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



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

Report 1: Because of technological advances in digitization and data processing, electronic forms of payment have become increasingly available, convenient, and cost efficient  Established technologies, such as credit and debit cards, have long been a popular payment option  In addition, new payment methods (e g , PayPal's Venmo app and Square's point-of-sale hardware, among others) use underlying traditional banking and payments systems to make electronic payments less expensive and more available to individuals and small businesses  Newer digital currencies, such as cryptocurrencies, offer alternative (though not yet widely adopted) options that have a high degree of independence from traditional systems  Although cash remains an important method of payment in the United States (see Figure 1 ), anecdotal reporting suggests that various electronic payment systems have become so effective and inexpensive relative to cash payments that some U S  businesses—even those at which sales generally have a low dollar value—are increasingly choosing not to accept cash  In some developed countries, such as Sweden, cash payments are becoming relatively scarce  In addition, a number of central banks worldwide are examining the possibility of issuing government-backed digital currencies that exist only electronically  These trends suggest that due to buyer or seller preference or government policy, the role of cash in the payment system may continue to decline, perhaps significantly, in coming years  Some observers have examined the consequences of an evolution away from cash  Proponents of reducing the use of physical currency (or even eliminating it all together and becoming a cashless society ) argue that it will generate important benefits, including potentially improved efficiency of the payment system, a reduction of crime, and less constrained monetary policy  Proponents of maintaining cash as a payment option argue that significant reductions in cash usage and acceptance would further marginalize people with limited access to the financial system, increase the financial system's vulnerability to cyberattack, and reduce personal privacy  Given developments and debate in this area, Congress may consider policy issues related to the declining use of cash relative to electronic forms of payment  This report is divided into two parts  The first part analyzes cash and noncash payment systems, and the second analyzes potential outcomes if cash were to be significantly displaced as a commonly accepted form of payment  Part I describes the characteristics of cash and the various electronic payment systems that could potentially supplant cash  The noncash payment systems include traditional electronic payment systems (such as credit cards or payment apps) and alternative electronic payment systems, focusing on private systems using distributed ledger technology (such as cryptocurrencies) and central bank digital currencies (which are only under consideration by central banks at this time)  Part I also examines the advantages and costs specific to each payment system and the potential obstacles to the adoption of alternative electronic payment systems  Part II of this report analyzes the potential implications of a reduced role of cash payments in the economy, including potential benefits, costs, and risks  The report also includes an Appendix that presents two international case studies of economies in which noncash payment systems rapidly expanded  This section provides analysis of cash, traditional noncash payment systems, and potential alternative payment systems  It describes the characteristics, presents usage data, and analyzes the advantages and costs of each system  It also includes a discussion on the potential decline in cash usage and a short inset on the legality of businesses' refusing to accept cash  How well something serves as money in a payment system depends on how well it serves as (1) a medium of exchange, (2) a unit of account, and (3) a store of value  To function as a medium of exchange , the thing must be tradable and agreed to have value  To function as a unit of account , the thing must act as a good measurement system  To function as a store of value , the thing must be able to purchase approximately the same value of goods and services at some future date as it can purchase now  Currently, cash continues to serve the three functions of money well as part of a robust, physical payment system  Physical currency can be carried easily in a pocket and thus is tradeable  Each unit of currency (e g , a dollar) is identical and can be divided into fractions (e g , cents) of the whole, making dollars effective units of account  A bill or coin, when well cared for, will not degrade substantively for years, meaning it can function as a store of value  In the United States, paper currency and coins are produced by the Bureau of Engraving and Printing (BEP) and the United States Mint, respectively, both of which are units within the Department of the Treasury (Treasury)  The Federal Reserve (the Fed) distributes the currency and coin to banks, savings associations, and credit unions upon request, and the banks in turn make the cash available to their customers  When a bank orders cash, the Fed deducts the amount from the bank's Fed account  The revenues and costs to the government from this system are examined in the " Cash Effects on Government " section below  Data suggests that the demand for cash in the United States has continued to grow despite the introduction of new payment services and systems  Fed data indicates that the amount of currency in circulation has increased steadily over at least the past 20 years (see Figure 2 )  As of December 31, 2018, there were more than 43 billion notes (more commonly called bills ) worth over $1 67 trillion in circulation  The Fed determines how many new notes "are needed to meet the public's demand [, which]…reflects the Board's assessment of the expected growth rates for payments of currency to and receipts of currency from circulation " This growth in demand is not wholly surprising, because demand for cash would be expected to grow as does the economy, the population, and price levels  In addition, the demand for cash is growing because certain people may be increasingly using it solely as a store of value or safe investment (imagine the proverbial risk-averse saver keeping money under the mattress), rather than to make purchases  In addition, there remains a high demand for U S  currency abroad, both as a store of value and medium of exchange  Some evidence suggests people are using cash for payments less often  For example, according to preliminary findings of a Fed survey, cash transactions in the United States fell from 40 7% of all transactions in 2012 to 32 5% in 2015  Taken together with data from the triennial Federal Reserve Payment S tudy , these survey results suggest the number of cash transactions during that time fell from roughly 84 8 billion per year to 69 4 billion  However, Fed economists have subsequently noted that significant changes in the survey methodology and unaccounted for effects from economic conditions means the eight-point decline in the share of transactions "almost surely does not accurately reflect actual changes in consumer preferences for cash " After making adjustments to account for these factors, those economists estimated the decline in the percentage of transactions that were in cash was roughly half of the initially estimated decline in the share of cash transactions  The most recent data indicates that Americans used cash for 31% of their transactions in 2016, with stronger cash preference for small, in-person transactions (60% of in-person transactions under $10)  One of the main benefits of cash is that it is a simple, easy, robust payment mechanism that requires no ancillary technologies  Payers and payees validate and settle transactions simply by physically exchanging the currency; the consumer needs no magnetic-stripe card or mobile device, and the seller does not need a card-reading machine or other payment-receiving device  Relatedly, some observers assert cash provides a security against potential disruptions to electronic payment systems  For example, in the event of a significant cyberattack or extended power outage, cash could continue to serve the functions of money while electronic payment systems could not  Cash also acts as a safe asset in which to invest savings and its usage can involve a high degree of privacy, features that will be examined in more detail in the " Potential Costs and Risks of a Reduced Role for Cash " section below  In addition, holding cash might impart other psychological benefits to a consumer, such as feelings of greater control over budgeting and associations with wealth  Using and accepting cash involves certain costs to consumers and businesses  For example, consumers may have to pay fees to withdraw cash from automatic teller machines (ATMs)  Banks with more than $1 billion in assets are required to report their revenue from ATM fees, and a Congressional Research Service (CRS) analysis indicates those banks collected at least $1 9 billion in ATM fees in 2018  Other costs—including consumer losses through theft, misplacement, or accidental destruction of cash—are more difficult to estimate  Businesses must pay for cash management services, such as cash delivery with armored trucks (an industry with estimated annual U S  revenues of $2 8 billion) and security systems to dissuade thieves or robbers from attempting to steal cash kept on the retailer's premises  Despite these efforts, U S  businesses lose about $40 billion in employee cash thefts per year  Similar to consumer's costs, quantifying all the costs of cash to businesses presents challenges, as certain costs are not straightforward and easily measurable  For example, some portion of retail staff and managers' paid time is spent counting cash and reconciling tills  In addition to its impacts on consumers and businesses, cash directly affects government revenues through three main mechanisms: (1) seigniorage (i e , the "profit" the government makes by producing cash), (2) Federal Reserve remittances to the Treasury, and (3) tax evasion  Two of these mechanisms—seigniorage and remittances—increase government revenues  The third mechanism—tax evasion, facilitated by the anonymous and difficult-to-trace nature of cash transactions—decreases government revenue  Revenue Generating: Seignoriage   In general, the value of the physical currency produced by the government exceeds the cost incurred to produce it  For example, a $100 bill costs about 14 cents to print, generating revenues $99 86 greater than cost  The profit generated by this difference is called seigniorage, and this income would decrease if demand for cash were to fall  In FY2017, the U S  Mint generated $391 5 million in net income from circulating coins and the U S  Bureau of Engraving and Printing generated revenues $693 million greater than expenses  Revenue Generating: Fed Remittances   The second source of cash-generating