedy potential systemic violations  Researchers report that the use of such clauses has grown and data on federal civil filings for civil rights employment cases reflect a marked reduction in the number of such filings  Beyond pursuing charges, EEOC has taken some steps to address diversity in the technology sector including research and outreach efforts  In May 2016, citing the technology sector as a source for an increasing number of U S  jobs, EEOC released a report analyzing EEO-1 data on diversity in the technology sector in tandem with a commission meeting raising awareness on the topic  In addition, EEOC’s fiscal year 2017- 2021 Strategic Enforcement Plan identified barriers to hiring and recruiting in the technology sector as a strategic priority  EEOC has also been involved in outreach efforts with the technology sector  For example, the EEOC Pacific Region described more than 15 in-person or webinar events since 2014 in collaboration with OFCCP and local organizations focused on diversity in the technology sector  The topics of these events included equity in pay and the activities of these two agencies in enforcing nondiscrimination laws  Finally, in fall 2016, EEOC initiated an internal working group to identify practices to help improve gender and racial diversity in technology, but as of June 2017 had no progress to report  OFCCP’s regulations require covered federal contractors to take proactive steps to ensure equal employment opportunity  OFCCP annually conducts routine evaluations of selected federal contractors, which includes those in the technology sector, for compliance with federal nondiscrimination and affirmative action requirements  To the extent that technology contractors are selected for evaluation through OFCCP’s normal selection process, these contractors are assessed for compliance with nondiscrimination and affirmative action laws as are other selected contractors  While evaluation of technology contractors occurs in the course of OFCCP’s routine activities, OFCCP does not currently use type of industry as a selection factor, according to officials  We also found that few (less than 1 percent) of OFCCP’s 2,911 closed technology contractor evaluations from fiscal years 2011 through 2016 resulted in discrimination violations, though 13 percent resulted in other violations, such as record- keeping violations and failure to establish an affirmative action program (AAP)  An AAP is a key tool OFCCP requires contractors to complete to ensure equal employment opportunity  The remaining 86 percent of evaluations either found no violations or ended in administrative closure  Technology contractor evaluations that had discrimination violations resulted in back pay, salary adjustments, or other benefits totaling more than $4 5 million for 15,316 individuals (averaging about $300 per award) for fiscal years 2011 through 2016  The vast majority of discrimination violations were on the basis of gender or race/ethnicity rather than disability or veteran status  Corrective actions OFCCP identified for federal technology contractors over this timeframe also included requiring contractors to fill a total of 410 job vacancies as they arise with applicants who had been denied employment on the basis of discrimination  In addition, OFCCP recently filed three complaints against technology companies  According to our analysis, OFCCP conducted evaluations on 36 of the 65 leading technology companies from fiscal year 2011 through fiscal year 2016  During this timeframe there were 272 reviews of establishments— physical business locations—affiliated with these 36 companies  Based on these evaluations, 15 of the 36 companies had administrative violations, and 2 of the 36 also had discrimination violations  As a result of the discrimination findings against these leading technology companies, 541 individuals received monetary benefits totaling $783,387 (an average of $1,448 per award)  In terms of other steps to conduct oversight of the technology sector, OFCCP officials in the Pacific Region said they are hiring compliance officers with legal training to be better able to address needs for reviews in the technology sector, such as responding to lawyers representing technology contractors  Officials in both the Pacific and Northeast regions work closely with statisticians and labor economists on their cases, an effort officials said has increased over the past few years  OFCCP has also requested funding in its fiscal year 2018 congressional budget justification to establish centers in San Francisco and New York that would develop expertise to handle large, complex compliance evaluations in specific industries, including information technology  We found that by not requiring an industry code in its investigations data, EEOC cannot analyze charge data by industry to help identify investigation and outreach priorities, in contradiction to EEOC strategic planning documents and EEOC Inspector General reports, which have emphasized the importance of doing so  By not requiring the use of the NAICS code for each entry in IMS, EEOC is limited in its ability to use these data for the purposes of identifying charges by industry sector and conducting sector-related analyses  Officials were aware of substantial gaps in coding of charges by industry and acknowledged limitations in the commission’s ability to analyze its investigations data by industry  However, officials expressed concern that routinely creating more complete records of the companies against which charges had been filed would require investigators to divert attention from their efforts to investigate charges  EEOC officials explained that the charging party provides initial information on the respondent company and requiring EEOC personnel to generate this information would slow down the process  They said their priority is to investigate individual charges, not to address larger trends or target specific industries  “The Strategic Enforcement Plan recommends using EEOC data to allow our enforcement and outreach efforts to focus on areas of significant concern  This might include tailoring outreach efforts for industries that experience greater likelihood of certain charges or informing enforcement decisions based on knowledge that certain industries have persistent problems, such as harassment  The data maintained in IMS provide a rich resource of information that can be used to explore the characteristics of industries that appear to have higher levels of certain allegations than comparative industries ” In addition, reports completed by the Urban Institute for the EEOC Office of Inspector General in 2013 and 2015 similarly recommended analysis of charge data, including by industry, to help identify priorities and measure performance  While EEOC has plans to review a year of IMS data to clean it and determine how best to add missing industry codes, among other objectives, officials could not provide a specific timeframe for when this review would begin and end  Standards for internal control in the federal government state that management should use quality information to achieve the agency’s objectives and objectives should be defined in specific terms so they are understood at all levels of the entity  This involves clearly defining what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement  Efforts to scrub these data and identify missing codes could help EEOC determine how to collect industry information on an ongoing basis for all entries  Doing so would also help EEOC determine the level of NAICS code that would be feasible and useful for investigators to identify and input into IMS  Without analyzing its data on charges across industries, EEOC’s ability to proactively identify priorities for its outreach and enforcement resource use is limited  We found that OFCCP also faces challenges that may hinder the agency’s oversight of technology companies  Specifically, OFCCP reported facing delays in receiving information from federal contractors, including technology companies, but has not yet evaluated whether its own policies and practices also impede its efforts to hold federal technology contractors responsible for the legal requirements to take affirmative action and not discriminate against protected groups  In addition, OFCCP regulations do not require federal contractors to disaggregate data for the purpose of determining placement goals for hiring, which may hinder contractors’ efforts to implement effective affirmative action programs  OFCCP has not analyzed delays in obtaining information from contractors OFCCP officials told us that they face delays in obtaining complete, accurate, and timely documentation from federal contractors, including technology companies, as part of the compliance review process  They said this limited their access to critical information and hindered OFCCP’s ability to determine whether discrimination had occurred  Officials in the Pacific Region reported that when issues are identified during OFCCP’s initial review that will require additional data, the data requests can be extensive  Consequently, technology contractors are taking longer to submit complete and accurate data that are needed to conduct analyses of the contractor’s workforce  In addition, officials in both the Pacific and Northeast regions reported that companies may not provide raw data as requested, or provide access to employees for OFCCP to interview, which is part of the compliance review process  Using 2015 OFCCP compliance evaluation data, we previously reported that close to 85 percent of contractor establishments across all sectors did not submit an AAP within 30 days of being scheduled for an OFCCP compliance evaluation, as required by OFCCP policy  Officials told us of the potential need for a more flexible set of investigatory tools or sanctions, such as subpoena power to speed up data-gathering or penalties for delays in providing information, in order to obtain accurate and timely information  In the case of incomplete data, OFCCP officials said one option is to enter into an agreement with the contractor whereby the contractor will gather the missing data, and OFCCP will monitor the contractor’s efforts and review detailed records at a later date  However, they said that such an agreement could give the contractor an opportunity to modify the data in the contractor’s favor  Currently, OFCCP’s primary sanction is the threat of debarment, which makes a company ineligible to receive future federal contracts  At the same time, OFCCP officials acknowledged there may additionally be delays in their own review processes


Report 2:  In prior work, we’ve reported concerns by contractors and industry groups about lengthy and expansive OFCCP evaluations  However, OFCCP has not analyzed its data on closed evaluations to assess the cause of delays, which would help determine whether changes should be made to its internal processes or if stronger sanctions to obtain information from contractors are needed  Internal control standards state that management should identify, analyze, and respond to risks related to achieving its objectives  Further, it states that management should design appropriate mechanisms to enforce its directives to achieve those objectives and address related risks  Without more information on the root cause of the delays, these delays may continue, straining resources and inhibiting OFCCP’s efforts to identify potential discrimination  “An affirmative action program is a management tool designed to ensure equal employment opportunity  A central premise underlying affirmative action is that, absent discrimination, over time a contractor’s workforce, generally, will reflect the gender, racial and ethnic profile of the labor pools from which the contractor recruits and selects  Affirmative action programs contain a diagnostic component which includes a number of quantitative analyses designed to evaluate the composition of the workforce of the contractor and compare it to the composition of the relevant labor pools  Affirmative action programs also include action- oriented programs  If women and minorities are not being employed at a rate to be expected given their availability in the relevant labor pool, the contractor’s affirmative action program includes specific practical steps designed to address this underutilization ” “The placement goal-setting process       contemplates that contractors will, where required, establish a single goal for all minorities  In the event of a substantial disparity in the utilization of a particular minority group or in the utilization of women or women of a particular minority group, a contractor may be required to establish separate goals for those groups ” According to OFCCP officials, a contractor may be required to establish separate goals for particular minority groups as part of a compliance review  We found, however, that OFCCP’s regulations do not require federal contractors to disaggregate demographic data for the purpose of establishing placement goals in their AAP  This may hinder their efforts to implement effective AAPs, which are designed to assist the company in achieving a workforce that reflects the gender, racial, and ethnic profile of the labor pools from which the contractor recruits and selects  OFCCP officials in headquarters and in the field said, based on their experience evaluating companies’ compliance, it was not common for companies to have placement goals disaggregated by race and ethnicity in their AAPs  A diversity and inclusion officer we interviewed from one large technology contractor noted that the requirement in the AAP to identify the need for placement goals for minorities as a whole does not address underrepresentation in certain minority groups  According to the officer, the company does not count Asian workers in setting the company’s diversity goals because Asians are well represented and the company believes it should set a placement goal for groups for which the company knows it needs to make progress  Citing comments received during development of other regulations, OFCCP officials cautioned that an analysis of utilization disaggregated by race/ethnicity may be more challenging for smaller companies with fewer employees  Further, looking at trends in diversity for minorities as a whole may not assist a company’s affirmative action efforts to identify groups that need particular outreach or support  Specifically, our analysis of workforce data found differences in representation for Black and Hispanic workers in the technology workforce compared to Asian workers  Under the current AAP regulations, companies may opt not to detect and address underrepresentation of particular minority groups since OFCCP does not require placement goals disaggregated by race/ethnicity  While OFCCP may be able to detect underrepresentation of particular minority groups during its reviews, the office reviews only 2 percent of federal contractor establishments each year  OFCCP officials said that they would need to amend their regulations in order to require disaggregated race/ethnicity information for placement goals on AAPs  The officials said disaggregating race in placement goals could help an establishment determine how to tailor outreach accordingly or better identify impediments to its equal employment opportunity efforts  However, they have not pursued this regulatory change because of competing priorities on their regulatory agenda  OFCCP’s mission includes holding federal contractors responsible for the legal requirements to take affirmative action and not discriminate against protected groups  However, not requiring contractors to set placement goals for each minority group may hinder OFCCP’s ability to effectively achieve this mission  OFCCP has not reviewed key aspects of its current approach to evaluations OFCCP officials report the agency intends to incorporate additional information on gender, racial, and ethnic disparities by industry into its compliance evaluation selection process, but we found the methodology to determine the disparities may have weaknesses  We have previously reported on the challenges OFCCP faces with its enforcement efforts, and identified additional areas that may limit OFCCP’s enforcement of federal contractors’ equal employment and affirmative action efforts  For example, our 2016 report found that OFCCP’s weak compliance evaluation selection process, reliance on voluntary compliance, and lack of staff training create several challenges to its enforcement efforts  This report found that because OFCCP was not able to identify which factors are associated with risk of noncompliance, the agency does not have reasonable assurance that it is focusing its efforts on those contractors at greatest risk of not following nondiscrimination or affirmative action requirements  OFCCP agreed with recommendations we made to address these areas and detailed steps the agency would take  In particular, to strengthen its compliance evaluation process to select contractors at greatest risk of potential discrimination, the agency stated that it planned to incorporate information on pay disparities and employment disparities  OFCCP officials indicated this information would be based on analysis of gender and race/ethnicity by industry using ACS data and EEO-1 compensation data that was to be collected beginning March 2018  However, in August 2017, the Office of Management and Budget issued a memo suspending the pay-related data collection aspects of the EEO-1 form  Despite this change, OFCCP officials said they are exploring other options for focusing on compensation disparities by industry, including through the use of ACS data, administrative data, a previous study conducted by the Department of Labor, as well as options proposed by contractors  We also found OFCCP’s current methodology for identifying disparities by industry with the ACS data may have some weaknesses that could affect the accuracy of the outcomes  For example, its reliance on the broadest industry level available may not sufficiently identify specific industries at elevated risk  Further, the methodology includes future plans to conduct the analysis for metropolitan areas  Given the importance of regional and local labor markets for assessing affirmative action efforts, regional and local analysis should also be completed before OFCCP incorporates this analysis into its selection process  It is important that OFCCP use reliable information in modifying its basic processes and setting priorities  For the reasons cited earlier regarding the importance of using quality information to make management decisions, it is important that OFCCP assess the quality of the methods for its analysis of employment disparities among industries  Without doing so, OFCCP may not accurately identify industries at greatest risk of potential noncompliance with nondiscrimination and affirmative action requirements so it can focus its limited investigation resources most effectively  Further, according to OFCCP officials, although the agency has made slight changes to various thresholds and factors for its selection process, the agency has not made any significant changes to the selection process for about 10 years, and has made no changes to its establishment-based approach since OFCCP was founded in 1965  While OFCCP currently grounds its review of a contractor in a particular physical establishment, OFCCP officials acknowledged the changing nature of a company’s work can involve multiple locations and corresponding changes in the scope of hiring and recruitment  Officials we interviewed from five of our eight selected technology companies discussed their work spread across locations, including the United States or overseas, and the related challenges they face with OFCCP’s establishment-based approach to reviews  One company representative said the AAP is not useful because site specific plans do not connect to business decisions  However, OFCCP has not reviewed the implications for the effectiveness of its mission of continuing with its establishment-based approach to conducting compliance evaluations  In addition, OFCCP officials acknowledged their inability, in identifying establishments for review, to consistently identify and include all subcontractors to which OFCCP rules should apply  They said the agency has not assessed the potential significance of any omissions of subcontractors from the oversight process  Internal control standards state that management should identify risks throughout the entity related to achieving its defined objectives to form a basis for designing risk responses, as well as the importance of periodically reviewing policies, procedures and related control activities for continued relevance and effectiveness in achieving the agency’s objectives  OFCCP officials said they have informally discussed how to adjust their work based on how work is performed in today’s economy—with virtual sites, workplace flexibilities, and nontraditional forms of employment  However, due to competing priorities, they have not conducted a formal review of these key aspects of its current approach to selecting entities for review  They acknowledged such a review would be useful  Without assessing its current approach to its establishment-based reviews and identification of all relevant subcontractors, OFCCP does not have reasonable assurance that its approach can identify discrimination occurring within the companies it oversees and may be missing opportunities to identify more effective practices or adjust its methods to external changes  While OFCCP has offered an option—the Functional Affirmative Action Program (FAAP)—for companies to move away from establishment- based reviews and which may be more appropriate for some multi– establishment contractors, uptake has been low and the agency has not conducted an evaluation of this program  Since 2002, OFCCP has allowed companies to create FAAPs, with OFCCP approval, which are based on a business function or unit that may exist at multiple establishments  As of May 2017, 73 companies across all industries had FAAPs in place  Further, some of the companies we interviewed were unaware that the FAAP was an option or believed it was cumbersome to establish given the complexity of their workforce  Asked why the FAAP has not been more broadly adopted, OFCCP officials hypothesized it could have to do with a requirement intended to ensure that companies with FAAPs would be reviewed at least as often as others, but that may result in these companies being reviewed more often than most  Standards for internal control for government agencies state that management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives  Reviewing and refining the FAAP program could help OFCCP improve its ability to achieve its objectives and may provide broader insight for OFCCP’s overall enforcement approach  Jobs in the high paying technology sector are projected to grow in coming years  Female, Black, and Hispanic workers, however, comprised a smaller proportion of technology workers compared to their representation in the general workforce from 2005 through 2015, and have also been less represented among technology workers inside the technology sector than outside it  Both EEOC’s and OFCCP’s mission is to combat discrimination and support equal employment opportunity for U S  workers; however, weaknesses in their processes impact the effectiveness of their efforts  When conducting investigations, EEOC has not been consistently capturing information on industry codes  This impedes its ability to conduct industry sector analysis that could be used to more effectively focus its limited enforcement resources and outreach activities  Similarly, OFCCP faces delays in its compliance review process but it has not analyzed its closed evaluations to understand the causes of these delays and whether its processes need to be modified to reduce them  In addition, as part of their affirmative action programs federal contractors are only required to set placement goals for all minorities in general  By not requiring contractors to disaggregate demographic data for the purpose of establishing placement goals, OFCCP has limited assurance that these contractors are setting goals that will address potential underrepresentation in certain minority groups  Further, OFCCP plans to incorporate information on disparities by industry into its process for selecting establishments for compliance evaluations, but has not fully assessed its planned methods  Without such assessment, OFCCP may use a process that does not effectively identify the industries at greatest risk of potential noncompliance with nondiscrimination and affirmative action requirements  In addition, key aspects of OFCCP’s approach to compliance reviews of contractors’ affirmative action efforts have not changed in over 50 years, whereas the structure and locations of these companies’ work have changed  Finally, although OFCCP has developed an alternative affirmative action program for multi-establishment contractors, few contractors participate in this program  Because OFCCP has not evaluated the program, it does not have information to determine why there has not been greater uptake and whether it provides a more effective alternative to an establishment-based AAP  We are making a total of six recommendations, including one to EEOC and five to OFCCP  Specifically: The Chair of the EEOC should develop a timeline to complete the planned effort to clean IMS data for a one-year period and add missing industry code data  (Recommendation 1) The Director of OFCCP should analyze internal process data from closed evaluations to better understand the cause of delays that occur during compliance evaluations and make changes accordingly  (Recommendation 2) The Director of OFCCP should take steps toward requiring contractors to disaggregate demographic data for the purpose of setting placement goals in the AAP rather than setting a single goal for all minorities, incorporating any appropriate accommodation for company size  For example, OFCCP could provide guidance to contractors to include more specific goals in their AAP or assess the feasibility of amending their regulations to require them to do so  (Recommendation 3) The Director of OFCCP should assess the quality of the methods used by OFCCP to incorporate consideration of disparities by industry into its process for selecting contractor establishments for compliance evaluation  It should use the results of this assessment in finalizing its procedures for identifying contractor establishments at greatest risk of noncompliance  (Recommendation 4) The Director of OFCCP should evaluate the current approach used for identifying entities for compliance review and determine whether modifications are needed to reflect current workplace structures and locations or to ensure that subcontractors are included  (Recommendation 5) The Director of OFCCP should evaluate the Functional Affirmative Action Program to assess its usefulness as an effective alternative to an establishment-based program, and determine what improvements, if any, could be made to better encourage contractor participation  (Recommendation 6) We provided a draft of this report to the Departments of Labor (DOL), Commerce, the Equal Employment Opportunity Commission (EEOC) and the National Science Foundation (NSF)  We received written comments from DOL that are reproduced in appendix V  In addition, DOL, Commerce, EEOC, and NSF provided technical comments which we incorporated into the report as appropriate  DOL agreed with 4 of the 5 recommendations we made to improve oversight of federal contractors, and identified some steps it plans to take to implement them  Specifically, the department agreed with our recommendations to analyze internal process data to better understand the cause of delays that occur during compliance evaluations, assess the quality of methods used to incorporate consideration of disparities by industry into the process to select contractors for review, and to evaluate its current approach to identifying entities for review in light of changes in workplace structures, as well as its Functional Affirmative Action Program  DOL stated that it appreciated, but neither agreed nor disagreed, with our recommendation to take steps toward requiring contractors to disaggregate demographic data for the purpose of setting placement goals in the AAP rather than setting a single goal for all minorities  The department said this would require a regulatory change with little immediate benefit as contractors are already required to collect demographic data on each employee and applicant, and must conduct in- depth analyses of their total employment processes to identify where impediments to equal opportunity exist  While we acknowledge these data collection requirements for federal contractors, we remain concerned that without requiring contractors to also establish placement goals to address any underrepresentation for specific minority groups, contractors may not develop objectives or targets to make affirmative action efforts work  We maintain, therefore, that DOL should take steps toward requiring contractors to develop placement goals disaggregated by race/ethnicity  EEOC provided us a memo that it characterized as technical comments on the draft report  In these comments, EEOC neither agreed nor disagreed with our recommendation to develop a timeline to complete its planned effort to clean IMS data for a one-year period, which would include adding missing industry codes, but stated that it was taking some actions to enhance these data  We continue to maintain a timeline should be developed to complete this review, which is needed for the commission to conduct industry sector analysis that could be used to more effectively focus its limited resources and outreach activities  EEOC also emphasized the importance of systemic investigations, noting that while outreach may be somewhat useful in generating charges, individual charges are unlikely to make a substantial impact on a systemic practice affecting an entire employment sector  We maintain that the ability to analyze IMS data by industry could help EEOC to focus its resource use, including for systemic investigations  EEOC also noted staffing and resource constraints as issues faced by the commission  As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the appropriate congressional committees, the Secretary of Labor, the Chair of the Equal Employment Opportunity Commission, the Secretary of Commerce, and the Director of the National Science Foundation  In addition, the report will be available at no charge on GAO’s website at http://www gao gov  If you or your staff should have any questions about this report, please contact me at (202) 512-7215 or brownbarnesc@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix VI  Our two objectives were to: (1) identify the demographic trends in the technology workforce over the past 10 years, and (2) assess the efforts by the U S  Equal Employment Opportunity Commission (EEOC) and the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) to oversee technology companies and technology contractors’ compliance with equal employment opportunity and affirmative action requirements  This appendix provides details of the data sources used to answer these questions, the analyses we conducted, and any limitations we encountered  There is no commonly accepted definition of the technology sector or technology-oriented occupations  To arrive at our definition for the technology sector, we identified industries with the highest concentration of technology-oriented occupations, a similar approach to what other federal agencies have used recently to analyze trends within this sector  To identify technology-oriented occupations, we reviewed relevant research and interviewed researchers and other individuals knowledgeable about the technology sector  Based on this research, we defined technology-oriented occupations to include all computer, engineering and mathematical occupations, including managers  We selected our occupations using Bureau of Labor Statistics (BLS) Standard Occupational Classification (SOC) System codes, and crosswalked those occupations to the corresponding U S  Census Bureau occupation codes to conduct our analysis  (For a complete list of the occupations we included as technology occupations, see appendix II)  We defined the technology sector as a group of industries with the highest concentration of technology workers  Using data from the American Community Survey, an ongoing national survey conducted by the U S  Census Bureau that collects information from a sample of households, we identified the 15 industries with the highest concentration of technology workers  For this analysis, we used Census industry codes since we used this dataset for many of our analyses  The concentration of technology workers in these industries ranged from a high of 62 2 percent in the computer systems design and related services industry to a low of 19 33 percent in the wired telecommunications carriers industry (see table 3)  Companies in the technology sector also employ non-technical workers, such as sales people  We cross-walked the industries we identified in the American Community Survey with corresponding industry codes from the North American Industry Classification System (NAICS), which is the standard used by federal statistical agencies in classifying business establishments  The other data sets used in this review use NAICS codes to identify industry  The NAICS system has six levels of industry classification, with the smallest level (2-digit code) providing the most general industry classification, and the largest (6-digit) providing the most specific classification  In total, we identified 55 6-digit NAICS industry codes that comprise the technology sector using this method  (See appendix III for a list of the 6-digit NAICS codes and industry names that correspond to the Census industries we identified ) We compared our list of industries to those included in the 2016 reports by EEOC and the BLS on the technology sector  While each report includes a somewhat different set of industries depending on the authors’ particular definition of technology occupations, most of the 15 industries we selected overlap with industries selected in these other reviews  Stemming from their particular focus, these reports included some additional industries and/or occupations excluded from our analysis, such as those in the life sciences  We also compared our findings on the demographic trends in the technology workforce to 2016 EEOC and Census Bureau reports that reviewed diversity in the technology sector  Despite the definitional and methodological variations, the demographic trends found in these other reports were generally comparable to our findings  To determine the demographic trends in the technology workforce over the past decade, we analyzed quantitative data on technology workers within and outside the technology sector from 2005 through 2015 from the Census Bureau’s Public Use Microdata Sample of the American Community Survey (ACS) for the years 2005, 2007, 2009, 2011, 2013, and 2015  ACS is an ongoing national survey that collects information from a sample of households  We analyzed trend data for gender, race, and ethnicity, and median salary by occupation and sector, and analyzed point-in-time data on educational background by occupation  We analyzed the percentage of technology workers who earned bachelor’s degrees in computer, engineering, mathematics, and technology fields  For median salary, we analyzed data for workers who were employed full-time, which included those who, over the past 12 months, reported usually working 35 hours or more per week and 50 weeks or more per year, and those with wages greater than zero  To account for the sample representation and design used in the ACS, we used the person weight present in the ACS data  We used the successive difference replication method to estimate the standard errors around any population estimate  For each comparison, we tested the statistical significance of the difference for men and women and for specific racial and ethnic groups at the p-value <0 05 level  In addition, we tested the statistical significance of the change between 2005 and 2015 for each gender and racial/ethnic group  For race categories using ACS data in this report, we included only non- Hispanic members of White, Black, Asian, and Other categories  For the Asian category, we included Asian American, Native Hawaiian or Other Pacific Islander  The Hispanic category incorporated Hispanics of all races  Our analysis included American Indian or Alaskan Native, and Two or More Races, in the category reported as “Other ” We assessed the reliability of the ACS generally and of data elements that were critical to our analyses and determined that they were sufficiently reliable for our analyses  Specifically, we reviewed documentation on the general design and methods of the ACS and on the specific elements of the ACS data that were used in our analysis  We interviewed Census Bureau officials knowledgeable about the ACS data and completed our own electronic data testing to assess the accuracy and completeness of the data used in our analyses  To determine workforce trends in companies within the technology sector and at leading information technology companies, we analyzed data from EEOC’s Employer Information Reports (EEO-1) for the years 2007, 2011, and 2015  We report EEO-1 data starting in 2007 because EEOC made significant changes to its requirements related to the reporting of EEO-1 data over time  For example, beginning in 2007, EEOC changed its requirements related to the reporting of data on managers and changed its practices for collecting certain racial/ethnicity information  EEO-1 reports contain firm-level data that is annually submitted to EEOC, generally by private-sector firms with at least 100 employees or federal contractors with at least 50 employees that have a contract, subcontract or purchase order amounting to $50,000 or more  Companies that fit the above criteria submit separate EEO-1 reports for their headquarters as well as each establishment facility  EEOC requires employers to use the North American Industry Classification System (NAICS) to classify their industry  To identify trends using EEO-1 data for workers, we analyzed data for companies with the NAICS codes we initially identified as technology industries  We selected the leading information technology companies using Standard & Poor’s (S&P) 500 Information Technology Index list, which identifies the largest public information technology companies at a given time  In October 2016, this list consisted of 67 companies in the world that have stocks trading with the United States, and we analyzed EEO-1 data from 65 of these companies  For both analyses, we analyzed EEO-1 data from all job categories by gender, race and ethnicity, and industry sectors  For job categories, the EEO-1 form collects data on 10 major job categories including 1) Executives, Senior Level Officials and Managers; 2) First/Mid-Level Officials and Managers; 3) Professionals; 4) Technicians; 5) Sales Workers; 6) Administrative Support Workers; 7) Craft Workers; 8) Operatives; 9) Laborers and Helpers; and 10) Service Workers  In our analysis, “all other jobs” combines sales workers, administrative support workers, craft workers, operatives, laborers and helpers, and service workers  We used the race/ethnicity categories used by the EEOC as follows: White, Black or African American, Asian (including Native Hawaiian or Other Pacific Islander), Hispanic or Latino, and “Two or more Races” (including American Indian or Alaska Native)  We assessed the reliability of the EEO-1 data and determined that despite limitations, they were sufficiently reliable for our analyses  To determine the reliability of the EEO-1 data that we received from EEOC, we interviewed knowledgeable EEOC officials, reviewed relevant documents provided by agency officials and obtained on its website, and performed manual data testing for missing variables  For our analysis of technology degree earners, we used degree completion data tabulated by the National Science Foundation from the National Center for Education Statistics’ Integrated Postsecondary Education Data System (IPEDS) for the year 2014  Using a variety of sources, such as academic research and interviews with representatives from academia, we defined technology-related fields as degree programs in computer science, engineering, and mathematics  We analyzed IPEDS data by race and gender and who had obtained a bachelor’s or master’s degree in technology-related fields  We determined that the potential external candidates for technology positions generally had obtained either a bachelor’s or a master’s degree in a technology-related field  We used the race/ethnicity categories used by IPEDS as follows: White, Black, Asian (including Pacific Islander), Hispanic, and Multiracial or other (which includes American Indian or Alaska Native, Other or Unknown Race, and Two or more Races, i e  respondents who selected one or more racial designations)  Race