revenue is remittances, which are transferred from the Fed to the U S  Treasury  Any income the Fed earns after expenses and dividends paid to member banks, it remits to the Treasury (in 2017, the amount was $80 6 billion), and hence becomes a source of revenue for the federal government  A significant expense for the Fed is the interest it pays on depository institutions' deposits held in their Fed accounts  Such payments accounted for $28 9 billion of the Fed's $35 4 billion total expenses in 2017  However, currency is a Fed liability on which it pays no interest  Recall that when a bank orders cash from the Fed, the Fed deducts the amount from the bank's account  Thus, the more cash that is in circulation, the less interest the Fed must pay, and the greater its remittances to Treasury  In January 2019, there was approximately $1 7 trillion of currency in circulation, and the Fed (as of this publication) paid an annual interest rate of 2 4% on reserve balances  By these measures, if all currency were instead bank reserve balances held at the Fed, it could increase Fed expenses (and thus reduce government revenues) by more than $40 billion a year  If interest rates on reserves (which change when the Fed alters monetary policy) rose or fell, then expenses would increase or decrease, respectively, in this scenario  Revenue Reducing: Tax Evasion   Because cash leaves no electronic record, wage earners and businesses are able to underreport (in general, illegally) how much cash they receive in order to reduce their tax payments  Thus, cash contributes to the tax gap —the difference between what the government is owed and what is actually paid  The most recent Internal Revenue Service estimate released in 2016 examined the tax gap for the years 2008-2010, and found that the gap due to underreporting averaged $387 billion a year  This estimate does not directly measure how much underreporting is facilitated by cash payments, and the figure for recent years is likely to be different  However, it provides a general context for how much tax revenue the government does not collect due to underreporting that is at least in part made possible by cash transactions  Businesses have long set conditions under which they would not accept cash  For example, certain businesses refuse to accept high-denomination bills  However, according to anecdotal reporting, retail businesses are increasingly deciding that the costs of transacting in cash are high enough that they would rather not accept it at all  Notably, this is occurring at businesses at which transactions are typically in-person for small dollar amounts—traditionally viewed as the type of transactions for which cash is the least costly option  If these stories are in fact indicative of a sustained trend, widespread non-acceptance of cash could have a variety of effects on consumers, businesses, as well as society and the economy at large  One particular effect that has drawn significant attention, as well as litigation, is that non-acceptance of cash could potentially marginalize those that have limited access to the financial system or mobile technological devices  This issue is examined in the " Lack of Financial Access for Certain Groups " section later in the report  Were cash to decline as a payment system, the most likely replacement—at least at the current time—would appear to be traditional noncash, electronic payment systems, such as debit cards, credit cards, or payment mobile apps  In traditional noncash payment systems like those that are prevalent today, participants hold their money in an account at a bank or other financial intermediary that maintains accurate ledgers of how much money each customer has available  To make a payment, the payer instructs (using a physical check or an electronic message) the intermediary to transfer money to the recipient's account  If the recipient holds an account at a different intermediary, those intermediaries will send messages to each other via messaging networks connecting them, instructing each to make the necessary changes to their ledgers  The intermediaries validate the transaction, ensure the payer has sufficient funds for the payment, deduct the appropriate amount from the payer's account, and add that amount to the payee's account  For example, in the United States, a retail consumer may initiate an electronic payment by swiping a debit card, at which time an electronic message is sent over a network instructing the purchaser's bank to send payment to the seller's bank  Those banks then make the appropriate changes to their account ledgers (possibly using the Fed's payment system) reflecting that value has been transferred from the purchaser's account to the seller's account  As with physical currency, digital entries in account ledgers can serve the three functions of money well for use in payments  Instructions to change entries in a ledger can easily be sent, making the values in the ledger easily tradable  Numerical entries can be denominated in identical and divisible units, making them good units of account  Because numbers in a ledger can remain unchanged during periods when no transactions are made, they can serve as a store of value  According to the most recent complete Federal Reserve Payment S tudy on noncash payments, the number of traditional noncash payments made in the U S  totaled more than 144 billion transactions with a value of almost $178 trillion in 2015  These included payments via debit cards (69 5 billion transactions worth $2 56 trillion), credit cards (33 8 billion transactions worth $3 16 trillion), automated clearing house payments (ACH; 23 5 billion transactions worth $26 83 trillion), and check payments (17 3 billion payments worth $26 83 trillion)  Between 2012 and 2015, the number of transactions of the three electronic systems, debit, credit, and ACH, grew at annual rates of 7 1%, 8 0%, and 4 9%, respectively  Their values grew by 6 8%, 7 4%, and 4 0%, respectively  Check payments declined by an annual rate of 4 4% by number and 0 5% by value  According to a recent supplement to that study, both the growth of electronic payments and the decline of check payments accelerated in 2017  Payment based on physically exchanging currency has some notable shortcomings that can be addressed by a payment system based on maintaining account ledgers  One is that physical currency requires both the payer and the payee to either (1) be physically near each other, allowing the physical currency to pass from the possession of the former into the possession of the latter; or (2) have a sufficient trust in each other that the payee believes an assurance that he or she will receive the currency later  Another shortcoming is that holders of physical currency may have little recourse if it is lost, stolen, or accidentally destroyed  If, instead, money is exchanged by making valid changes in ledgers maintained by trusted intermediaries, the exchange can be accomplished without the risk of lost, stolen, or damaged currency  In addition, noncash systems can make payments fast, easy, and convenient  Using them decreases the need for people to make regular estimations of how much cash they need to have on a particular day, the frequency of trips to the bank or ATM to get cash, and the amount of time waiting for cashiers to make change  Instead, a plastic card or an app on a mobile device can replace those activities with a card swipe or button push  As information technology has progressed, the convenience has increased and the option to use electronic payments has become nearly ubiquitous  Until fairly recently, it was not uncommon for a retail establishment to reject card payments  Now, services such as Venmo, Apple Pay, and Google Pay, and card-reading devices, such as those made by Square, have made electronic payment options increasingly available, even for individuals to accept electronic payments from other individuals  The previously mentioned anecdotal reporting suggests there is a growing number of establishments that only accept electronic payments  For these systems to work well, participants must trust that banks and other intermediaries are keeping accurate ledgers that are changed only for valid transfers  Otherwise, an individual's money could be lost or stolen if a bank records the account as having an inaccurately low amount or transfers value without his or her permission  Another advantage of systems using traditional intermediaries is that they have a number of features that generate a high degree of trust and accuracy  Banks and other intermediaries have both a market and governmental incentive to be accurate  A bank or financial intermediary that does not have a good reputation for protecting a customer's money and processing transactions accurately would likely lose customers  In addition, governments typically subject banks to laws and regulations designed in part to ensure that banks are well run and that the money they hold is safe  As such, banks take substantial measures to ensure security and accuracy  In addition, intermediaries generally are required to provide certain protections to consumers involved in electronic transactions, in part to protect them from losses resulting from unauthorized transfers  For example, the Electronic Fund Transfer Act ( P L  95-630 ) limits consumers' liability for unauthorized transfers made using their accounts  Similarly, the Fair Credit Billing Act ( P L  93-495 ) requires credit card companies to take certain steps to correct billing errors, including when the goods or services a consumer purchased are not delivered as agreed  Both laws also require financial institutions to make certain disclosures to consumers related to the costs and terms of using an institution's services  Significant costs and physical infrastructure underlie systems for electronic money transfers to ensure the systems' integrity, performance, and availability  For example, payment system providers operate and maintain robust digital networks to connect retail locations with banks  The Fed operates and maintains electronics networks to connect banks to itself and each other  These intermediaries store and protect huge amounts of data  Because these intermediaries are generally highly regulated, they incur regulatory compliance costs  Intermediaries recoup the costs associated with these systems and regulations and earn profits by charging fees directly when the system is used (such as the fees a merchant pays to have a card reading machine and "swipe fees" on each card transaction) or by charging fees for related services (such as checking account fees)  It is difficult to quantify how much traditional noncash payment systems cost and what portion of those costs is passed on to consumers and businesses  Performing a quantitative analysis is beyond the scope of this report  What bears mentioning here is that certain costs of traditional payment systems—and, in particular, the fees intermediaries in those systems charge—have at times been high enough to raise policymakers' concern and elicit policy responses  For example, in response to businesses' assertions that Visa and MasterCard had exercised market power in setting debit card swipe fees at unfairly high levels, Congress included Section 1075 in the Dodd-Frank Consumer Protection and Wall Street Reform Act (Dodd-Frank Act; P L  111-203 )—sometimes called the Durbin Amendment  Section 1075 directs the Fed to limit debit card swipe fees charged by banks with assets of more than $10 billion  In addition, studies on unbanked and underbanked populations cite the fees associated with traditional bank accounts, a portion of which may be the result of providing payment services, as a possible cause for those populations' limited interaction with the traditional banking system  Although electronic payment systems protect customers from physical theft and are subject to a complex and sometimes overlapping array of state and federal laws, regulators, and regulations related to cybersecurity, they could nevertheless expose individuals to cyber-theft and identity theft  In addition, the systems themselves could be susceptible to disruption from cyberattacks  The occurrence of successful hacks of banks and other financial institutions, wherein huge amounts of individuals' personal information are stolen or compromised, illustrates cyber-related risks  For example, in 2014, JPMorgan Chase, the largest U S  bank, experienced a data breach that exposed financial records of 76 million households  However, no consensus exists on how best to reduce the occurrence of such incidents, and whether current cybersecurity measures and regulatory frameworks are effective and efficient in mitigating cybersecurity risk is an open question  For a more detailed examination of cybersecurity at financial institutions, see CRS Report R44429, Financial Services and Cybersecurity: The Federal Role , by N  Eric Weiss and M  Maureen Murphy  In addition, although the traditional electronic payment system is sufficiently fast and convenient to complete many transactions, other transactions can involve problematic delays  One such delay that can be particularly costly for consumers is the lag between when a payment (such as a paycheck) is deposited and when the full amount of the funds are available to the individual  Depending on factors related to which networks the payer's and payee's bank uses to process payments, it can take up to two business days (or more under certain circumstances) after a deposit is made for banks to fully validate, process, and settle the deposit  Settlement delays can create a situation in which an individual has made a deposit that would give sufficient funds to pay a bill that is due, but nevertheless may overdraw the account because the deposit is awaiting processing  In such a situation, the individual faces a choice between costly outcomes—a late payment penalty on the bill, an overdraft fee on the bank account, or a fee from a check cashing or payday lending service  These costs are likely disproportionately borne by low- or moderate-income individuals who typically have low balances in their bank accounts  Faster or immediate payment processing could potentially reduce or eliminate costs incurred by individuals facing this situation  While delays in the payment system may seem anachronistic at a time when digital messages can be sent and data processed nearly instantaneously, the fact remains that aspects of the systems, networks, and infrastructures used today (including those operated by the Fed) were developed and deployed decades ago  Both the Fed and private institutions are working to increase system speed and efforts are underway to make real-time payments in the United States the norm  However, payment system operators arguably have little incentive to achieve faster or real-time payments because (1) they are in compliance with the current requirement facing banks pursuant to the Expedited Funds Availability Act of 1987 ( P L  108-100 ) to generally make most types of deposits available by the second business day, (2) updating legacy systems is costly for the institutions that operate them, and (3) banks are generating revenue through overdraft fees  Currently, it appears that the traditional noncash payment systems described above likely would replace cash payments should cash usage significantly decline  However some observers, citing the various costs and disadvantages associated with those systems—including delays in processing as well as reliance on traditional financial intermediaries—point to alternative electronic payment systems as potential dominant payment systems of the future  Cryptocurrenc y , such as Bitcoin , is the most well-known of these alternatives  Described in more detail below, cryptocurrencies use blockchain technology and public or "distributed" ledgers to achieve validated transfers of digital representations of value  The use of these systems to make payments is quite rare relative to cash and traditional systems, and the role they will play in the future is speculative  Nevertheless, their potential to significantly affect the usage of cash and traditional systems for payments has drawn the attention of central banks  Some central banks are examining whether they should create a comparable payment system of digital currencies to offer the advantages of those systems themselves and to avoid being bypassed in the future  This section briefly describes (1) existing private alternative electronic payment systems and (2) possible future central bank-run systems  With respect to alternative electronic payment systems, the section examines their potential advantages, costs, and obstacles to their widespread adoption  With respect to a potential central bank-run system, which is more speculative at this time, the section examines potential advantages and obstacles to their widespread adoption and uncertainties they present  In general, private electronic payment systems using distributed ledgers allow individuals to establish an account identified by a string of numbers and characters (often called an address or public key ) that is paired with a password or private key known only to the account holder  A transaction occurs when two parties agree to transfer digital currency (perhaps in payment for a good or service) from one account to another  The buying party will "unlock" the currency used as payment with her private key, allowing some amount to be transferred from her account to the seller's  The seller then "locks" the currency in her account using her own private key  From the perspective of the individuals using the system, the mechanics are similar to authorizing payment on any website that requires an individual to enter a username and password  In addition, companies offer applications or interfaces that users can download onto a device to make transacting in cryptocurrencies more user-friendly  Many digital currency platforms use blockchain technology to validate changes to the ledgers  In a blockchain-enabled system, payments are validated on a public or "distributed" ledger by a decentralized network of system users and cryptographic protocols  In these systems, parties that otherwise do not know each other can exchange something of value (i e , a digital currency) not because they trust each other but because they trust the platform and its protocols to prevent invalid changes to the ledger  A notable feature of transfers using blockchain is that they require no centralized, trusted intermediary such as a bank, government central bank, or other financial or government institution  Proponents envision these systems could achieve instantaneous transfers, although they currently require minutes or hours to finalize transfers  The decentralized nature of digital currencies and their recent proliferation poses challenges to performing industry-wide analysis of their use in payments  For example, as of August 27, 2018, one industry group purported to track trading prices of 1,890 cryptocurrencies alone  For brevity and clarity, this report uses statistics on Bitcoin—the first and most well-known cryptocurrency, the total value of which accounts for more than half of the industry as a whole —as an illustrative example of a digital currency's use in payments  In January 2017, the price of a Bitcoin on an exchange was about $993  The price surged during the year, peaking at about $19,650 in December 2017, an almost 1,880% increase  However, the price then dramatically declined  Overall, the price of Bitcoin has experienced a high degree of volatility  On March 12, 2018, the price of Bitcoin was $3,860, down 80% from its peak  More recently, the price rebounded and was $5,948 on May 8, 2019  Although price data on Bitcoin illustrates the public interest in and overall demand for this cryptocurrency, it is a poor indicator of how often it is being exchanged for goods and services (i e , how often it is being used as money)  Certain analyses appear to show that digital currencies are not being widely used and accepted as payment for goods and services, but rather as investment vehicles  The number of Bitcoin transactions may serve as a better indicator—though a flawed one—of the use of Bitcoin as a payment system  This number reveals how many times Bitcoins are transferred between accounts each day, and data indicates the number of transactions is miniscule compared with those of traditional systems  For example, in 2019 through March 12, the Bitcoin system averaged about 310,000 transactions per day globally, a pace that would result in about 113 million transactions per year  Recall that in the United States alone, more than 144 billion traditional (nearly 1,275 times as many) noncash payments were made in 2015  Moreover, one problem with this measure it that it is a count of how many times two parties have exchanged Bitcoin, not a count of how many times Bitcoin has been used to buy something  Some portion of those exchanges, possibly a significantly large portion, is driven by investors giving fiat currency to an exchange to buy and hold the Bitcoin as an investment  In those transfers, Bitcoin is not acting as money (i e , not being exchanged for a good or service)  Advantages of Private Payment Systems Using Distributed Ledgers   As discussed in an earlier section, traditional electronic payment systems involve a number of intermediaries, such as government central banks and private financial institutions  To carry out transactions, these institutions operate and maintain extensive electronic networks and other infrastructure, employ workers, and require time to finalize transactions  To meet costs and earn profits, these institutions charge various user fees  Cryptocurrency advocates anticipate that a decentralized payment system operated through the internet could be less costly than traditional payment systems and existing infrastructures  However, whether such efficiencies can or will be achieved remains an open question  In addition, opening a bank account or otherwise using traditional electronic payment systems generally requires an individual to divulge to a financial institution certain basic personal information, such as name, Social Security number, and birthdate  Financial institutions store and may analyze or share this information  In some instances hackers have stolen personal information from financial