and ethnicity breakouts are for U S  citizens and permanent residents only, and thus do not include data on temporary residents  The analysis by gender includes temporary residents  To determine the reliability of IPEDs data, we reviewed relevant documents obtained on the National Center for Education Statistics website, such as annual methodology reports and the handbook of NCES survey methods  We determined that data from IPEDs were sufficiently reliable for our purposes  To identify how EEOC and OFCCP have overseen technology companies’ compliance with federal equal opportunity and affirmative action requirements, we reviewed relevant federal statutes and regulations, EEOC and OFCCP policies, strategic planning documents, and operational manuals  We interviewed EEOC and OFCCP officials in headquarters, and in two regional locations selected based on the large proportion of technology companies in those areas  At EEOC, we met with officials from the San Francisco and New York district offices  At OFCCP, we met with officials from the Pacific and Northeast regional offices  To explore charges of discrimination filed with the EEOC against technology companies, we planned to analyze data from the EEOC Integrated Mission System (IMS), which contains records on EEOC charges and enforcement activities  However, since industry code is not a mandatory field for investigators to complete, roughly half the entries did not have an industry code  Therefore, we could not reliably identify technology companies that have faced charges or enforcement  We attempted to match information we had developed on federal technology contractors with charges filed in the IMS database  Depending on the matching method we used, this yielded very different results and we determined this was not a sufficiently reliable method  Further, any matching method we used would have excluded technology companies that did not hold a federal contract  To obtain information on evaluations of technology contractors completed by OFCCP and complaints received against technology contractors, we took a two-step approach  First, using the Federal Procurement Data System–Next Generation (FPDS-NG), we developed a list of company establishments and their subsidiaries that received federal contract obligations in fiscal years 2011-2015 under any of the 55 NAICS codes we included above as technology industries  We selected only company establishments that received 50 percent or more of their total federal contract obligations under these NAICS codes  Each establishment was counted only once regardless of how many federal contracts it received during the time period  Using this method, we identified 43,448 establishments in our pool of “technology contractors ” To identify subsidiaries, which are also subject to OFCCP requirements and evaluations, we identified any other establishments that shared the global vendor code with the contractors we identified, regardless of their NAICS code  This yielded 2,116 additional contractors  Second, we matched the names (removing suffixes) of the technology contractors and their subsidiaries that we identified in FPDS-NG against OFCCP’s data on their evaluations of contractors to identify the evaluations of technology contractors that OFCCP opened and completed from fiscal year 2011 through fiscal year 2016  We conducted a similar matching exercise to identify the complaints OFCCP received against technology companies  In addition, we identified which of the leading technology companies had completed evaluations between fiscal year 2011 through 2016  We obtained information during interviews with researchers, and representatives of workforce and industry organizations and associations  In addition, we interviewed diversity and compliance representatives of eight of the leading information technology companies located in the San Francisco Bay area which were also federal contractors to discuss their efforts to increase diversity and to gain their perspectives on the federal role in overseeing compliance with nondiscrimination laws  These companies were: Cisco Systems, Inc  Facebook, Inc  Google Inc  Hewlett Packard Enterprise Company Intuit Inc  Oracle America, Inc  This is the list of technology occupations that we used in our analyses  We selected our occupations using Bureau of Labor Statistics (BLS) Standard Occupational Classification (SOC) System codes, and cross- walked those occupations to the corresponding U S  Census Bureau occupation codes  This is the list of the 55 6-digit North American Industry Classification System (NAICS) codes we identified as technology-related industries  To develop this list, we identified the 15 industries with the highest concentration of technology workers using U S  Census Bureau industry codes and then used the U S  Census Bureau’s 2012 Industry Code List for Household Surveys to crosswalk the Census codes with NAICS codes  In addition to the contact named above, Betty Ward-Zukerman (Assistant Director), Kate Blumenreich (Analyst-in-Charge), Sheranda Campbell, Julianne Hartmann Cutts, Clarita Mrena, Moon Parks, Alexandra Rouse, and John Yee made significant contributions to all phases of the work  Also contributing to this report were Rachel Beers, James Bennett, Hedieh Fusfield, Julia Kennon, Jean McSween, Jessica Orr, Dae Park, James Rebbe, Almeta Spencer, and Alexandra Squitieri 

ground_truth: The Community Reinvestment Act (CRA; P.L. 95-128, 12 U.S.C. §§2901-2908) addresses how banking institutions meet the credit needs of the areas they serve, particularly in low- and moderate-income (LMI) neighborhoods. The federal banking regulatory agencies—the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC)—currently implement the CRA. The regulators issue CRA credits, or points, where banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities—that occur with a designated assessment area. These credits are then used to issue each bank a performance rating. The CRA requires these ratings be taken into account when banks apply for charters, branches, mergers, and acquisitions among other things. The CRA, which was enacted in 1977, was subsequently revised in 1989 to require public disclosure of bank CRA ratings to establish a four-tiered system of descriptive performance levels (i.e., Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance). In 1995, the CRA examination was customized to account for differences in bank sizes and business models. In 2005, the bank size definitions were revised and indexed to the Consumer Price Index. The 2005 amendments also expanded opportunities for banks to earn CRA credit for public welfare investments (such as providing housing, services, or jobs that primarily benefit LMI individuals). Qualifying activities under the CRA have evolved to include consumer and business lending, community investments, and low-cost services that would benefit LMI areas and entities. Congressional interest in the CRA stems from various perceptions of its effectiveness. Some have argued that, by encouraging lending in LMI neighborhoods, the CRA may also encourage the issuance of higher-risk loans to borrowers likely to have repayment problems (under the presumption that low-income is correlated with lower creditworthiness), which can translate into losses for lenders. Others are concerned that the CRA is not generating sufficient incentives to increase credit availability to qualified LMI borrowers, which may impede economic recovery for some, particularly following the 2007-2009 recession. This report informs the congressional debate concerning the CRA's effectiveness in incentivizing bank lending and investment activity to LMI borrowers. After a discussion of the CRA's origins, it presents the CRA's examination process and bank activities that are eligible for consideration of CRA credits. Next, it discusses the difficulty of determining the CRA's influence on bank behavior. For example, the CRA does not specify the quality and quantity of CRA-qualifying activities, meaning that compliance with the CRA does not require adherence to lending quotas or benchmarks. In the absence of benchmarks, determining the extent to which CRA incentives have influenced LMI credit availability relative to other factors is not straightforward. Banks also face a variety of financial incentives—for example, capital requirements, the prevailing interest rate environment, changes in tax laws, and technological innovations—that influence how much (or how little) they lend to LMI borrowers. Because multiple financial profit incentives and CRA incentives tend to exist simultaneously, it is difficult to determine the extent to which CRA incentives have influenced LMI credit availability relative to other factors.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: Congress passed the Community Reinvestment Act of 1977 (CRA; P L  95-128 , 12 U S C  §§2901-2908) in response to concerns that federally insured banking institutions were not making sufficient credit available in the local areas in which they were chartered and acquiring deposits  According to some in Con gress, the granting of a public bank charter should translate into a continuing obligation for that bank to serve the credit needs of the public where it was chartered  Consequently, the CRA was enacted to "re-affirm the obligation of federally chartered or insured financial institutions to serve the convenience and needs of their service areas" and "to help meet the credit needs of the localities in which they are chartered, consistent with the prudent operation of the institution " The CRA requires federal banking regulators to conduct examinations to assess whether a bank is meeting local credit needs  The regulators issue CRA credits, or points, where banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit low- and moderate-income (LMI) areas and entities—that occur within assessment areas (where institutions have local deposit-taking operations)  These credits are then used to issue each bank a performance rating from a four-tiered system of descriptive performance levels (Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance)  The CRA requires federal banking regulators to take those ratings into account when institutions apply for charters, branches, mergers, and acquisitions, or seek to take other actions that require regulatory approval  Congress became concerned with the geographical mismatch of deposit-taking and lending activities for a variety of reasons  Deposits serve as a primary source of borrowed funds that banks may use to facilitate their lending  Hence, there was concern that banks were using deposits collected from local neighborhoods to fund out-of-state as well as various international lending activities at the expense of addressing the local area's housing, agricultural, and small business credit needs  Another motivation for congressional action was to discourage redlining practices  One type of redlining can be defined as the refusal of a bank to make credit available to all of the neighborhoods in its immediate locality, including LMI neighborhoods where the bank may have collected deposits  A second type of redlining is the practice of denying a creditworthy applicant a loan for housing located in a certain neighborhood even though the applicant may qualify for a similar loan in another neighborhood  This type of redlining pertains to circumstances in which a bank refuses to serve all of the residents in an area, perhaps due to discrimination  The CRA applies to banking institutions with deposits insured by the Federal Deposit Insurance Corporation (FDIC), such as national banks, savings associations, and state-chartered commercial and savings banks  The CRA does not apply to credit unions, insurance companies, securities companies, and other nonbank institutions because of the differences in their financial business models  The Office of the Comptroller of the Currency (OCC), the Federal Reserve System, and the FDIC administer the CRA, which is implemented via Regulation BB  The CRA requires federal banking regulatory agencies to evaluate the extent to which regulated institutions are effectively meeting the credit needs within their designated assessment areas, including LMI neighborhoods, in a manner consistent with the federal prudential regulations for safety and soundness   The CRA's impact on lending activity has been publicly debated  Some observers are concerned that the CRA may induce banks to forgo more profitable lending opportunities in nontargeted neighborhoods by encouraging a disproportionate amount of lending in LMI communities  Furthermore, some argue that the CRA compels banks to make loans to higher-risk borrowers that are more likely to have repayment problems, which may subsequently compromise the financial stability of the banking system  For example, some researchers have attributed the increase in risky lending prior to the 2007-2009 recession to banks attempting to comply with CRA objectives  Others are concerned that enforcement of CRA objectives has not been stringent enough to compel banks to increase financial services in LMI areas  Almost all banks receive Satisfactory or better performance ratings (discussed in more detail below) on their CRA examinations, which some may consider indicative of weak enforcement  This report informs the congressional debate concerning the CRA's effectiveness in incentivizing bank lending and investment activity to LMI customers  It begins with a description of bank CRA examinations, including how a bank delineates its assessment area; the activities that may qualify for points under the three tests (i e , lending, investment, and service) that collectively make up the CRA examination; and how the composite CRA rating is calculated  Next, the report analyzes the difficulty in attributing bank lending decisions to CRA incentives  For example, the CRA does not specify the quality and quantity of CRA-qualifying activities, meaning that CRA compliance does not require adherence to lending quotas or benchmarks  Without explicit benchmarks, linking the composition of banks' loan portfolios to either too strong or too weak CRA enforcement is difficult  Banks are also unlikely to get CRA credit for all of the loans they make to LMI customers  Specifically, higher-risk loans that banking regulators explicitly discourage are unlikely to be eligible for CRA consideration  Furthermore, greater mobility of lending and deposit-taking activity across regional boundaries due to various financial market innovations has complicated the ability to geographically link various financial activities  Hence, many banks' financial activities occurring in a designated assessment area that are eligible for CRA consideration may simply be profitable, meaning they may have occurred without the CRA incentive  Finally, this report summarizes recent policy discussions regarding modernization of the CRA  As noted above, the federal banking regulators conduct regular examinations of banks to assess whether they meet local credit needs in designated assessment areas  The regulators issue CRA credits, or points, when banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities—that occur within assessment areas  Regulation BB provides the criteria that a bank's board of directors must use to determine the assessment area(s) in which its primary regulator will conduct its CRA examination  The assessment area typically has a geographical definition—the location of a bank's main office, branches, and deposit-taking automatic teller machines, as well as surrounding areas where the bank originates and purchases a substantial portion of loans  Assessment areas must generally include at least one metropolitan statistical area (MSA) or at least one contiguous political subdivision, such as a county, city, or town  Regulation BB also requires that assessment areas may not reflect illegal discrimination, arbitrarily exclude LMI geographies, and extend substantially beyond an MSA boundary or a state boundary (unless the assessment area is located in a multistate MSA)  Banking regulators regularly review a bank's assessment area delineations for compliance with Regulation BB requirements as part of the CRA examination  Instead of a more conventionally delineated assessment area, certain banking firms may obtain permission to devise a strategic plan for compliance with Regulation BB requirements  For example, wholesale and limited purpose banks are specialized banks with nontraditional business models  Wholesale banks provide services to larger clients, such as large corporations and other financial institutions; they generally do not provide financial services to retail clients, such as individuals and small businesses  Limited purpose banks offer a narrow product line (e g , concentration in credit card lending) rather than provide a wider range of financial products and services  These banking firms typically apply to their primary regulators to request designation as a wholesale or limited purpose bank and, for CRA examination purposes, are evaluated under strategic plan options that have been tailored for their distinctive capacities, business strategies, and expertise  The option to develop a strategic plan of pre-defined CRA performance goals is available to any bank subject to the CRA  The public is allowed time (e g , 30 days) to provide input on the draft of a bank's strategic plan, after which the bank submits the plan to its primary regulator for approval (within 60 days after the application is received)  Regulation BB does not impose lending quotas or benchmarks  Instead, Regulation BB provides banks with a wide variety of options to serve the needs of their assessment areas  Qualifying CRA activities include mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities  For example, banks may receive CRA credits for such activities as investing in special purpose community development entities (CDEs), which facilitate capital investments in LMI communities (discussed below); providing support (e g , consulting, detailing an employee, processing transactions for free or at a discounted rate, and providing office facilities) to minority- and women-owned financial institutions and low-income credit unions (MWLIs), thereby enhancing their ability to serve LMI customers; serving as a joint lender for a loan originated by MWLIs; facilitating financial literacy education to LMI communities, including any support of efforts of MWLIs and CDEs to provide financial literacy education; opening or maintaining bank branches and other transactions facilities in LMI communities and designated disaster areas; providing low-cost education loans to low-income borrowers; and offering international remittance services in LMI communities  The examples listed above are not comprehensive, but they illustrate several activities banks may engage in to obtain consideration for CRA credits  The banking regulators will consider awarding CRA credits or points to a bank if its qualifying activities occur within an assigned assessment area  The points are then used to compute a bank's overall composite CRA rating  Regulators apply up to three tests, which are known as the lending , investment , and service tests, respectively, to determine whether a bank is meeting local credit need in designated assessment areas  The lending test evaluates the number, amount, and distribution across income and geographic classifications of a bank's mortgage, small business, small farm, and consumer loans  The investment test grades a bank's community development investments in the assessment area  The service test examines a bank's retail service delivery, such as the availability of branches and low-cost checking in the assessment area  The point system for bank performance under the lending, investment, and service tests is illustrated in Table 1   The lending test is generally regarded as the most important of the three tests, awarding banks the most points (CRA credits) in all rating categories  As shown in Table 1 , banks receive fewer credits for making CRA-qualified investments than for providing direct loans to individuals under the lending test  In some instances, an activity may qualify for more than one of the performance tests  Federal banking regulators evaluate financial institutions based upon their capacity, constraints, and business strategies; demographic and economic data; lending, investment, and service opportunities; and benchmark against competitors and peers  Because these factors vary across banks, the CRA examination was customized in 1995 to account for differences in bank sizes and business