institutions, causing concerns over how well these institutions can protect sensitive data  Individuals seeking a higher degree of privacy or control over their personal data than that afforded by traditional systems may choose to use an alternative digital currency system that provides a degree of pseudonymity or anonymity  Although inflation in the United States and other developed economies has been low in recent decades, some individuals may nevertheless believe that nontraditional digital money may maintain its value better than government-backed money in traditional systems  The dollar and most modern currencies are fiat money—that is, money that derives value based solely on government decree  Historically, incidents of hyperinflation in certain countries have seen government-backed currencies lose most or nearly all of their value  Thus, some individuals may judge the probability of their fiat money losing a significant portion of its value to be undesirably high  These individuals may place greater trust in the ability of a decentralized network using cryptographic protocols that limit the creation of new money to maintain stable value of money than in the ability of government institutions to do so  Obstacles to Widespread Adoption of Private Payment Systems Using Distributed Ledgers   Several characteristics of cryptocurrency undermine its ability to serve the functions of money in a payment system  Currently, a relatively small number of businesses and individuals use or accept cryptocurrency for payment  As discussed above, Bitcoin transactions have averaged about 310,000 per day globally  Cryptocurrency may be used as a medium of exchange less frequently than traditional money for several reasons  Unlike the dollar and most other government-backed currencies, cryptocurrencies are not legal tender, meaning creditors are not legally required to accept them to settle debts  Consumers and businesses also may be hesitant to place their trust in these systems because they have limited understanding of them  Relatedly, consumers and businesses may have sufficient trust in and be generally satisfied with traditional payment systems  The recent high volatility in the price of many cryptocurrencies undermines their ability to serve as a unit of account and a store of value  Cryptocurrencies can have significant value fluctuations within short periods of time; as a result, pricing goods and services in units of cryptocurrency would require frequent repricing and likely would cause confusion among buyers and sellers  Whether cryptocurrency systems are scalable —meaning their capacity can be increased in a cost-effective way without loss of functionality—is uncertain  At present, the systems underlying cryptocurrencies do not appear capable of processing the number of transactions that would be required of a widely adopted, global payment system  One concern involves the significant energy consumption required to run and cool the computers that validate the transactions on these platforms  Costs of Private Payment Systems Using Distributed Ledgers   As the energy consumption of a digital currency system demonstrates, these systems are not costless  In addition to energy, they require computer hardware and facilities  Often making payments on these platforms involves paying fees  Whether these direct economic costs of using the system are fixed or—as they develop and mature—become less than existing systems is an open question  Digital currency systems, at least as currently designed and regulated, also might impose other costs on society  Some critics of these systems fear their pseudonymous, decentralized nature may provide a new avenue for criminals to launder money, evade taxes, or sidestep financial sanctions  For example, Bitcoin was the currency used on the internet-based, illegal drug marketplace and Bitcoin escrow service called Silk Road  This marketplace facilitated more than 100,000 illegal drug sales from approximately January 2011 to October 2013, at which time the government shut down the website and arrested the individuals running the site  Consumer groups and other observers are also concerned that digital currency users are inadequately protected against unfair, deceptive, and abusive acts and practices  The way cryptocurrencies are sold, exchanged, or marketed can subject cryptocurrency exchanges or other cryptocurrency-related businesses to generally applicable consumer protection laws, and certain state laws and regulations are being applied to cryptocurrency-related businesses  However, other laws and regulations aimed at protecting consumers engaged in electronic financial transactions may not apply  For example, the Electronic Fund Transfer Act of 1978 (EFTA; P L  95-630 ) requires traditional financial institutions engaging in electronic fund transfers to make certain disclosures about fees, correct errors when identified by the consumer, and limit consumer liability in the event of unauthorized transfers  Because no bank or other centralized financial institution is involved in digital currency transactions, EFTA generally has not been applied to these transactions  In addition, the laws and regulations that do apply generally have not been implemented specifically to address digital currencies or related businesses  Whether the current regulatory regime applied to digital currency transactions, but originally implemented for different financial activities (e g , traditional money transmission), is effective and efficient is a debated issue  Finally, some central bankers and other experts and observers have speculated that the widespread adoption of cryptocurrencies could affect the ability of the Fed and other central banks to implement and transmit monetary policy  The Fed conducts monetary policy with the goals of achieving price stability and low unemployment  Like other central banks it achieves its goals by, putting it simply, controlling the amount of money in circulation in the economy  If one or more additional currencies that the government did not control the supply of were also prevalent and viable payment options, it could limit central banks' ability to transmit monetary policy to financial markets and the real economy  In this scenario, central banks likely would have to make larger adjustments to the fiat currency they do control to have the same effect as previous adjustments  Another possibility is that they would have to start buying and selling the digital currencies themselves in an effort to affect the availability of these currencies  These risks have led some central banks and other observers to suggest that perhaps central banks could issue their own digital currencies  The risks and challenges posed by private digital currencies have led some observers to suggest that perhaps central banks should offer their own central bank digital currencies (CBDCs) to realize certain hoped-for efficiencies in the payment system in a way that would be "safe, robust, and convenient " To date, no country has successfully created a CBDC for payment use by the general public  The extent to which a central bank could or would want to create a new, digital-only payment system likely would be weighed against the consideration that these government institutions already have trusted digital payment systems in place  Because of such considerations, the exact form that CBDCs would take could vary across a number of features and characteristics  Nevertheless, some central banks are examining the idea of CBDCs and the possible benefits and issues they may present  For the purposes of this discussion, this report examines a CBDC that would be available to consumers for retail payments  Some proposals would limit CBDCs to wholesale payments between banks and other financial institutions  Potential Advantages of CBDCs   Proponents of CBDCs generally argue they could provide efficiency gains over traditional legacy systems and contend that central banks could use the technologies underlying digital currencies to deploy a faster, less costly government-supported payment system  Observers have speculated that a CBDC could take the form of a central bank allowing individuals to hold accounts directly at the central bank  Advocates argue that a CBDC created in this way could increase systemic stability by imposing additional discipline on commercial banks  Because consumers would have the alternative of safe deposits made directly with the central bank, commercial banks likely would have to offer interest rates and limit risks at levels necessary to attract deposits above any deposit insurance limit  In addition, CBDCs could increase government revenue through a seignoriage-like mechanism  A more expansive definition of seignoriage is the income government obtains from having government liabilities act as money  Physical money—because it is liquid and low-risk—earns no interest rate and carries a cost to produce  Money—both physical and electronic in the traditional system—is also a balance sheet liability to the issuing authority, such as the Fed or other central banks  If the Fed allowed individuals to hold accounts directly with the Fed, the Fed would issue low- or no-interest liabilities to individuals (as electronic entries in a ledger produced at less cost than physical currency)  Then, as happens now, the Fed would use those liabilities to fund purchases of assets that earn a higher interest rate than what the Fed pays on liabilities  This would produce income, perhaps greater income than is earned through traditional seignoriage  Potential Obstacles to Creation of CBDCs   One of the main arguments critics—including various central bank officials—make against CBDCs is that there is no "compelling demonstrated need" for such a currency, because central banks and private banks already operate trusted electronic payment systems that generally offer fast, easy, and inexpensive transfers of value  Opponents also argue that a CBDC in the form of individual direct accounts at the central bank would reduce the role of private banks in financial intermediation and potentially expand the role of government central banks inappropriately  A portion of consumers likely would shift their deposits away from private banks toward central bank digital money, which would be a safe, government-backed liquid asset  Deprived of this funding, private banks likely would have to reduce their lending, leaving central banks to decide whether or how they should support lending markets to avoid a reduction in credit availability  In addition, skeptics of CBDCs object to the assertion that these currencies would increase systemic stability, arguing that CBDCs would create a less-stable system because they would facilitate runs on private banks  These critics argue that at the first signs of distress at an individual institution or the bank industry, depositors would transfer their funds to this alternative liquid, government-backed asset  Uncertaint y : CBDCs' Potential Effects on Monetary Policy   Observers also disagree over whether CBDCs would have a desirable effect on central banks' role and abilities in carrying out monetary policy  Proponents argue that, if individuals held a CBDC on which the central bank set interest rates, the central bank could directly transmit a policy rate to the macroeconomy, rather than achieving transmission through the rates the central bank charges banks and the indirect influence of rates in particular markets  In addition, if holding cash (which in effect has a 0% interest rate) were not an option for consumers, central banks potentially would be less constrained by the zero lower bound   The zero lower bound is the idea that the ability of individuals and businesses to hold cash and thus avoid negative interest rates limits central banks' ability to transmit negative interest rates to the economy  Critics argue that taking on such a direct and influential role in private financial markets is an inappropriately expansive role for a central bank  They assert that if CBDCs were to displace cash and private bank deposits, central banks would have to increase asset holdings, support lending markets, and otherwise provide a number of credit intermediation activities that private institutions currently perform in response to market conditions  As discussed above, although cash remains a frequently used payment system, other payment systems continue to develop that offer their own advantages and costs  Various trends suggest that due to market preference or government policy, the role of cash in the payment system has begun to decline and may continue to decline, perhaps significantly, in coming years  If the relative benefits and costs of cash and the various other payment methods evolve in such a way that cash is significantly displaced as a commonly accepted form of payment, that evolution could have a number of effects, both positive and negative, on the economy and society  This section of the report describes a number of potential benefits of a reduced role for cash in the U S  economy and the various risks and costs that may occur  Many of the factors discussed below may not occur wholly as a benefit, risk, or cost; rather, a potential benefit may bring with it a risk, and vice versa  Some observers argue that reducing or eliminating cash payments in the U S  economy will produce certain beneficial outcomes, including improved efficiency in payments, reduced criminality, and improved ability for the Fed to implement certain monetary policy  As discussed below, although these outcomes generally may be beneficial, that does not mean that there are not certain costs, or drawbacks, that may counterbalance these positive effects  Proponents of noncash payment systems assert that net economic benefits from the use and maintenance of a cash payment system are (or will become as technology advances) less than the net benefits of using and maintaining noncash systems  Put another way, they argue that the resources, labor, and capital that go into the cash system—for example, producing currency; stocking and maintaining ATMs; safely transporting cash; protecting businesses from theft and robbery—make it less efficient than noncash systems  If true—and absent policy interventions—market forces likely will result in the displacement of cash by other payment methods as businesses increasingly choose not to accept cash and consumers increasingly prefer not to use it  Under this scenario, although the payment system on net may be more efficient, it would not necessarily be true that all people would benefit, as is discussed in the " Potential Costs and Risks of a Reduced Role for Cash " section  Proponents of cashless societies assert that the elimination of cash would reduce crime by making operating an illegal enterprise more difficult and certain crimes, such as robbery and burglary, less remunerative  These proponents argue that criminals are more likely to conduct business in cash and to hold cash as an asset, in large part because cash is anonymous and allows them to avoid establishing relationships with and generating records at financial institutions that may be subject to anti-money laundering reporting and compliance requirements  Accordingly, they assert that the elimination of cash would be beneficial on net, because operating a criminal enterprise would become more difficult  Certain studies have shown that the prevalence of cash is correlated with the incidence of crime  In addition, the amount of "strong" currencies (i e , highly valuable and highly stable currencies) in circulation exceeds what many people would consider a reasonable amount needed for typical consumer transactions  For example, with the U S  population at approximately 329 million, the $1 6 trillion of currency in circulation equates to about $4,900 per person  Proponents of a cashless society assert that this number is inflated due in part to the cash demand of criminals (although part is also due to demand for the U S  dollar from abroad)  Although a robust analysis of this question is beyond the scope of this report, arguments that cash facilitates crime and even that reducing cash may reduce crime appear in certain cases to be well founded  However, when analyzing the net benefit to society of going cashless, reduced crime should be weighed against any cost that a reduction in cash would impose on legitimate cash users  One such legitimate group is examined in more detail in the " Lack of Financial Access for Certain Groups " section below  The effect a reduction in cash payments would have on crime should not be overstated, as criminals likely would seek other ways to commit and hide their crimes  For example, the prevalence of cybercrime may increase  Another benefit (from a macroeconomic perspective) of a cashless society cited by economists would be the potential elimination of the practical inability of central banks, such as the Fed, to implement negative interest rates  When an economy is in recession or otherwise performing poorly, one monetary policy response is to lower interest rates  Lower interest rates can spur companies to borrow in order to invest and spur consumers to borrow in order to make additional purchases, thus boosting economic activity and mitigating the impact of recessions  However, many economists believe that policymakers are constrained by a zero lower bound—that whatever policy rate they may set, interest rates in many markets will not fall below zero  The reason is that holding cash offers a zero interest rate  Thus, if the Fed attempted to implement negative interest rates, individuals could avoid those rates by transferring their funds into cash  If holding cash was not an available option, it would be easier for negative interest rates to be transmitted to more financial markets  However, any benefit provided by increasing policymakers' ability to affect the macroeconomy with negative interest rates should be weighed against the cost it would impose on the individual savers whose account balances would decrease in value during a period of negative interest rates  Skeptics of reducing or eliminating the role of cash in the economy assert that cash serves a number of beneficial purposes, and argue that eliminating it would have adverse effects on certain financially vulnerable groups, eliminate an asset that provides safety against cyber vulnerabilities and financial crises, and reduce individuals' privacy  As with potential benefits to a reduction in cash, many of the factors discussed below may not occur wholly as a risk or cost, and they must be weighed against potential benefits when considering their overall impact  If the United States were to move toward becoming a cashless society that required consumers to use noncash, electronic payment services, it could present difficulties for those segments of the population who lack access to the financial system or to an electronic network  Access to electronic payments typically requires an account with some financial institution, usually a bank  Often—and increasingly—it also involves using or accessing a device connected to the internet  However, these factors can present hardships and obstacles for certain vulnerable groups  The Federal Deposit Insurance Corporation reported that in the United States in 2015, 9 million households were unbanked, meaning that no member had a bank account  Of these, 37 8% reported that the main reason was that they do not have enough money to keep in an account, 9 4% reported that fees were too high, and 1 9% reported fees were unpredictable  In total, this indicates almost half of the total unbanked, or roughly 4 5 million households, do not access banking services due to economic obstacles  Sweden has been at the forefront of the move away from cash (see Appendix ), and observers there, including Stefan Ingves, governor of Sweden's central bank, have voiced some of these concerns about going cashless  In addition, anecdotal reporting indicates that retirees in Sweden are finding the change difficult and costly  In the United States, many assert that it would be beneficial to bring the unbanked into the banking system  Nevertheless, if the unbanked engaged with the banking system at a relatively high cost only because cash (which was a less expensive option for them) was no longer available, it would likely be a detrimental outcome for this group  Conversely, if the move to a cashless system led to less costly financial access for this group, they may stand to benefit  Proponents of cash often cite the robustness of physical currency as a payment system  Once in an individual's possession, cash does not rely on financial institutions or information technology (IT) based payment networks  These proponents argue that if payments became entirely electronic, events such as power outages, hacker attacks, or (in the event of future cyber war) a state-sponsored attack would be capable of shutting down the most simple financial transaction—the exchange of money for goods and services  The financial system is already exposed to these threats to varying degrees, but the argument is that the elimination of cash amplifies those risks  Because it functions well as a store of value, cash is a relatively safe asset in which to invest savings with no risk of losses resulting from a decline in a securities value or the failure of financial institutions or other entities  The perceived safety of cash and its non-reliance on financial institutions also makes it desirable in times of financial turmoil or distress, when confidence in such institutions decreases  During these periods, many people prefer assets that are free from credit risk  For some of these individuals, deposit insurance guarantees may not wholly eliminate their fear of losses, whereas the safety of physical currency would  Holding cash, then, could also provide a sense of security to risk-adverse people that may mistrust the financial system  Opening a bank account or otherwise using traditional noncash payment systems generally requires an individual to divulge certain basic personal information, such as name, Social Security number, and birthdate, to a financial institution  Financial institutions store this information and information about the transactions linked to this identity  Under certain circumstances, they may analyze or share this information, such as with a