models  In 2005, the bank size definitions were revised to include small , intermediate small , and large banks  The bank regulators also indexed the asset size thresholds—which are adjusted annually—to inflation using the Consumer Price Index  As of January 1, 2019, a small bank is defined as having less than $1 284 billion in assets as of December 31 of either of the prior two calendar years; an intermediate small bank has at least $321 million as of December 31 of both of the prior two calendar years but less than $1 284 billion as of December 31 of either of the prior two calendar years; and a large bank has $1 284 billion or more in assets  Small banks are typically evaluated under the lending test  Regulators review (1) loan-to-deposit ratios; (2) percentage of loans in an assessment area; (3) lending to borrowers of different incomes and in different amounts; (4) geographical distribution of loans; and (5) actions on complaints about performance  Intermediate small banks are subject to both the lending and investment tests  Large banks are subject to all three tests  As mentioned previously, direct lending to borrowers, taking place in what is referred to as primary lending markets , qualify for CRA credit under the lending test  Investments taking place in secondary lending markets , in which investors purchase loans that have already been originated (such that little or no direct interaction occurs between investors and borrowers), qualify for CRA credit under the investment test  Secondary market investors may assume the default risk associated with a loan if the entire loan is purchased  Alternatively, if a set of loans are pooled together, then numerous secondary investors may purchase financial securities in which the returns are generated by the principal and interest repayments from the underlying loan pool, thereby sharing the lending risk  Direct ownership of loans or purchases of smaller portions (debt securities) of a pool of loans, therefore, are simply alternative methods to facilitate lending  As shown in Table 1 above, a bank may receive CRA consideration under the lending test for making a loan to LMI individuals that is guaranteed by a federal agency, such as the Federal Home Administration (FHA)  If, however, a bank purchases securities backed by pools of FHA-guaranteed mortgage originations, this activity receives credit under the investment test  Thus, the bank receives less CRA credit when the financial risk is shared with other lenders than it would for making a direct loan (and holding all of the lending risk) even though it would still facilitate lending to LMI borrowers  In 2005, the activities that qualify for CRA credit were expanded to encourage banks to make public welfare investments  More specifically, qualifying activities include a public welfare investment (PWI) that promotes the public welfare by providing housing, services, or jobs that primarily benefit LMI individuals; and a community development investment (CDI), economic development investment , or project that meets the PWI requirements  Examples of CDI activities include promoting affordable housing, financing small businesses and farms, and conducting activities that revitalize LMI areas  Banks may engage in certain activities that typically would not be permitted under other banking laws as long as these activities promote the public welfare and do not expose institutions to unlimited liability  For example, banks generally are not allowed to make direct purchases of the preferred or common equity shares of other banking firms; however, banks may purchase equity shares of institutions with a primary mission of community development (discussed in more detail in the Appendix ) up to an allowable CDI limit  The Financial Services Regulatory Relief Act of 2006 ( P L  109-351 ) increased the amount that national banking associations and state banks (that are members of the Federal Reserve System) may invest in a single institution from 10% to 15% of a bank's unimpaired capital and unimpaired surplus  CDIs that benefit a bank's designated assessment area may qualify for CRA credit  For CRA purposes, the definition of a CDI was expanded in 2005 to include "underserved and distressed" rural areas and "designated disaster areas" to aid the regional rebuilding from severe hurricanes, flooding, earthquakes, tornados, and other disasters  The disaster area provision allows banks anywhere in America to receive consideration for CRA credit if they facilitate making credit available to a distressed location or geographic area outside of their own assessment areas  Thus, the 2005 revisions to the PWI and CDI definitions made more banking activities eligible for CRA credits  The banking regulators would consider awarding full CRA credits under the lending test to banks that make CDI loans directly in their assessment areas  Under the investment test, however, the banking regulators may choose to prorate the credits awarded to indirect investments  The Appendix provides examples of CDI activities that would qualify for CRA consideration under the investment test  Any awarded CRA credits could be prorated given that investing banks typically would have less control over when and where the funds are loaned  The CRA was revised in 1989 to require descriptive CRA composite performance ratings that must be disclosed to the public  The composite ratings illustrated in Table 2 are tabulated using the points assigned from the individual tests (shown in Table 1 above)  Grades of Outstanding and Satisfactory are acceptable; Satisfactory ratings in both community development and retail lending are necessary for a composite Satisfactory   Large banks must receive a sufficient amount of points from the investment and service tests to receive a composite Outstanding rating  Regulators include CRA ratings as a factor when lenders request permission to engage in certain activities, such as moving offices or buying another institution  Denying requests, particularly applications for mergers and acquisitions, is a mechanism that may be applied against banking organizations with ratings below Satisfactory   In 2005, the banking regulators also ruled that any evidence of discrimination or credit practices that violate an applicable law, rule, or regulation by any affiliate would adversely affect an agency's evaluation of a bank's CRA performance  Applicants with poor ratings may resubmit their applications after making the necessary improvements  Covered institutions must post a CRA notice in their main offices and make publicly available a record of their composite CRA performance  Given that the CRA is not a federal assistance program and that several regulators implement it separately, no single federal agency is responsible for evaluating its overall effectiveness  In 2000, Congress directed the Federal Reserve to study the CRA's effectiveness  The Federal Reserve's study reported that lending to LMI families had increased since the CRA's enactment but found it was not possible to directly attribute all of that increase to the CRA  For example, advancements in underwriting over the past several decades have enabled lenders to better predict and price borrower default risk, thus making credit available to borrowers that might have been rejected prior to such technological advances  This section examines the difficulty linking bank lending outcomes directly to the CRA, considering questions raised about the subjectivity of the CRA examination itself, whether prudential regulators use CRA to encourage banks to engage in high-risk lending, and whether the increased lending to LMI borrowers since CRA's enactment can be attributed to other profit-incentives that exist apart from the CRA  Questions have been raised as to whether the CRA examination itself is effective at measuring a bank's ability to meet local credit needs  For example, the CRA examinations have an element of subjectivity in terms of measuring both the quality and quantity of CRA compliance  In terms of quality, regulators determine the "innovativeness or flexibility" of qualified loan products; the "innovativeness or complexity" of qualified investments; or the "innovativeness" of ways banks service groups of customers previously not served  The number of points some CRA-qualifying investments receive relative to others is up to the regulator's judgment given that no formal definition of innovativeness has been established (although regulators provide a variety of examples as guidelines for banks to follow)  In terms of quantity, there is no official quota indicating when banks have done enough CRA-qualified activities to receive a particular rating  Without specific definitions of the criteria or quotas, the CRA examination may be considered subjective  Almost all banks pass their CRA examinations  Figure 1 shows the average annual composite scores of banks that received CRA examinations as well as the annual number of bank examinations by size  In general, most banks receive a composite Satisfactory or better rating regardless of the number of banks examined in a year  For all years, approximately 97% or more of banks examined received ratings of Satisfactory or Outstanding   Whether the consistently high ratings reflect the CRA's influence on bank behavior or whether the CRA examination procedures need improvement is difficult to discern  Another issue raised is whether the CRA has resulted in banks making more high-risk loans given that it encourages banks to lend to LMI individuals (perhaps under the presumption that LMI individuals are less creditworthy relative to higher-income individuals)  Since passage of the CRA, however, innovations have allowed lenders to better evaluate the creditworthiness of borrowers (e g , credit scoring, the adoption of automated underwriting), thus enhancing credit availability to both high credit quality and credit-impaired individuals  Credit-impaired borrowers can be charged higher interest rates and fees than those with better credit histories to compensate lenders for taking on greater amounts of credit or default risk  Nontraditional loan products (e g , interest-only, initially low interest rate) allow borrowers to obtain lower regular payments during the early stages of the loan, perhaps under the expectation that their financial circumstances may improve in the later stages as the loan payments adjust to reflect the true costs  The ability to charge higher prices or offer such nontraditional loan products may result in greater higher-risk lending  Because these technological developments in the financial industry occurred after enactment of the CRA, banks' willingness to enter into higher-risk lending markets arguably cannot be attributed solely to the CRA  Regulators arguably are more reluctant to award banks CRA credit for originating higher-risk loans given the scrutiny necessary to determine whether higher loan prices reflect elevated default risk levels or discriminatory or predatory lending practices  Primary bank regulators are concerned with both prudential regulation and consumer protection  It is difficult for regulators to monitor how well borrowers understood the disclosures regarding loan costs and features, or whether any discriminatory or predatory behavior occurred at the time of loan origination  Regulators use fair lending examinations to determine whether loan pricing practices have been applied fairly and consistently across applicants or if some steering to higher-priced loan products occurred  Nevertheless, although it is not impossible for banks to receive CRA credits for making some higher-priced loans, regulators are mindful of practices such as improper consumer disclosure, steering, or discrimination that inflate loan prices  Prudential regulators are also unlikely to encourage lending practices that might result in large concentrations of high-risk loans on bank balance sheets  Hence, certain lending activities—subprime mortgages and payday lending—have been explicitly discouraged by bank regulators, as discussed in more detail below  Although no consensus definition has emerged for subprime lending, this practice may generally be described as lending to borrowers with weak credit at higher costs relative to borrowers of higher credit quality  In September 2006, the banking regulatory agencies issued guidance on subprime lending that was restrictive in tone  The guidance warned banks of the risk posed by nontraditional mortgage loans, including interest-only and payment-option adjustable-rate mortgages  The agencies expressed concern about these loans because of the lack of principal amortization and the potential for negative amortization  Consequently, a study of 2006 Home Mortgage Disclosure Act data reported that banks subject to the CRA and their affiliates originated or purchased only 6% of the reported high-cost loans made to lower-income borrowers within their CRA assessment areas  Banks, therefore, received little or no CRA credit for subprime mortgage lending  Instead, federal regulators offered CRA consideration to banks that helped mitigate the effects of distressed subprime mortgages  On April 17, 2007, federal regulators provided examples of various arrangements that financial firms could provide to LMI borrowers to help them transition into affordable mortgages and avoid foreclosure  The various workout arrangements were eligible for favorable CRA consideration  Banks are unlikely to receive CRA consideration for originating subprime mortgages going forward  The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P L  111-203 ) requires lenders to consider consumers' ability to repay before extending them mortgage credit, and one way for lenders to comply is to originate qualified mortgages (QMs) that satisfy various underwriting and product-feature requirements  For example, QMs may not have any negative amortization features, interest-only payments, or points and fees that exceed specified caps of the total loan amount; in most cases, borrowers' debt-to-income ratios shall not exceed 43%  QM originations will give lenders legal protections if the required income verification and other proper underwriting procedures were followed  Given the legal protections afforded to QMs, some banks might show greater reluctance toward making non-QM loans  With this in mind, the federal banking regulators announced that banks choosing to make only or predominately QM loans should not expect to see an adverse effect on their CRA evaluations; however, the regulators did not indicate that CRA consideration would be given for non-QMs  Arguably, the federal banking regulators appear less inclined to use the CRA to encourage lending that could be subject to greater legal risks  Banks have demonstrated interest in providing financial services such as small dollar cash advances, which are similar to payday loans, in the form of subprime credit cards, overdraft protection services, and direct deposit advances  However, banks are discouraged from engaging in payday and similar forms of lending  Legislation, such as the Credit Card Accountability Responsibility and Disclosure Act of 2009 ( P L  111-24 ), placed restrictions on subprime credit card lending  In addition, federal banking regulators expressed concern when banks began offering deposit advance products due to the similarities to payday loans  Specifically, on April 25, 2013, the OCC, FDIC, and Federal Reserve expressed concerns that the high costs and repeated extensions of credit could add to borrower default risks and issued final supervisory guidance regarding the delivery of these products  Many banks subsequently discontinued offering deposit advances  In general, these legislative and regulatory efforts explicitly discourage banks from offering high-cost consumer financial products and thus such products are unlikely to receive CRA consideration  When various financial products are deemed unsound by bank regulators and not offered by banks, a possible consequence may be that some customers migrate to nonbank institutions willing to provide these higher-cost products  Accordingly, the effectiveness of the CRA diminishes if more individuals choose to seek financial products from nonbank institutions  In general, it can be difficult to determine the extent to which banks' financial decisions are motivated by CRA incentives, profit incentives, or both  Compliance with CRA does not require banks to make unprofitable, high-risk loans that would threaten the financial health of the bank  Instead, CRA loans have profit potential; and bank regulators require all loans, including CRA loans, to be prudently underwritten  As evidenced below, it may be difficult to determine whether banks have made particular financial decisions in response to profit or CRA incentives in cases where those incentives exist simultaneously  For example, banks increased their holdings of municipal bonds in 2009  Although banks may receive CRA consideration under the investment test for purchasing state and local municipal bonds that fund public and community development projects in their designated assessment areas, banks may choose this investment for reasons unrelated to CRA  During recessions, for example, banks may reduce direct (or primary market) lending activities and increase their holdings of securities in the wake of declining demand for and supply of direct loan originations that occur during economic slowdowns and early recovery periods  In addition, a provision of the American Recovery and Reinvestment Act of 2009 ( P L  111-5 ) provided banks with a favorable tax incentive to invest in municipal bonds in the wake of the 2007-2009 recession  Hence, determining whether banks increased their municipal holdings because of a turn to securities markets for higher yields following a recession, a favorable tax incentive, or the CRA incentive is challenging  Similarly, banks increased their investments in Small Business Investment Corporations (SBICs, defined in the Appendix ) in 2010  Investments in SBICs allow banks to provide subordinate financing (rather than senior debt) to businesses  Senior lenders have first claims to the business's assets in case of failure; however, subordinate financiers provide funds in the form of mezzanine capital or equity, requiring a higher return because they are repaid after senior lenders  Banks generally are not allowed to act as subordinate financiers because they are not allowed to acquire ownership interests in private equity funds, unless such investments promote public welfare  Hence, attributing community development financing activities, such as SBIC investments, to CRA incentives may arguably be easier (relative to other financing activities) because the ability to engage in subordinate financing activities typically represents a CRA exemption from ordinary permissible banking activities  Following the 2007-2009 recession, however, U S  interest rates dropped to historically low levels for an abnormally long period of time  Because low-yielding interest rate environments squeeze profits, banks were likely to search for higher-yielding and larger-sized lending opportunities, such as investments in SBICs  Hence, it remains difficult to determine whether a particular bank's decision to increase SBIC financing activities was driven by normal profit or CRA-related incentives  Between June 2016 and June 2017, more than 1700 U S  bank branches were closed  Many branch closings occurred primarily in rural and low-income tract areas, raising concerns that banks would be able to circumvent their CRA obligation to lend and be evaluated in these areas  A traditional bank business model, however, relies primarily on having access to core deposits , a stable source of funds used to subsequently originate loans  Banks value geographic locations with greater potential to attract high core deposit volumes, which is also consistent with the CRA's requirement that assessment areas include at least one MSA or contiguous political subdivision (as previously discussed)  Furthermore, using FDIC and U S  Census Bureau data, the Federal Reserve noted that the number of branches per capita in 2017 was higher than two decades ago  Hence, determining whether branch closures reflect a bank's intentions to circumvent CRA compliance or to facilitate its ability to attract core deposits is challenging  On April 3, 2018, the U S  Department of Treasury (Treasury) released recommendations to modernize CRA in a memorandum to the federal banking regulators (OCC, FCIC, and the Fed)  Treasury highlighted four of its recommendations, summarized below  When the CRA was enacted in 1977, banks received deposits and made loans primarily through geographical branches  Assessment areas defined geographically arguably may not fully reflect the community served by a bank because of technology developments, such as the internet and mobile phone banking, prompting Treasury to call for revisiting the approach for determining banks' assessment areas  In 2016, the banking regulators issued Interagency Questions and Answers (Q&As) to provide banks guidance pertaining to CRA-eligible activities; however, Treasury noted that each regulator provides its examiners with additional guidance  Also, the Interagency Q&As illustrate past CRA-qualifying activities, but Treasury noted that no formal process currently exists to help determine whether potential (complex, innovative, or innovative) activities would qualify for CRA credit  Treasury recommends establishing clearer standards for CRA-qualifying activities and flexibility (expanding the types of loans, investments, and services that qualify for CRA credit), which may encourage banks to venture beyond activities that typically receive CRA credit  Treasury reports that each bank regulator follows a different examination schedule; the examinations are lengthy; and delays associated with the release of performance evaluations may limit the time banks can react to recommendations before their next CRA examination  Treasury recommends increasing the timeliness of the CRA examination process  Treasury recommends incorporating performance incentives that might result in more efficient lending activities  For example, CRA-qualifying loans may receive credit in the year of origination, but equity investments may receive credit each year that the investment is held  Treasury recommends consistent treatment of loans and investments, which may encourage banks to make more long-term loans (rather than sequences of short-term loans for the sake of being awarded CRA credits at each CRA examination)  On August, 28, 2018, the OCC released an Advance Notice of Proposed Rulemaking (ANPR) to seek comments on ways to modernize the CRA framework  The ANPR solicited comments on the issues raised by Treasury among other things  The OCC's ANPR does not propose specific changes, but its content and the questions posed suggest that the OCC is exploring the possibility of adopting a quantitative metric-based approach to CRA performance evaluation, changing how assessment areas are defined, expanding CRA-qualifying activities, and reducing the complexity, ambiguity, and burden of the regulations on the bank industry  When the comment period closed on November 19, 2018, the OCC had received 1584 comments  The Federal Reserve and the FDIC did not join the OCC in releasing the ANPR  The Federal Reserve System, however, did host research symposiums around the country to gather comments pertaining to CRA reform  As reported by the Federal Reserve, some banking industry comments suggested, among other things, the need for consistency of the CRA examinations to facilitate CRA compliance  Yet some tailoring may still be necessary with respect to determining assessment areas that better reflect each bank's business models, particularly for models that use technology to deliver products and services  The regulators also heard from community and consumer groups  While expressing the need to retain focus on the historical context of the CRA, these groups highlighted the need to address issues pertaining to banking deserts in underserved communities  Community development investments (CDIs) that meet public welfare investment (PWI) requirements are those that promote the public welfare, primarily resulting in economic benefits for low- and moderate-income (LMI) individuals  This appendix provides examples of CDI activities that would qualify for consideration under the CRA investment test  In many cases, covered banks are more likely to take advantage of these optional vehicles to obtain CRA credits if they perceive the underlying investment opportunities to have profit potential  Loan Participations Banks and credit unions often use participation (syndicated) loans to jointly provide credit  When a financial firm (e g , bank, credit union) originates a loan for a customer, it may decide to structure loan participation arrangements with other institutions  The loan originator often retains a larger portion of the loan and sells smaller portions to other financial institutions willing to participate  Suppose a financial firm originates a business or mortgage loan in a LMI neighborhood  A bank may receive CRA investment credit consideration by purchasing a participation, thus becoming a joint lender to the LMI borrower  An advantage of loan participations is that the default risk is divided and shared among the participating banks (as opposed to one financial firm retaining all of the risk)  CRA consideration is possible if the activity occurs within the designated assessment area  For all participating banks to receive credit, some overlap in their designated assessment areas must exist  An exception is made for participations made to benefit designated disaster areas, in which all participating banks would receive CRA consideration regardless of location  State and Local Government Bonds State and local governments issue municipal bonds, and the proceeds are used to fund public projects, community development activities, and other qualifying activities  The interest that nonbank municipal bondholders receive is exempt from federal income taxes to encourage investment in hospitals, schools, infrastructure, and community development projects that require state and local funding  Legislative actions during the 1980s eliminated the tax-exempt status of interest earned from holdings of municipal bonds for banks  Although banks no longer have a tax incentive to purchase municipal bonds, they still consider the profitability of holding these loans, as they do with all lending opportunities  Furthermore, banks receive CRA investment consideration when purchasing state and local municipal bonds that fund public and community development projects in their designated assessment areas  CRA-Targeted Secondary Market Instruments Secondary market financial products have been developed to facilitate the ability of banks to participate in lending activities eligible for CRA consideration, such as purchasing mortgage-backed securities (MBSs) or shares of real estate investment trusts (REITs)  A MBS is a pool of mortgage loans secured by residential properties; a multifamily MBS is a pool of mortgage loans secured by multifamily properties, consisting of structures designed for five or more residential units, such as apartment buildings, hospitals, nursing homes, and manufactured homes  CRA-MBSs are MBSs consisting of loans that originated in specific geographic assessment areas, thereby allowing bank purchases into these pools to be eligible for CRA consideration under the investment test  Similarly, REITs may also pool mortgages, mortgage MBSs, and real estate investments (e g , real property, apartments, office buildings, shopping malls, hotels)  Investors purchase shares in REIT pools and defer the taxes  Banks may only invest in mortgage REITs and MBS REITs  Similar to the CRA-MBSs, the REITs must consist of mortgages and MBSs that would be eligible for CRA consideration  The Community Development Trust REIT is an example of a REIT that serves as a CRA-qualified investment for banks  Community Development Financial Institutions and Equity Equivalent Investments The Community Development Financial Institutions (CDFI) Fund was created by the Riegle Community Development Regulatory Improvement Act of 1994 (the Riegle Act; P L  103-325 )  The CDFI Fund was established to promote economic development for distressed urban and rural communities  The CDFI Fund, currently located within the U S  Department of the Treasury, is authorized to certify banks, credit unions, nonprofit loan funds, and (for-profit and nonprofit) venture capital funds as designated CDFIs  In other words, a bank may satisfy the requirements to become a CDFI, but not all CDFIs are banks  The primary focus of institutions with CDFI certification is to serve the financial needs of economically distressed people and places  The designation also makes these institutions eligible to receive financial awards and other assistance from the CDFI Fund  In contrast to non-CDFI banks, some CDFI banks have greater difficulty borrowing funds and then transforming them into loans for riskier, economically distressed consumers  The lack of loan level data for most CDFI banks causes creditors to hesitate in making low-cost, short-term loans to these institutions  Specifically, the lack of information on loan defaults and prepayment rates on CDFI banking assets is likely to result in limited ability to sell these loan originations to secondary loan markets  Consequently, the retention of higher-risk loans, combined with limited access to low-cost, short-term funding, makes CDFI banks more vulnerable to liquidity shortages  Hence, CDFIs rely primarily on funding their loans (assets) with net assets , which are proceeds analogous to the equity of a traditional bank or net worth of a credit union  CDFI net assets are often acquired in the form of awards or grants from the CDFI Fund or for-profit banks  Funding assets with net assets is less expensive for CDFIs than funding with longer-term borrowings  Banks may obtain CRA investment credit consideration by making investments to CDFIs, which provides CDFIs with net assets (equity)  Under PWI authority, banks are allowed to make equity investments in specialized financial institutions, such as CDFIs, as long as they are considered by their safety and soundness regulator to be at least adequately capitalized   Furthermore, the final Basel III notification of proposed regulation (NPR) allows for preferential capital treatment for equity investments made under PWI authority, meaning equity investments to designated CDFIs may receive more favorable capital treatment  Consequently, banks often provide funds to CDFIs through equity equivalent investments (EQ2s), which are debt instruments issued by CDFIs with a continuous rolling (indeterminate) maturity  EQ2s, from a bank's perspective, are analogous to holding convertible preferred stock with a regularly scheduled repayment  Hence, banks may view EQ2s as a potentially profitable opportunity to invest in other specialized financial institutions and receive CRA consideration, particularly when the funds are subsequently used by CDFIs to originate loans in the banks' assessment areas  Small Business Investment Companies The Small Business Administration (SBA) was established in 1953 by the Small Business Act of 1953 (P L  83-163) to support small businesses' access to capital in a variety of ways  Although issuing loan guarantees for small businesses is a significant component of its operations, the SBA also has the authority to facilitate the equity financing of small business ventures through its Small Business Investment Company (SBIC) program, which was established by the Small Business Investment Act of 1958 (P L  85-699)  SBICs that are licensed and regulated by the SBA may provide debt and equity financing and, although not a program requirement, educational (management consulting) resources for businesses that meet certain SBA size requirements  Banks may act as limited partners if they choose to provide funds to SBICs, which act as general partners  Banks may establish their own SBICs, jointly establish SBICs (with other banks), or provide funds to existing SBICs  SBICs subsequently use bank funding to invest in the long-term debt and equity securities of small, independent (SBA-eligible) businesses, and banks may receive CRA investment consideration if the activities benefit their assessment areas  Community banks invest in SBICs because of the profit potential as well as the opportunity to establish long-term relationships with business clients during their infancy stages  Banks that are considered by their regulators to be adequately capitalized are allowed to invest in these specialized financial institutions under PWI authority, but the investments still receive risk-based capital treatment  SBIC assets, similar to CDFIs, are illiquid given the difficulty to obtain credit ratings for SBIC investments; thus, they cannot be sold in secondary markets  Because banks risk losing the principal of their equity investments, they are required to perform the proper due diligence associated with prudent underwriting  Tax Credits The low-income housing tax credit (LIHTC) program was created by the Tax Reform Act of 1986 ( P L  99-514 ) to encourage the development and rehabilitation of affordable rental housing  Generally speaking, government (federal or state) issued tax credits may be bought and, in many cases, sold like any other financial asset (e g , stocks and bonds)  Owners of tax credits may reduce their tax liabilities either by the amount of the credits or by using the formulas specified on those credits, assuming the owners have participated in the specified activities that the government wants to encourage  For LIHTCs, banks may use a formula to reduce their federal tax liabilities when they provide either credit or equity contributions (grants) for the construction and rehabilitation of affordable housing  If a bank also owns a LIHTC, then a percentage of the equity grant may be tax deductible if the CDFI uses the funds from the grant to finance affordable rental housing  Furthermore, banks may receive consideration for CRA-qualified investment credits  After a domestic corporation or partnership receives designation as a Community Development Entity (CDE) from the CFDI Fund, it may apply for New Markets Tax Credits (NMTCs)  Encouraging capital investments in LMI communities is the primary mission of CDEs, and CDFIs and SBICs automatically qualify as CDEs  Only CDEs are eligible to compete for NMTCs, which are allocated by the CDFI Fund via a competitive process  Once awarded an allocation of NMTCs, the CDE must obtain equity investments in exchange for the credits  Then, the equity proceeds raised must either be used to provide loans or technical assistance or deployed in eligible community investment activities  Only for-profit CDEs, however, may provide NMTCs to their investors in exchange for equity investments  Investors making for-profit CDE equity investments can use the NMTCs to reduce their tax liabilities by a certain amount over a period of years  As previously discussed, a bank may receive CRA credit for making equity investments in nonprofit CDEs and for-profit subsidiaries, particularly if the investment occurs within the bank's assessment area  Furthermore, banks may be able to reduce their tax liabilities if they can obtain NMTCs from the CDEs in which their investments were made 


Report 2: International financial transactions, including the transfer of U S  humanitarian assistance funds, rely on a system of correspondent banking relationships  State and USAID provide humanitarian assistance through funding awards to partners  Funds to U S  partners are deposited into the partners’ bank accounts located in the United States  The partners are then responsible for transferring the funds to recipient countries for project implementation  These transfers typically involve the use of a correspondent, or intermediary, bank to transfer the funds from a U S -based account to an account held at the recipient country, where the funds are then used by in-country staff to implement the project  See appendix IV for more information on the State and USAID offices providing humanitarian assistance  According to research by the Bank for International Settlements, the number of correspondent banking relationships has declined over the past several years, especially for banks that are located in higher-risk jurisdictions (such as those subject to sanctions), have customers perceived as higher-risk, and who generate revenues insufficient to recover compliance costs  Further, the Financial Stability Board noted that a decline in the number of correspondent banking relationships could affect the ability to send and receive international payments and may drive some payment flows underground, with potential consequences on growth, financial inclusion, and the stability and integrity of the financial system  When performing overseas money transfers, U S  banks and financial institutions must comply with the Bank Secrecy Act’s (BSA) anti-money laundering (AML) regulations and relevant regulations that implement U S  sanctions  The BSA has established reporting, recordkeeping, and other AML requirements for financial institutions  BSA/AML regulations require that each bank tailor a compliance program that is specific to its own risks based on factors such as products and services offered, and customers and locations served  By complying with BSA/AML requirements, U S  financial institutions assist government agencies in the detection and prevention of money laundering and terrorist financing by, among other things, maintaining compliance policies, conducting ongoing monitoring of customers and transactions, and reporting suspicious financial activity  In addition to BSA regulations established by Treasury, federal banking regulators have issued their own BSA regulations  These regulations require banks to establish and maintain a BSA compliance program that, among other things, identifies and reports suspicious activity  The banking regulators are also required to review banks’ compliance with BSA/AML requirements and regulations, and they generally do so every 12 to 18 months as a part of their routine safety and soundness examinations  Among other things, examiners review whether banks have an adequate system of internal controls to ensure ongoing compliance with BSA/AML regulations  The federal banking regulators may take enforcement actions using their prudential authorities for violations of BSA/AML requirements  They may also assess civil money penalties against financial institutions and individuals  Banks must also comply with relevant regulations that implement U S  sanctions in certain countries  When the United States imposes sanctions on an entity or individual, it freezes assets subject to U S  jurisdiction  All U S  transactions with the entity or individual are prohibited, including transactions by banks and NPOs  When appropriate, Treasury’s Office of Foreign Assets Control (OFAC) may issue a general license authorizing the performance of certain categories of transactions, including funds transfers for the provision of humanitarian assistance  OFAC also issues specific licenses on a case-by-case basis under certain limited situations and conditions  Treasury, as a lead agency in fighting financial crimes and as an issuer of regulations that have a significant effect on charities’ access to the banking system, takes actions to help prevent financial crimes, and considers NPOs operating in conflict areas and other high risk zones as potentially vulnerable to such crimes  Treasury leads U S  efforts to fight various financial crimes primarily through its Office of Terrorism and Financial Intelligence (TFI)  TFI develops and implements U S  government strategies to combat terrorist financing domestically and internationally, and develops and implements the National Money Laundering Strategy as well as other policies and programs to fight financial crimes  Relevant offices under TFI include: The Office of Terrorist Financing and Financial Crimes (TFFC)  TFFC, the policy development and outreach office for TFI, works across all elements of the national security community – including the law enforcement, regulatory, policy, diplomatic, and intelligence communities – and with the private sector and foreign governments to identify and address the threats presented by all forms of illicit finance to the international financial system  The Office of Foreign Assets Control (OFAC)  OFAC administers and enforces economic and financial sanctions based on U S  foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, transnational criminal organizations, human rights abusers and corrupt actors, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy, or economy of the United States  The Financial Crimes Enforcement Network (FinCEN)  FinCEN, among other duties, is responsible for administering the BSA, has authority for enforcing compliance with its requirements and implementing regulations, and also has the authority to enforce the BSA, including through civil money