credit-reporting agency  In some instances hackers have stolen personal information from financial institutions, causing concerns over how well these institutions can protect sensitive data  Finally, provided it follows proper legal procedures, the government also can access this information under certain circumstances  Similarly, although new alternative payment systems may offer a degree of anonymity or pseudonymity, these systems still generate an unalterable record of transactions between parties  Cash, by contrast, can be used anonymously, and people may wish to use cash for legitimate purposes to ensure their privacy  Certain consumers who are uncomfortable divulging and generating private information—even basic information that a transaction occurred—may prefer cash to any electronic payment methods  Cash has a number of advantageous features that has made it a simple and robust payment system throughout most of human history  It is difficult to imagine conditions under which cash would be replaced entirely, and disappear from the economy, at least in the near future  Nevertheless, its hegemony as a payment system appears to have come to an end, as electronic payment systems have gained popularity, and the ubiquity of cash acceptance for in-person purchases also seems precarious  If noncash payment systems significantly displace cash and cash usage and acceptance significantly declines, there would be a number of effects (both positive and negative) on the economy and society  Now or in the near future, policymakers may face decisions about whether to impede or hasten the decline of cash and consider the implications of doing so  Two countries provide interesting case studies of market forces drastically changing the way a society makes payments  Sweden In recent years, the use of cash in Sweden has quickly and substantially declined, dropping from 40% to 13% of transactions between 2010 and 2018  In many cases, businesses no longer accept cash, and one survey indicated that two-thirds of small businesses planned to stop accepting cash  Anecdotal reporting indicates that about 5% of bank branches accept cash deposits or offer cash withdrawals  Furthermore, Sweden's central bank is examining the possibility of creating registered accounts for the purpose of issuing currency electronically  Reportedly, many Swedes are generally in favor of the trend (the displacement of cash is due largely to consumer preference), though some have voiced concerns about financial access issues that the change causes for certain groups, such as the elderly  Observers have put forward a number of explanations for the Sweden's growing preference for electronic payment methods such as cards and mobile app enabled payments  One argument asserts that Sweden is an especially technology savvy country  As such, Swedes are comfortable using electronic payment systems, and Swedish companies have developed fast and easy payment technologies, such as iZettle and Swish  Some observers also have suggested that Swedes are especially trusting of institutions and thus have fewer privacy concerns  Some have noted that the timing of the start of the decline in cash use among Swedes coincided with the start of a transition to new Swedish banknotes and coins  They suggest that this spurred people and businesses to make a switch not to the new bills and coins but instead to electronic payment methods  Kenya In 2007, a company named Safaricom—Kenya's largest mobile phone network operator—introduced a "mobile money" service called M-Pesa ("M" stands for "mobile" and "pesa" is the Swahili word for money)  Users of the service download a phone application and deposit cash with M-Pesa employees called "agents " They can then transfer money into any other M-Pesa account using their phone  Originally intended as a service for Kenyans who had moved to a city to earn money to send back home to rural areas, the service became tremendously popular as a general use payment system  By 2016, there were approximately 31 6 million mobile money accounts in Kenya, which had a total population of 47 6 million in 2017  Many observers identify the combination of lack of access to traditional banking services and the proliferation of mobile phones in Kenya as a driving factor for the expansion of M-Pesa and subsequent mobile money services  These observers argue that in Kenya, as with many developing and largely rural nations, both consumers and banks view financial and bank services as a business need of the rich  In 2006, before the introduction of M-Pesa, just 19% of Kenyans had bank accounts and there was 1 5 bank branches for every 100,000 people  However, 54% of Kenyans had their own mobile phone or access to one  Another explanation for the rise of mobile money is that Safaricom successfully identified a large, profitable, and previously untapped market in Kenya  Available mobile technology and its proliferation among the population meant low-cost money transfers could be profitably offered to lower-income consumers  Certain observers assert that the success of M-Pesa has caused Kenyan financial institutions to reevaluate their business models, shifting their focus to offering services to lower-income groups than they previously targeted, and cite the increase in bank accounts and the decline of the average account balances as evidence of this change  As a result, the portion of the Kenyan population with access to some type of formal financial services has grown from 27% in 2006 to 75% in 2017  Although mobile money appears to have filled a market need, the degree to which it has displaced cash should not be overstated  An official at Safaricom estimated in February 2018 that as many as 8 out of 10 transactions are still cash transactions, as Kenyans still reportedly prefer cash for small, in-person purchases because of convenience and using M-Pesa generally involves fees  In addition, workers are still generally paid in cash 


Report 2: To participate in federal student aid programs, postsecondary schools must be 1) certified by Education as eligible to participate in federal student aid programs, 2) accredited by a recognized accrediting agency— generally nongovernmental, nonprofit entities—and 3) authorized by the state in which the school is physically located  (See table 1 ) FSA is responsible for ensuring that schools with access to federal student aid are eligible and capable of properly administering federal student aid funds, according to standards established by Education and authorized by the Higher Education Act  These standards include requirements for schools related to communication, personnel, policies, procedures and reporting, and adequate checks and balances in a system of internal controls, among others  FSA is also responsible for conducting ongoing financial oversight of schools that receive federal student aid  This includes reviewing annual financial statement audits to assess a school’s financial responsibility and providing additional oversight to schools that do not meet financial responsibility standards outlined in the Higher Education Act  Schools that participate in federal student aid programs generally are required to submit annual compliance audits  The compliance audit provides information that FSA can use to assess the school’s administration of federal student aid programs and to identify schools that require additional oversight because they do not fully comply with federal student aid administrative requirements  The OIG is required to assess the quality of school compliance audits and selects a sample to review each year  The OIG reviews the audit documentation to ensure that it supports the auditor’s opinions and that the audit results are reliable  According to agency guidance, FSA staff should refer compliance audits to the OIG for a quality review if they have any concerns about the quality of the audits  Both FSA and OIG officials stated that the OIG has primary responsibility for issues related to audit quality  When a school first applies to be certified to administer federal student aid, FSA will either approve the school for provisional certification— generally for 1 year—or deny certification (see fig  1)  Once a school is approved for initial certification and applies for recertification, FSA will provisionally or fully recertify the school, or deny certification  According to FSA procedures, FSA uses provisional certification for initial, or first time, applicants, as well as schools that are applying for recertification  Provisional certification is the only approval status available to new schools  In addition, FSA may decide to recertify a school provisionally if it determines that a school has not fully complied with federal student aid requirements  FSA prohibits provisionally certified schools from opening new campus locations or offering new programs without approval from FSA, and provisionally certified schools that are denied recertification have a less substantive appeals process than fully certified schools  Further, recertified schools in provisional status are subject to more FSA oversight than schools that are fully certified  FSA procedures allow for some discretion in determining for how long to certify a school  Provisional recertification generally lasts 1 to 3 years, while full recertification generally lasts 4 to 6 years  Education’s FSA regional staff draw information from a variety of sources during the certification process to assess a school’s capability to administer federal student aid  According to FSA documents, regional staff are to review information collected from schools and third parties, such as annual compliance audits conducted by independent auditors, among other information sources  FSA staff responsible for different functional areas, such as financial and compliance audits, accreditation status, and student loan default rates, compile and review information on schools, according to FSA procedures  FSA officials told us that these staff meet to discuss any potential program eligibility issues and to ensure that all information relevant to a school is considered before making a certification decision  FSA’s certification procedures outline some of the key information that regional staff should assess, some of which is relevant to both initial and recertification decisions, and some of which is specific to each type of certification process (see fig  2)  Documents and policies provided by schools: FSA regional staff are directed to review documents submitted by schools, including school catalogs, and certain school policies—such as admissions and student refund policies—that are relevant to assessing administrative capability  Proof of accreditation: School accreditors are responsible for applying and enforcing standards to help ensure that the education offered by schools is of sufficient quality to achieve program objectives  Accreditation of schools, which generally includes a site visit, takes place on a cycle that may range from every few years to as many as 10 years  Proof of state authorization: States are responsible for authorizing schools to offer postsecondary education and respond to student complaints  The process for approving