penalties  FinCEN issues regulations under the BSA and relies on the examination functions performed by other federal regulators, including federal banking regulators  FinCEN also collects, analyzes, and maintains the reports and information filed by financial institutions under BSA and makes those reports available to law enforcement and regulators  According to Treasury, organizations, including NPOs, implementing humanitarian assistance in high-risk areas may be vulnerable to exploitation by terrorist groups and their support networks  These terrorist groups and support networks may establish or abuse charities to raise and move funds, or provide other forms of support, that benefit the terrorist groups  As of May 2017, Treasury, through OFAC, had designated 67 charities, branches, and foreign terrorist organizations’ potential fundraising front organizations for violations of U S  sanctions  For 7 of our 18 selected projects, State and USAID partners told us that they had experienced banking access challenges  Additionally, 15 of the 18 partners we interviewed noted that they had experienced banking access challenges on their global portfolio of humanitarian assistance projects over the previous 5 years  Most of the 18 partners we interviewed told us that they were able to mitigate these challenges through various actions or the challenges were not significant enough to affect project implementation  Nevertheless, a few partners noted that projects they were implementing were adversely affected by such challenges  For example, 1 of our 18 selected projects faced repeated delays as a result of banking access challenges  Additionally, 2 partners noted that they had to reduce the scope of implementation or suspend projects in their global humanitarian assistance portfolio because of banking access challenges  Furthermore, several partners and other NPOs told us that such challenges posed potential risks to project implementation  Lastly, a recent study found that more than two-thirds of all U S -based NPOs that work internationally experienced banking access challenges, but that few NPOs canceled programs as a result of those challenges  For our 18 selected U S -funded projects, 7 of the partners told us that they had experienced banking access challenges in implementing their projects, with the majority citing delays or denials of funds transfers  Specifically, 3 (of 5) partners in Somalia and 4 (of 7) partners in Syria told us that they had experienced banking access challenges related to the selected project  None of the partners implementing selected sample projects in Haiti or Kenya noted that they had experienced any banking access challenges  Denials of funds transfers to the destination country was the most frequently cited banking access challenge (experienced by 5 of the 7 projects), followed by delays of funds transfers (experienced by 3 of the 7 projects) (see fig  2)  Fifteen of the 18 partners that we interviewed noted that they had experienced banking access challenges on their global portfolio of humanitarian assistance projects implemented over the previous 5 years (see fig  3)  The most frequently cited challenges were funds transfer delays and denials  Twelve partners noted that they had experienced transfer delays, with 8 noting that the delays occurred occasionally and 6 noting that the delays lasted weeks or months  Most partners that noted experiencing delays told us that the delays were caused exclusively by intermediary banks  Eleven partners noted that they had experienced transfer denials, including 5 that told us the denials occurred occasionally  Five partners also noted that transfers were denied by intermediary banks  In addition, 2 partners noted that they had experienced challenges opening new bank accounts; 3, increased costs to transfer funds; 1, a bank-initiated account closure; and 2, other challenges  For more information on the types of banking access challenges that partners identified, including details on the duration of delays and the frequency of denials, see appendix V  Some partners that experienced banking access challenges told us that those challenges had adversely affected or posed a potential risk to implementation of projects  Of those partners experiencing challenges, 3 partners noted that banking access challenges had adversely affected a project’s implementation  Specifically, 1 partner that experienced challenges on one of our selected projects and 2 partners that experienced challenges on projects outside of our sample noted that the challenges they had experienced resulted in a project being adversely affected in some form, such as: Reduced scope of implementation  One partner told us that its project in the Democratic People’s Republic of Korea was scaled back significantly because of difficulty transferring funds to the country  Delays implementing a project  One partner told us that for one of our selected projects, in part because of banking access challenges, implementation of the project was delayed and required approval for two no-cost extensions from USAID  The partner noted that it had experienced recurring issues with funds transfers to Syria, including 3- to 6-week delays and frequent denials of transfers  Suspension of an in-progress project  One partner told us that an ongoing project it implemented in Syria (outside of our sample of projects) to deliver food assistance had been suspended for about a week because its funds transfers to the country were denied  While some projects were adversely affected, 6 of the 7 partners of our selected projects that noted experiencing banking access challenges told us that the challenges they had experienced did not adversely affect project implementation  Similarly, 12 of the 15 partners that noted experiencing banking access challenges on their global portfolio of humanitarian assistance told us that the challenges did not affect project implementation  Additionally, for both our selected projects and their global portfolio of humanitarian assistance projects, the challenges experienced were either not significant enough to affect project implementation, or were mitigated through various actions  For example, partners told us that they had mitigated challenges by: Maintaining a funding buffer  Partners may keep enough funding to operate a project for several weeks in order to mitigate delays and denials of funds transfers  For example, one partner noted that projects maintain approximately 4 weeks of operating funds on hand, which is enough to mitigate transfer delays that last up to 3 weeks  Using alternate methods to move funds  Partners may use alternate methods to move funds, such as using different intermediary banks or money transmitters, or by carrying cash  For example, one partner told us that when its U S  bank stopped allowing funds transfers to Syria, the partner opened an account with a different bank  That partner also told us that because it was unable to reliably transfer funds to Syria, it regularly transfers funds to Lebanon—either to intermediaries or to the personal accounts of individuals involved in the projects—and manually moves the physical currency to Syria  Maintaining multiple bank accounts  Partners may maintain accounts with multiple banks in order to mitigate the risk of a bank-initiated account closure  For example, one partner told us that after a bank closed all of its accounts without warning or explanation, the partner opened accounts across three different banks in order to mitigate the effects of any individual bank closing its account  While most partners’ projects did not experience adverse effects as a result of banking access challenges, three USAID partners—as well as another NPO that we spoke with—told us that banking access challenges posed a potential risk to project implementation, such as: Potential for physical violence  One partner told us that, for one of our selected projects, there were concerns of violence if payments were halted because of funds transfer delays, while another partner told us that violence was a concern if it was unable to pay vendors on time  An NPO also told us that there was a potential for physical violence if local staff were not paid on time  Potential for insolvency of vendors  One partner told us that, for one of our selected projects, transfer delays prevented it from reimbursing a money transmitter it used to move funds to Somalia, which in turn caused that money transmitter to experience financial difficulties  The partner stated that the delays were almost significant enough to affect operations, though it was able to resolve the situation in time to prevent its vendor from becoming insolvent  Potential for project suspension  One partner told us that it provides advance funding for projects to account for delays, but at times transfer delays have come close to exhausting the advance funding  For example, the partner told us that it provided funding for projects 4 weeks in advance and experienced transfer delays averaging 3 weeks  In addition, an NPO told us that staff are sometimes not paid for several months because of such delays; thus, if transfer delays worsened or staff were unwilling to work without being paid, project implementation may be adversely affected  A recent study by Charity and Security Network on banking access for U S  NPOs, which included NPOs that received U S  government funds, found widespread banking challenges for U S -based NPOs  Data for a survey conducted as part of this study indicated that about two-thirds of the responding U S -based NPOs that work internationally experienced banking access challenges  The challenges included delays of wire transfers, unusual requests for documentation, and increased fees  Some NPOs also cited experiencing account closures and refusals to open accounts  About 15 percent of the NPOs that responded to the survey noted that they experienced these banking access challenges constantly or regularly, and about 3 percent of NPOs reported cancelling a project because of banking access challenges  Furthermore, transfers to all parts of the globe were affected, and the challenges were not limited to conflict zones  According to the report, NPOs with 500 or fewer staff were more likely to experience delayed wire transfers, fee increases, and account closures  Smaller organizations were more likely to receive unusual requests for documentation, according to the report  The smallest NPOs, those with 10 or fewer employees, reported experiencing more trouble opening accounts than larger organizations  According to the report, as a result of the challenges they experienced, NPOs were sometimes forced to move money through less transparent, less traceable, and less safe channels, such as carrying cash  As shown in table 1, survey data from the Charity and Security Network study indicated that there were only minor differences between NPOs receiving and not receiving U S  government funding in terms of experiencing banking access challenges  For example, about 15 percent of responding NPOs, regardless of whether or not they received U S  funds, noted experiencing banking access challenges regularly or constantly, with transfer delays the challenge most frequently cited by both groups  Additionally, about the same proportion of NPOs that received or did not receive U S  funds reported that they rarely or never experienced banking access challenges  Both groups of NPOs also noted taking similar measures to deal with banking access challenges  USAID’s partners’ written reports do not capture potential risks posed by banking access challenges because USAID generally does not require most partners to report in writing any challenges that do not affect implementation  Six of the 7 projects that noted experiencing banking access challenges were USAID projects  None of those 6 USAID partners reported on the banking access challenges they had experienced to USAID in their regular project reporting  USAID requires partners to report adverse effects to their projects, but 1 partner that faced delays on its project as a result of banking access challenges did not identify these challenges as the reason for delays in its reporting to USAID  We also reviewed over 1,300 USAID partner reports for fiscal years 2016 and 2017 from high-risk countries and found no explicit discussion of banking access challenges  USAID generally requires partners implementing humanitarian assistance projects to report challenges that affect project implementation  USAID, through the Office of U S  Foreign Disaster Assistance (OFDA) and the Office of Food For Peace (FFP), provides humanitarian assistance and monitors the implementation of projects through various methods, including periodic performance reports  USAID’s reporting requirements, as well as the number of partners of selected projects that told us they had experienced banking access challenges, are as follows: USAID/OFDA  USAID/OFDA agreements for the selected projects we reviewed require the awardee to report via email (1) developments that have a significant effect on the activities supported by the agreement, and (2) problems, delays, or adverse conditions that materially impair the ability to meet the objectives of this agreement  The agreements also require Program Performance Reports that must address reasons why established goals were not met, the impact on the program objectives, and how the impact has been or will be addressed  Four of the 6 USAID partners that told us they had experienced banking access challenges were implementing USAID/OFDA projects  USAID/FFP  USAID/FFP’s Fiscal Year 2017 Annual Program Statement for International Emergency Food Assistance requires partners to report, as part of their quarterly reporting, any challenges that the project has faced during the quarter and how they were resolved and discuss any potential challenges or delays that may affect the program’s ability to achieve its objectives  Each of the agreements—both for NPOs and for public international organizations—that we reviewed require the partner to notify USAID of any developments, problems, or delays that may have an adverse effect on the project  Two of the 6 USAID partners that told us they had experienced banking access challenges were implementing USAID/FFP projects  Five of the 6 USAID partners of selected sample projects that noted experiencing banking access challenges told us those challenges did not adversely affect project implementation and therefore did not need to be reported  The sixth—a partner that noted its project was adversely affected by banking access challenges—did not include these challenges in its reporting to USAID, although the challenges met the reporting threshold of adversely affecting project implementation  While both USAID and the partner told us that the delays were communicated to USAID through emails and conversations with a designated USAID contact and in the justification for the no-cost extensions submitted to USAID, our review of the partner’s program performance reports to USAID and the no-cost extensions found no explicit discussion of banking access challenges  Our review of the over 1,300 publicly available USAID partner reports for fiscal years 2016 and 2017 from high-risk countries found no explicit discussion of banking access challenges  Overall, we identified 5 reports out of the over 1,300 that included some mention of challenges related to banking access  However, those reports lacked sufficient detail for us to determine the type, severity, or origin of the challenges  For example, one report stated that there are sometimes delays in the payment of salaries through foreign accounts, with no further details about the delays, while another report stated that subgrantees experienced delays in payments without identifying the reasons for these delays, which could include late reports, late verification, late processing, or banking issues  While most of the partners we interviewed noted that they did not report banking access challenges because the challenges did not adversely affect their projects, an NPO advocacy group and a large international NPO told us that NPOs may be reluctant to discuss or report banking access challenges publicly because of concern about being perceived as high-risk or unable to carry out their mission, and that any public mention of banking access challenges could adversely affect their ability to raise funds  Standards for Internal Control in the Federal Government require agencies to identify and respond to risks related to achieving their goals, and USAID currently has no other process for collecting information on banking access challenges affecting its partners  Without this information, USAID does not have a record of the frequency and prevalence of the challenges and may not be aware of the full extent of risks to achieving its humanitarian assistance objectives  Further, as mentioned previously, two USAID partners stated that their projects faced potential adverse effects from banking access challenges  Documenting the prevalence and frequency of banking access challenges experienced by USAID partners is important given the potential adverse effects that these challenges can have on project implementation  Both Treasury and State have taken actions to help address banking access challenges encountered by NPOs; however, USAID’s efforts to address these challenges have been limited by a lack of communication about them—both within the agency and with external entities  Treasury, as a lead agency in fighting financial crimes and as an issuer of regulations that have a significant effect on charities’ access to the banking system, has conducted meetings between charities, banks, and government officials to discuss banking access challenges and released guidance on sanctions and other related issues  State, as a provider of funding for humanitarian assistance, has issued guidance to its overseas posts on banking access challenges  In addition, both State and Treasury are involved in international efforts led by the World Bank and the Financial Action Task Force (FATF) to help address banking access challenges  Although USAID’s partners have experienced banking access challenges, USAID has had more limited engagement than State and Treasury with other agencies, international organizations, and NPOs on addressing such challenges—in part because of a lack of communication about them, both within the agency and with external entities  Treasury’s efforts to help address banking access challenges encountered by NPOs include holding roundtable meetings and issuing guidance and resources for charitable organizations  Treasury, in its role as a regulator of the banking system, serves as a nexus between the banks and the U S  agencies providing humanitarian assistance  Treasury has organized several roundtable meetings with the charitable sector to facilitate a dialogue on banks’ expectations  These sessions brought together representatives from charities, banks, financial supervisors, and the U S  government to discuss the factors that banks consider related to charity accounts and that examiners use in their review of banks’ procedures  Since 2013, Treasury’s Office of Terrorist Financing and Financial Crimes (TFFC) has dedicated three of these roundtable meetings specifically to banking access challenges affecting charities, as follows: December 17, 2013: This initial Treasury / TFFC working group meeting with charities included a discussion of terrorist financing risk mitigation guidance  There was also a discussion of banking access challenges, during which TFFC provided an overview of the NPO section of the manual used by bank examiners to conduct bank examinations and explained the bank examination process to the charities  March 21, 2014: This meeting focused on a discussion of access to financial services for charities  A Muslim-American charity delivered a presentation on how it has managed its banking relationships over the past several years  Several banks also delivered presentations to help charities better understand the factors that banks consider and the complex processes related to banking transactions and opening or maintaining bank accounts  November 12, 2015: This meeting included a stakeholder discussion of banking access challenges for charities, with charities, bankers, and regulators presenting each of their perspectives and discussing the challenges faced on all sides  In addition, in May 2015, Treasury, with the Department of Homeland Security, conducted a roundtable on banking access challenges with Syrian-American charities, U S  regulators, and bankers  This event was focused on challenges affecting the Syrian-American charitable community and delivering humanitarian assistance to Syria during the worsening conflict  Treasury provided guidance related to OFAC’s general license 11a for U S  charities to provide humanitarian assistance for Syria  Further, officials reported that Treasury also maintains contact with the charitable sector through various domestic and international events, and holds frequent meetings with members of the charitable sector in Washington, D C  and around the United States  Treasury has also issued guidance and resources on its website for charities, including frequently asked questions and best practices  Treasury’s website provides information and resources for all stakeholders in four strategic areas—private sector outreach, coordinated oversight, targeted investigations, and international engagement  The guidance includes: voluntary best practices regarding anti-terrorist financing for charities, lists of frequently asked questions regarding sanctions and charities, list of charities that have been designated by OFAC for assisting or having ties to terrorist organizations, several international multilateral organization reports on banking access challenges and terrorist exploitation of charities, and OFAC guidance specifically related to the provision of humanitarian assistance  Lastly, Treasury has taken actions on derisking challenges more generally  According to Treasury officials, these more general actions focused on encouraging dialogue and making clear to financial institutions that they are expected to make individual risk-based decisions rather than wholesale, indiscriminate policies for entire sectors or classes of customers  Treasury officials noted that banks retain the flexibility to make business decisions such as which clients to accept, since banks are in the best position to know whether they are able to implement controls to manage the risk associated with any given client  These officials indicated that Treasury pursues market-driven solutions and cannot order banks to open or maintain accounts  The officials have stated that Treasury does not view the charitable sector as presenting a uniform or unacceptably high risk of money laundering, terrorist financing, or sanctions violations  However, charities delivering critical assistance in high-risk conflict zones have, in some cases, had terrorist organizations and their support networks exploit donations and operations to support terrorist activities  State has issued guidance to its staff overseas to help address banking access challenges encountered by NPOs and others and identified a focal point for banking access challenges within the agency  In July 2017, State issued internal guidance, through a document issued to all of its overseas embassies, regarding derisking  State, based on guidance from Treasury, developed guidance for all personnel that provides background on “de-risking” and related talking points, additional web-based resources, and an assessment framework tool to evaluate the current state of banking relationships in a given market  The guidance includes links to resources from Treasury, U S  banking regulators, and various international organizations, such as the World Bank, International Monetary Fund, and FATF  The guidance is designed to give embassy staff some tools to work with host governments on these issues and to help identify countries and markets where further U S  government engagement is necessary  In addition, State’s Office of Threat Finance Countermeasures serves as the main focal point for all banking access challenges brought to the attention of State  This office provides assistance to State’s embassies when banking-access-related issues are raised through the embassy to State headquarters  All embassy staff, as part of the guidance issued on derisking, have been instructed to direct all questions received on banking access issues to the Office of Threat Finance Countermeasures  In addition, this office is responsible for interfacing with Treasury on banking access issues and staff from this office have attended all of the relevant Treasury-hosted roundtable meetings focused on banking access challenges encountered by charities  The World Bank and FATF have several efforts underway—with participation from Treasury and State—to address banking access challenges for NPOs  The World Bank, in collaboration with the Association of Certified Anti-Money Laundering Specialists (ACAMS), is working with humanitarian organizations, banks, and U S  regulators on the question of how humanitarian organizations can maintain access to the financial system  More specifically, the World Bank and ACAMS have launched three primary work streams focused on different aspects of banking access to improve NPOs’ understanding of what the financial institutions require and to improve the banks’ understanding of how NPOs operate  According to a World Bank official, the three workstreams are as follows: Work Stream 1: This work stream aims to ensure a better understanding of bank examiners of the NPO sector and to enable more risk differentiation on the part of those examiners when they conduct on-site supervision and examine bank client accounts  Work Stream 2: This work stream aims to help banks conduct due diligence on charities more easily through the use of technological tools, such as databases that contain key information on charities  Work Stream 3: This work stream aims to work with the regulatory bodies to help bank examiners change their perceptions of the risk potential of charities  In addition, the World Bank and ACAMS have organized roundtable meetings as part of the ongoing Stakeholder Dialogue on De-Risking  The objectives of a January 2017 meeting were to promote access of humanitarian organizations to financial services and to discuss practical measures to foster the relationship between NPOs and financial institutions, improve the regulatory and policy climate for financial access for NPOs, and build coalitions and create opportunities for sharing information and good due diligence practices  Officials from Treasury and State have been involved with the dialogues and various work streams  FATF, with participation from both Treasury and State, also has several efforts underway to help address banking access challenges, including revising its recommendations and issuing guidance  Derisking has been a stated FATF priority since October 2014  In June 2016, FATF revised its recommendation that pertains to how countries should review NPOs and its interpretive note to better reflect how to implement measures to protect NPOs from terrorist abuse, in line with the proper implementation of the risk-based approach  According to Treasury, this approach emphasizes that not all charities are considered high-risk  Specific changes included defining NPOs, removal of the words “particularly vulnerable” from previous language, and emphasis on a risk-based approach for evaluating NPOs  The FATF has also issued guidance and best practices to guide both financial institutions and regulators on how to properly implement the risk-based approach, in line with the revised FATF recommendations  Additionally, according to Treasury, the FATF updated a report analyzing the global terrorist threat to the charitable sector, gathering over 100 examples of terrorist abuse of charities to pinpoint which types of charities are considered higher-risk  This report and its findings were published in June 2014  USAID efforts to address banking access challenges have been limited, in part because of a lack of communication within the agency and with external entities about challenges faced by USAID’s partners  Within USAID, we found that information on banking access challenges faced by partners was not always communicated beyond staff directly overseeing the project  We found that the USAID staff who had direct responsibility for managing the project were generally aware of banking access challenges that affected project implementation, and had taken steps to help mitigate these challenges on a project-level basis  However, other relevant staff, such as USAID management and country-level headquarters staff, were not aware of these challenges  For example, partners in Syria and Somalia that we interviewed noted experiencing banking access challenges, but the USAID officials representing these countries in headquarters told us they were not aware of such challenges occurring recently  This situation may be, in part, because USAID has no designated office or process that focuses on communicating these issues throughout the agency to other relevant officials, including USAID management  Federal standards for internal control note that management should use quality information to achieve the entity’s objectives, and that entity management needs access to relevant and reliable communication related to internal as well as external events  If information on banking access challenges experienced by USAID partners is only reported to program-level staff and not communicated to a wider audience within the agency, then the agency as a whole may not fully recognize the overall risks posed by banking access challenges to USAID’s ability to achieve its objectives  Further, the agency may miss opportunities to assist other partners that might be experiencing similar issues based on lessons learned from previous experiences, if staff are not aware of the banking access challenges that have been experienced by its partners implementing other projects or working in other countries  USAID participation in interagency and partner efforts to address banking access challenges has been limited, in part because of a lack of communication with these external entities  According to Treasury officials, because there is no main focal point at USAID for banking access challenges, there is no consistency on who attends, or whether anyone attends, the Treasury-hosted roundtable meetings on banking access challenges from USAID  Further, an NPO trade association and other NPOs told us that it is difficult to find a person at USAID to engage with on banking access challenges  Lastly, a USAID/OFDA official stated that USAID has had limited engagement on issues related to banking access challenges  The OFDA official stated that once OFDA fully staffs its new Award, Audit, and Risk Management Team, it will be able to more fully engage on these issues  Federal standards for internal control state that management should communicate the necessary quality information both internally and externally to achieve the organization’s objectives  Without effective communication with partners and other government agencies about banking access challenges its partners face, USAID’s ability to effectively and consistently engage with these entities or contribute to efforts to help address these challenges is limited  The United States provides humanitarian assistance in countries that are often plagued by conflict, instability, or other issues that increase the risk of financial crimes  Some of these countries also face U S  sanctions that are aimed at their governments or other actors that engage in terrorism or illicit activities  Additionally, to ensure that the U S  financial system is not used for money laundering or financing terrorism, financial institutions such as banks are subject to various U S  laws and regulations that require banks to conduct proper due diligence on entities, such as those transferring funds to high-risk countries  However, there is concern among some organizations that banks’ higher level of due diligence, especially for clients such as charitable organizations that provide humanitarian assistance in high-risk countries, may create undue difficulties, including delays, for these organizations  Charitable organizations and others believe that because the United States and a key multilateral organization previously labeled charitable organizations as high-risk, banks remain reluctant to serve these organizations even though a case-by-case assessment of risk is now recommended  As such, we found that the majority of implementing partners—many of which are charitable organizations—of U S  government assistance that we interviewed had experienced some banking access challenges  Despite our findings and others’ findings on the prevalence of banking access challenges facing humanitarian assistance organizations, USAID’s current partner reporting does not capture information related to the potential risks of banking access challenges faced by its partners  Without collecting this information, USAID cannot help the partners mitigate banking access challenges  Additionally, if these challenges are not documented and shared throughout the agency, the prevalence of the challenges and potential risks cannot be fully assessed  Further, without communicating about banking access challenges faced by its partners throughout the agency and to others, the potential risk to agency objectives will not be known and USAID’s ability to engage with other agencies and organizations in helping to address these challenges is limited  We are making the following two recommendations to USAID: The Administrator of USAID should take steps to collect information on banking access challenges experienced by USAID’s implementing partners  (Recommendation 1) The Administrator of USAID should take steps to communicate information on banking access challenges faced by partners both within USAID and with external entities, such as other U S  agencies and U S  implementing partners  (Recommendation 2) We provided a draft of this report to State, USAID, and Treasury for comment  We received written comments from USAID that are reprinted in appendix VI  USAID concurred with our recommendations  Treasury provided technical comments, which we incorporated as appropriate  State told us that it had no comments on the draft report  We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Administrator of the U S  Agency for International Development, the Secretary of the Treasury, and other interested parties  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-9601 or melitot@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix VII  While the Department of State (State) and the U S  Agency for International Development (USAID) have encountered some banking access challenges, such as closed accounts and delays in transferring funds, these challenges did not affect their operations for providing assistance to high-risk countries  To send funds overseas, State, through two U S  disbursement offices managed by State’s Bureau of the Comptroller and Global Financial Services (CGFS), maintains foreign currency bank accounts in 172 countries  Funds are transferred from a Federal Reserve Bank to a U S  dollar bank account maintained by State, after which the funds are directed through a correspondent bank or a foreign exchange broker to a foreign bank account maintained by State  A correspondent bank serves as the intermediary between the bank sending a transfer, in this case a U S  dollar denominated bank account, and the bank issuing payment to the recipient, in this case the State-held account in the recipient country  Both the bank sending the transfer and the bank receiving the transfer hold an account at the correspondent bank, which is used for fund transfers, cash management, and other purposes  According to State, all State transfers overseas, as well as the majority of USAID payments overseas, are managed by CGFS, and in fiscal year 2017 CGFS’s two disbursement offices processed approximately 3 million payments through accounts managed by State in 172 countries  State officials told us that State encounters occasional banking access challenges, including short delays in funds transfers, denials of funds transfers to certain countries, and one bank-initiated account closure  State officials told us that they are able to mitigate the occasional banking access challenges that they encounter to ensure operations are not affected  For example: State’s transfers to countries sanctioned by the Office of Foreign Asset Control (OFAC) are occasionally flagged by intermediary banks  According to State, in fiscal year 2017 approximately one- tenth of one percent (0 1%) of payments were delayed because of OFAC sanctions  When this occurs, State receives questions on the details of those transfers  According to officials, this is an ongoing challenge, but State resolves such delays within 2 weeks—and typically within days—and there are no operational effects as a result of the delays  In some instances—including once in 2012, and once in 2018—an intermediary bank used by CGFS’s U S  bank stopped processing transfers to a recipient bank in a specific country  According to State officials, in both cases State identified an alternative intermediary bank to transfer funds to the destination country  In both cases, there were no operational effects  In 2014, an intermediary bank used by CGFS’s U S  bank ended its banking relationship with an OFAC-sanctioned country (Syria), and State was unable to move funds from its U S -dollar denominated accounts to that country  State, with the advice of the recipient bank in the OFAC-sanctioned country, identified an alternative intermediary bank that was able to move funds to that country using euro-denominated accounts  In 2014, a U S  bank—at which State maintained an account and that State used to fund its operations in Brunei—notified State that it would be closing State’s account with 29 days’ notice  State worked with Treasury to identify an alternative bank that would be willing to maintain a State bank account  The operation was not affected  For this review, we selected four countries—Syria, Somalia, Haiti, and Kenya—that may have a higher risk of financial crimes because of conflict, instability, or other issues  We selected them based on factors including the level of humanitarian assistance they received from U S  agencies, their inclusion on multiple financial-risk-related indices, and geographical diversity  Syria  Since 2011, Syria has been plagued by an ongoing multisided armed conflict fought primarily between the government of President Bashar al-Assad, along with its allies, and various forces opposing both the government and each other  Syria’s economy has deeply deteriorated amid the ongoing conflict, declining by more than 70 percent from 2010 to 2017  During 2017, the ongoing conflict and continued unrest and economic decline worsened the humanitarian crisis, necessitating high levels of international assistance, as more than 13 million people remained in need inside Syria and the number of registered Syrian refugees increased from 4 8 million to more than 5 4 million  Multiple terrorist groups operate inside Syria, raising the potential risk of terrorist financing  Additionally, according to a Central Intelligence Agency report, Syria is a transit point for opiates, hashish, and cocaine bound for regional and Western markets, and weak anti-money-laundering controls and bank privatization may leave it vulnerable to money laundering  The U S  maintains a comprehensive Syria sanctions program  A general license in the Syria regulations authorizes nonprofit organizations to provide services, including financial services, to Syria in support of certain not-for-profit activities, such as activities to support humanitarian projects to meet basic human needs and support education in Syria  Organizations providing humanitarian assistance that is not authorized by the general license may apply for a specific license to engage in those transactions  The United States has provided approximately $3 3 billion in humanitarian assistance for Syria since 2012  Somalia  Since 1969, Somalia has endured political instability and civil conflict, and is the third-largest source of refugees, after Syria and Afghanistan  Somalia lacks effective national governance and maintains an informal economy largely based on livestock, money transfer companies, and telecommunications  In the absence of a formal banking sector, money transfer companies have sprung up throughout the country, handling up to $1 6 billion in remittances annually  According to a 2016 State report, Somalia remained a safe haven for terrorists who used their relative freedom of movement to obtain resources and funds, recruit fighters, and plan and mount operations within Somalia and neighboring countries  The United States maintains a targeted list-based Somalia sanctions program  Organizations providing humanitarian assistance may apply for a specific license