schools varies from state to state and may include on-site visits  Audited financial statements: FSA regional staff are directed to review information in audited financial statements to assess schools’ financial health  Schools are required to have annual audited financial statements issued by an independent certified public accountant or a government auditor  Self-reported school data: FSA regional staff are instructed to review data on continual student enrollment in eligible academic programs and student withdrawal rates  Pre-certification review and school outreach: FSA staff are responsible for contacting school personnel to verify the school’s application information and discuss relevant policies, procedures, and other materials relevant to administering federal student aid  FSA visits to newly certified schools: After schools first apply and are provisionally certified, Education requires FSA regional staff to contact them within 3 months and schedule an on-site school visit  Schools cannot administer federal student aid until they are certified, so FSA has limited information on how newly certified schools are administering federal student aid programs  School visits provide FSA with an opportunity to collect additional information about a provisionally certified school’s ability to administer federal student aid  Some FSA regional staff we interviewed told us that on-site visits to newly certified schools provide valuable first-hand information about whether these schools are administering federal student aid in accordance with program requirements  If FSA regional staff find that a school is having difficulties administering federal student aid, FSA procedures direct regional staff to assist schools by providing clarification and guidance on federal student aid policies, recommending additional training for school officials, and helping schools develop a plan to track and report on their corrective actions, among other things  Compliance audits: FSA staff are directed to review information in compliance audits to determine if schools are complying with specific federal student aid requirements  Generally, compliance audits are required to be conducted annually by an independent auditor, and submitted with the school’s audited financial statements  Program reviews: FSA regional staff are also responsible for conducting program reviews, usually on site, which evaluate school compliance with federal requirements and can provide more in-depth information on schools than compliance audits, according to some FSA staff we interviewed  Generally, FSA selects schools for program reviews that it considers to be at risk for noncompliance, according to Education documents  FSA conducts approximately 250 to 300 program reviews per year, according to FSA documentation  FSA staff from all four of our selected regional offices told us they consider results from any recent program review in decisions about recertification and noted that such information, when available, is valuable for assessing schools’ administrative capability  Education data: FSA regional office staff are also directed to review data on student loan default rates  From calendar years 2006 through 2017, FSA approved most schools applying for certification to receive federal student aid, according to Education data  From 2006 through 2017, FSA approved 89 percent of schools new to administering federal student aid for provisional certification and denied 11 percent of schools overall (see fig  3)  Denial rates for initial certification were 11 percent for public and for-profit schools and 14 percent for nonprofit schools  For more information on 2006-2017 school certification outcomes by year, see appendix I  FSA regional staff responsible for reviewing school applications told us that schools are denied initial certification for issues such as a lack of accreditation, not offering eligible programs for federal student aid, or not meeting other statutory eligibility requirements  For example, FSA staff said that for-profit and vocational schools that apply for initial certification are required to provide an eligible program continuously for 2 years prior to their initial application  FSA staff may also advise schools that do not meet basic eligibility requirements not to apply, which could result in fewer initial certification denials overall  In addition, FSA staff said they often work with schools to address compliance problems, for example, by providing guidance on revising school policies that do not meet requirements, so that the schools are able to meet FSA’s certification requirements  From 2006 through 2017, 76 percent of schools applying for recertification were fully recertified, 21 percent were provisionally recertified, and 3 percent were denied recertification  Sixty-six percent of for-profit schools were fully recertified, 28 percent were provisionally recertified, and 6 percent were denied  In comparison, 86 percent of public schools were fully recertified, 14 percent were provisionally recertified, and fewer than 1 percent were denied  Nonprofit schools had rates similar to public schools, with 80 percent fully recertified, 18 percent provisionally recertified, and 2 percent denied (see fig 4)  FSA staff from all four of our selected regional offices told us that they typically deny recertification when a school no longer meets eligibility requirements, such as losing accreditation, or when there is significant evidence of serious issues or massive wrongdoing, such as fraud  For example, managers in one regional office told us they denied recertification for a school because they had evidence that the school was accepting students without valid high school diplomas and referring them to diploma mills to boost enrollment  Staff in two FSA regional offices told us that they can also choose to fully recertify a school for shorter periods of time if they uncover issues related to administrative capability  For example, one regional staff member told us that when they found a school’s default rate for one federal student loan program had been high for the prior 3 years, the regional office decided to shorten the school’s full recertification period from 6 to 4 years, to allow FSA staff to review the school again sooner

ground_truth: Electronic forms of payment have become increasingly available, convenient, and cost efficient due to technological advances in digitization and data processing. Anecdotal reporting and certain analyses suggest that businesses and consumers are increasingly eschewing cash payments in favor of electronic payment methods. Such trends have led analysts and policymakers to examine the possibility that the use and acceptance of cash will significantly decline in coming years and to consider the effects of such an evolution. Cash is still a common and widely accepted payment system in the United States. Cash's advantages include its simplicity and robustness as a payment system that requires no ancillary technologies. In addition, it provides privacy in transactions and protection from cyber threats or financial institution failures. However, using cash involves costs to businesses and consumers who pay fees to obtain, manage, and protect cash and exposes its users to loss through misplacement, theft, or accidental destruction of physical currency. Cash also concurrently generates government revenues through "profits" earned by producing it and by acting as interest-free liabilities to the Federal Reserve (in contrast to reserve balances on which the Federal Reserve pays interest), while reducing government revenues by facilitating some tax avoidance. The relative advantages and costs of various payment methods will largely determine whether and to what degree electronic payment systems will displace cash. Traditional noncash payment systems (such as credit and debit cards and interbank clearing systems) involving intermediaries such as banks and central banks address some of the shortcomings of cash payments. These systems can execute payments over physical distance, allow businesses and consumers to avoid some of the costs and risks of using cash, and are run by generally trusted and closely regulated intermediaries. However, the maintenance and operation of legacy noncash systems involve their own costs, and the intermediaries charge fees to recoup those costs and earn profits. The time it takes to finalize certain transactions—including crediting customer accounts for check or electronic deposits—can lead to consumers incurring additional costs. In addition, these systems involve cybersecurity risks and generally require customers to divulge their private personal information to gain system access, which raises privacy concerns. To date, the migration away from cash has largely been in favor of traditional noncash payment systems; however, some observers predict new alternative systems will play a larger role in the future. Such alternative systems aim to address some of the inefficiencies and risks of traditional noncash systems, but face obstacles to achieving that aim and involve costs of their own. Private systems using distributed ledger technology, such as cryptocurrencies, may not serve the main functions of money well and face challenges to widespread acceptance and technological scalability. These systems also raise concerns among certain observers related to whether these systems could facilitate crime, provide inadequate protections to consumers, and may adversely affect governments' ability to implement or transmit monetary policy. The potential for increased payment efficiency from these systems is promising enough that certain central banks have investigated the possibility of issuing government-backed, electronic-only currencies—called central bank digital currencies (CBDCs)—in such a way that the benefits of certain alternative payment systems could be realized with appropriately mitigated risk. How CBDCs would be created and function are still matters of speculation at this time, and the possibility of their introduction raises questions about the appropriate role of a central bank in the financial system and the economy. If the relative benefits and costs of cash and the various other payment methods evolve in such a way that cash is significantly displaced as a commonly accepted form of payment, that evolution could have a number of effects, both positive and negative, on the economy and society. Proponents of reducing cash usage (or even eliminating it all together and becoming a cashless society) argue that doing so will generate important benefits, including potentially improved efficiency of the payment system, a reduction of crime, and less constrained monetary policy. Proponents of maintaining cash as a payment option argue that significant reductions in cash usage and acceptance would further marginalize people with limited access to the financial system, increase the financial system's vulnerability to cyberattack, and reduce personal privacy. Based on their assessment of the magnitude of these benefits and costs and the likelihood that market forces will displace cash as a payment system, policymakers may choose to encourage or discourage this trend.