to engage in transactions that otherwise would be prohibited by the Somalia sanctions regulations  The United States has provided approximately $1 2 billion in humanitarian assistance for Somalia since 2012  Haiti  Currently the poorest country in the western hemisphere, Haiti has experienced political instability for most of its history  Remittances are the primary source of foreign exchange, equivalent to more than a quarter of GDP, and nearly double the combined value of Haitian exports and foreign direct investment  In January 2010, a catastrophic earthquake killed an estimated 300,000 people and left close to 1 5 million people homeless  Hurricane Matthew, the fiercest Caribbean storm in nearly a decade, made landfall in Haiti on October 4, 2016, creating a new humanitarian emergency  An estimated 2 1 million people were affected by the category 4 storm, which caused extensive damage to crops, houses, livestock, and infrastructure across Haiti’s southern peninsula  Haiti is identified as a fragile state by the Organisation for Economic Co-operation and Development, and as a jurisdiction of primary concern for money laundering in State’s International Narcotics Control Strategy Report  According to USAID, the agency has provided $187 8 million in humanitarian assistance for Haiti since 2012  Kenya  Kenya is the economic, financial, and transport hub of East Africa  Since 2014, Kenya has been ranked as a lower middle income country because its per capita GDP crossed a World Bank threshold  Al-Shabaab aims to establish Islamic rule in Kenya’s northeastern border region and coast and carried out a spate of terrorist attacks in Kenya  Kenya is identified as a fragile state by the Organisation for Economic Co-operation and Development, and as a jurisdiction of primary concern for money laundering in State’s International Narcotics Control Strategy Report  The United States has provided approximately $807 million in humanitarian assistance for Kenya since 2012  This report examines (1) the extent to which implementing partners of the Department of State (State) and the U S  Agency for International Development (USAID) experience banking access challenges that affect their implementation of humanitarian assistance projects, (2) USAID implementing partners’ reporting on banking access challenges, and (3) actions relevant U S  agencies have taken to help address banking access challenges encountered by nonprofit organizations (NPO)  In addition, we provide information on the extent to which State and USAID experience banking access challenges in providing assistance in high-risk countries in appendix I  To address these objectives, we examined U S -funded projects and their implementers in four high-risk countries—Syria, Somalia, Haiti, and Kenya  We selected these countries based on factors including the high level of humanitarian assistance they received from U S  agencies, their higher propensity for the occurrence of financial crimes based on their inclusion on multiple financial-risk-related indices, and to obtain geographical diversity  More specifically, to identify our list of high-risk countries in terms of banking or financial risk, we used several indices including ones based on financial risk, money laundering risk, and counterterrorism-related risk  The indices we chose to use were State’s International Narcotics Control Strategy Report (2014- 2016) (Money Laundering Risks), the Department of the Treasury’s (Treasury) Office of Foreign Assets Control (OFAC) sanctions, the Organisation for Economic Co-operation and Development’s (OECD) Fragile State Index (2014-2016), the 2017 Financial Action Task Force (FATF) High Risk and Non- Cooperative Jurisdictions list, and the BASEL AML Index, 2017  We then identified 19 countries that appeared on at least two of the five lists and received at least $100 million in U S  based humanitarian assistance from 2012 through 2017, based on data from the United Nations Office for the Coordination of Humanitarian Affair’s financial tracking system  We then applied the following primary selection criteria to select our four countries: whether they (1) appeared on at least three of the five identified lists and (2) have received at least $100 million in U S  humanitarian assistance since 2012  Secondary considerations that informed our selection included whether a country had been identified as having banking access challenges by USAID, geographical diversity, and ensuring we had at least one country from each of the five indices we chose  The data we obtained for these four countries cannot be generalized beyond our selected projects and partners  For our first objective, to examine the extent to which implementing partners of State and USAID experienced banking access challenges that affected their implementation of humanitarian assistance projects, we conducted semi-structured interviews with 18 partners about (1) one of 18 specific projects we had selected in one of our high-risk countries and (2) their experiences implementing their global portfolio of humanitarian assistance projects over the previous 5 years  In order to determine our sample of partners, we selected a weighted, non-generalizable sample of 18 projects located in our four selected high-risk countries  We selected our projects from a list, provided by State and USAID, of 195 projects that were active as of the end of fiscal year 2017 in these countries  In making our selection of projects we made sure that our sample included a mix of projects from each country (7 projects for Syria, 5 for Somalia, 3 for Haiti, and 3 for Kenya), and a mix of State and USAID projects (3 State and 15 USAID)  We selected those numbers for each country and each agency based on the number of projects in each country and the proportion of assistance provided  We selected one State project in each of the three countries where they were active  Once we had determined these parameters for our non-generalizable sample, we made the final selections of the projects at random, making sure that we did not select more than one project for any one partner  Several of the implementing partners in our sample operate in over 100 countries in every part of the world, while a few operate in 20 or fewer countries  Three of the partners are United Nations organizations  The implementing partners in our sample had fiscal year 2016 annual revenues ranging from $5 9 billion to just over $10 million  We conducted semi-structured interviews with each of the 18 implementing partners on potential banking access challenges, such as the ability to open and maintain new accounts and make transfers in a timely fashion, and the effect of those challenges on project implementation  Our interviews were separated into two distinct sets of questions—one on banking access challenges the implementing partner encountered on the selected project, and the other on any banking access challenges the implementing partner encountered in its global portfolio of humanitarian assistance projects over the previous 5 years (2013-2017)  When discussing their global humanitarian assistance portfolios, the partners did not limit their responses to projects funded by U S  government agencies, but instead considered projects funded by all of their donors  We did not ask the partners to quantify the number of projects they had implemented over the previous 5 years, nor did we ask them to quantify the number of projects in their global portfolio of humanitarian assistance for which they had experienced banking access challenges  Our interview followed a protocol that asked both closed and open-ended questions  For most banking access challenges, when interview respondents indicated that their project or organization had experienced a banking access challenge, we probed for details of the challenge, including whether the challenge had caused an adverse effect on the project, such as project delays or cancellations  After the interviews had been conducted, we content-coded some of the open- ended answers we received  Specifically, we developed codes on whether any challenges reported had adversely affected the projects, the extent and duration of delays in transferring funds, and the extent and frequency of denials of international fund transfers  Two analysts independently coded each interview  The analysts then compared their coding and reconciled any initial disagreements  We also reviewed relevant studies on banking access challenges for NPOs conducted by the World Bank and the Charity and Security Network (CSN)  The study conducted by CSN included a survey that was designed to be generalizable to the population of all U S  NPOs with activities outside the U S , including providing humanitarian assistance  This survey received more than 300 responses, which constituted a reported response rate of about 38 percent  The researchers conducting the survey indicated that this response rate could be considered high for a public opinion telephone survey but low for a survey like the Census  The study determined the survey findings to be representative of the population with some qualifications, such as the fact that smaller organizations were more likely to complete the survey than larger organizations  The maximum margin of error was estimated to be 5 4 percent  More than 70 of the NPOs reported that they had received U S  government funding  We requested and received some additional data analysis from the researchers who had conducted this survey  We examined the aggregate survey responses in detail and compared them to the responses we received to our semi-structured interview questions, which probed into similar aspects of financial access  We reviewed documentation and interviewed the officials responsible for the survey and determined that they had used a reasonable methodology to conduct the survey  We also interviewed several NPOs and NPO groups that were not part of our sample to obtain their views on banking access challenges affecting those delivering humanitarian assistance  For our second objective, to examine USAID implementing partners’ reporting on banking access challenges, we reviewed the fiscal year 2017 progress reports, including quarterly, semi-annual, and annual reports, that USAID provided for our selected projects to determine if banking access challenges the implementing partners told us about in the interviews had been reported in accordance with requirements in the individual award agreements  In total, we reviewed 26 reports from these partners  We also interviewed USAID agreement officers for the projects that stated they had experienced banking access challenges about implementing partners’ reporting of those banking access challenges  To obtain a broader context, we also reviewed over 1300 USAID implementing partner reports for fiscal years 2016 and 2017 from a wider selection of high-risk countries to determine the extent to which banking access challenges are being reported to USAID  To identify the relevant USAID progress reports, we searched USAID’s Development Experience Clearinghouse (DEC) for all periodic progress reports filed for fiscal years 2016 and 2017 by implementing partners working in selected 19 high-risk countries for instances of reporting on financial access challenges  Using these criteria, we identified 1,369 reports from fiscal years 2016-2017 from our selected 19 high-risk countries  The reports included annual reports, final contractor / grantee reports, final evaluation reports, and periodical and periodic reports (such as quarterly or semi-annual reports)  The 1,369 reports constituted our universe of reports for which we used a textual analysis program to automatically scan and search for words and phrases that we identified in a lexicon of financial access terms  We developed this lexicon of financial access terms based on a review of relevant research, interviews with industry organizations, and a manual review of USAID progress reports  Using the lexicon, our textual analysis program identified all mentions of identified terms in the universe of reports  Next, two analysts independently reviewed the mentions identified through our textual analysis software program to determine whether the mentions actually constituted a reporting of a financial access challenge  The analysts then reconciled any differences in their reviews  For the purposes of this review, we considered a relevant financial access challenge to be any challenge encountered by the implementing partner in obtaining U S  banking services, or in transferring funds from the United States to the destination country  We did not conduct a similar review of State partner reporting because we only had a sample of three State projects and one of the projects did not require direct written reporting to State  In addition, State does not have a central depository for partner reports that we could search, such as USAID’s DEC  For our third objective, to examine actions relevant U S  agencies have taken to help address banking access challenges encountered by NPOs, we conducted interviews with and reviewed documentation from State, USAID, and Treasury on actions they have taken to help address these challenges  We also discussed U S  agency involvement in efforts to help address these challenges with relevant organizations that represent NPOs  In addition, we reviewed relevant documentation published by the World Bank and the Financial Action Task Force on actions they have taken to help address banking access challenges encountered by NPOs, and interviewed relevant staff at the World Bank on efforts undertaken to address banking access challenges  To examine the extent to which State and USAID encountered banking access challenges in providing assistance in high-risk countries, we interviewed State officials responsible for conducting overseas transfers of funds for both State and USAID to determine if any banking access challenges exist that are specific to our case study countries as well as for U S  assistance worldwide  We also interviewed State and USAID officials with responsibility for overseeing programs in our four selected countries to determine if they had seen any effects of banking access challenges  We focused primarily on these agencies’ ability to access banking services in the United States and on the transfer of funds to the ultimate destination  We conducted this performance audit from July 2017 to September 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  The United States provides humanitarian assistance primarily through offices and bureaus within the Department of State (State) and the U S  Agency for International Development (USAID)  The primary humanitarian offices and bureau are: State’s Bureau of Population, Refugees, and Migration (PRM)  PRM’s stated mission is to provide protection, ease suffering, and resolve the plight of persecuted and uprooted people around the world by providing life-sustaining assistance, working through multilateral systems to build global partnerships, promoting best practices in humanitarian response, and ensuring that humanitarian principles are integrated into U S  foreign and national security policy  PRM does not operate refugee camps or give aid directly to refugees, but rather works with entities that operate these programs, including the United Nations, other international organizations, and nonprofit organizations  USAID’s Office of U S  Foreign Disaster Assistance (OFDA)  OFDA states that it helps countries prepare for, respond to, and recover from humanitarian crises  According to USAID, OFDA works with the international humanitarian community to give vulnerable populations resources to build resilience and strengthen their ability to respond to emergencies  Assistance includes provision of emergency relief supplies, establishing early warning systems, and training on search and rescue efforts, as well as programs to help victims of disasters recover  USAID’s Office of Food For Peace (FFP)  FFP’s stated mission is to partner with others to reduce hunger and malnutrition, and help ensure that all individuals have adequate, safe, and nutritious food to support a healthy and productive life  According to FFP, it works to mobilize resources to predict, prevent, and respond to hunger overseas  FFP’s emergency activities include food assistance to help reduce suffering and support the early recovery of people affected by conflict and natural disaster emergencies  In addition to the individual named above, Mona Sehgal (Assistant Director), Michael Maslowski (Analyst in Charge), Ming Chen, Debbie Chung, Martin de Alteriis, Leia Dickerson, Mark Dowling, Erin Guinn- Villareal, Chris Keblitis, and Benjamin L  Sponholtz made key contributions to this report 

ground_truth: Since 2012, the United States has provided approximately $36 billion in humanitarian assistance to save lives and alleviate human suffering. Much of this assistance is provided in areas plagued by conflict or other issues that increase the risk of financial crimes. The World Bank and others have reported that humanitarian assistance organizations face challenges in accessing banking services that could affect project implementation. GAO was asked to review the possible effects of decreased banking access for nonprofit organizations on the delivery of U.S. humanitarian assistance. In this report, GAO examines (1) the extent to which State and USAID partners experienced banking access challenges, (2) USAID partners' reporting on such challenges, and (3) actions U.S. agencies have taken to help address such challenges. GAO selected four high-risk countries—Syria, Somalia, Haiti, and Kenya—based on factors such as their inclusion in multiple financial risk-related indices, and selected a non-generalizable sample of 18 projects in those countries. GAO reviewed documentation and interviewed U.S. officials and the 18 partners for the selected projects. Implementing partners (partners) for 7 of 18 Department of State (State) and U.S. Agency for International Development (USAID) humanitarian assistance projects that GAO selected noted encountering banking access challenges, such as delays or denials in transferring funds overseas. Of those 7 projects, 1 partner told us that banking access challenges adversely affected its project and 2 additional partners told us that the challenges had the potential for adverse effects. Moreover, the majority of partners (15 out of 18) for the 18 projects noted experiencing banking access challenges on their global portfolio of projects over the previous 5 years. USAID's partners' written reports do not capture potential risks posed by banking access challenges because USAID generally does not require most partners to report in writing any challenges that do not affect implementation. Six of the 7 projects that encountered challenges were USAID-funded. Of those 6 USAID projects, 5 partners told us that these challenges did not rise to the threshold of affecting project implementation that would necessitate reporting, and 1 did not report challenges although its project was adversely affected. Additionally, GAO's review of about 1,300 USAID partner reports found that the few instances where challenges were mentioned lacked sufficient detail for GAO to determine their type, severity, or origin. Without information on banking access challenges that pose potential risks to project implementation, USAID is not aware of the full extent of risks to achieving its objectives. The Department of the Treasury (Treasury) and State have taken various actions to help address banking access challenges encountered by nonprofit organizations (NPO), but USAID's efforts have been limited. Treasury's efforts have focused on engagement between NPOs and U.S. agencies, while State has issued guidance on the topic to its embassies and designated an office to focus on these issues. In contrast, USAID lacks a comparable office, and NPOs stated that it is difficult to find USAID staff to engage with on this topic. Further, GAO found that awareness of specific challenges was generally limited to USAID staff directly overseeing the project. Without communicating these challenges to relevant parties, USAID may not be aware of all risks to agency objectives and may not be able to effectively engage with external entities on efforts to address these challenges. GAO recommends that USAID should take steps to (1) collect information on banking access challenges experienced by USAID's partners and (2) communicate that information both within USAID and with external entities, such as other U.S. agencies and partners. USAID concurred with our recommendations.