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



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



Report 2:  FSA staff from all four of our selected regional offices told us that they provisionally certify schools for a variety of reasons, including when a school submits a late compliance audit or when a recent compliance audit indicates that a school could potentially have significant problems  Generally, schools in provisional certification status are subject to additional monitoring by FSA compared to schools that have been fully certified  For example, Education officials said that if they have concerns about a provisionally certified school’s student withdrawal rate, they can add provisional conditions requiring the school to submit monthly enrollment rosters for review  Staff in two FSA regional offices told us that in other cases, if they have concerns about how a school is administering federal student aid or suspected fraud, they can put a school on provisional status and conduct a program review to collect more detailed information on compliance with federal requirements  Education data also show that most schools remain in provisional status the first time they are recertified—62 percent from 2006 to 2017  In contrast, FSA staff fully recertified over three-quarters of schools that applied for recertification a second time during the same time period (see table 2)  For more information on first and second recertification outcomes by school sector, see appendix II  We found that FSA generally relies on compliance audits as the only annual on-site review to determine how schools applying for recertification administer federal student aid  The audits provide direct information collected by independent auditors from school visits and file reviews examining how schools administer federal student aid and comply with program requirements  For example, OIG audit guidance directs auditors to check whether schools are distributing federal student aid to eligible students and accurately calculating student loan amounts  FSA officials and staff from all four of our selected regional offices said that compliance audits are a key source of information they use to assess a school’s administrative capability  Officials from Education’s OIG said that the quality of information in compliance audits varies substantially and depends on the auditor  The OIG has found quality problems in some of the compliance audits it selects—based on auditor and school risk factors—for its annual quality control reviews  Because the OIG selects higher risk audits to review, its reviews are more likely to detect problems, and OIG officials said they cannot make any conclusions about the overall prevalence of quality problems in compliance audits  However, our analysis of OIG quality review data found that of the 739 compliance audits reviewed by the OIG from fiscal years 2006 through 2017, the OIG passed 23 percent (173) and failed 59 percent (436)  An additional 18 percent (130) passed with deficiencies  For example, across the 41 compliance audits it reviewed in fiscal year 2016, the OIG identified 264 quality deficiencies with the auditor’s work, according to our analysis of quality reviews provided by the OIG  The most frequently cited issues in these 41 audits were: reporting (24 audits), such as lack of evidence that the auditor tested whether the school correctly reported student enrollment status; student eligibility (20 audits), such as lack of evidence that the auditor verified student school attendance; and administrative capability (19 audits), such as lack of evidence that the auditor determined whether the accreditor had been notified about a change in school ownership within 10 days  FSA officials also identified quality issues with the compliance audits of some schools  FSA headquarters officials and staff we interviewed in several regional offices said they have seen schools with significant program review findings that had not been identified in annual compliance audits  FSA staff said they have referred some compliance audits to the OIG for quality reviews when they have had questions about the thoroughness of an audit  We also found a couple of examples in our review of school certification documents in which the findings identified in a school’s compliance audit were different from the findings identified by FSA in a program review of the same school covering the same time period  In one case, FSA staff said they probably would have fully recertified the school if they had relied solely on the compliance audit  Instead, they used the program review to determine that the school should be provisionally recertified  Compliance audits and program review findings are based on a sample of student records, and FSA staff said some differences in findings might be explained by differences in the records reviewed  FSA and OIG officials cited several issues that can affect the quality of compliance audits  FSA and OIG officials we interviewed said that some auditors conducting compliance audits have insufficient training in federal student aid, which contributes to audit quality problems  OIG staff also said that even if an auditor meets the general training hour requirements for auditors, the training content may not be relevant for federal student aid audits  In addition, FSA and OIG officials said some schools— particularly smaller schools—tend to hire less experienced auditors in order to save money, often resulting in poor quality audits  FSA officials in most selected regional offices said that additional training on federal student aid for auditors who are new to or unfamiliar with federal student aid could help improve audit quality  FSA and the OIG recently have taken steps to address audit quality and the information available to FSA staff when making certification decisions  These efforts include: Training for auditors: The OIG has taken steps to enhance training offered to auditors of schools’ administration of federal student aid and is exploring opportunities to provide additional training  In December 2017, the OIG and the American Institute of Certified Public Accountants cosponsored training for auditors on the OIG’s 2016 revised guide for audits of for-profit schools, and other topics related to auditing federal student aid  The training included discussion of common audit quality issues and areas of highest risk  According to an OIG official, about 200 auditors attended, and after the event, the American Institute of Certified Public Accountants and the OIG posted a recording of the training to their websites to make it available to additional auditors  In addition, OIG officials said they maintain an email account—listed on the OIG website—through which auditors can ask questions and receive responses  In March 2018, the OIG posted frequently asked questions and answers to the website  Timeliness of OIG quality reviews: Both FSA and OIG officials said that the OIG has recently renewed efforts to issue compliance audit quality reviews more quickly, after several years in which staffing shortages and other issues led to some delayed quality reviews  Guidance to schools on selecting an auditor: OIG officials said that at the 2017 FSA training conference for school financial aid staff, they presented to more than 400 participants about factors schools should consider when hiring an auditor  For example, they suggested that schools verify the licenses of certified public accountants, ask about the types of engagements an auditing firm has conducted, request and check references, check for any actions that may have been taken against a firm, and ask whether the auditor has been subject to a previous review by the OIG or another agency  FSA officials said they expected to invite the OIG to present at future FSA conferences, and OIG officials said they were seeking additional opportunities to share information on auditor selection with schools, including a planned presentation to an association of postsecondary schools  FSA working group: FSA recently established a working group to update its guidance to FSA staff on how to coordinate with the OIG to address compliance audits with quality problems  Among other topics, the working group has consulted with the OIG about how schools are made aware of the OIG’s findings regarding the quality of their audits  FSA officials said that OIG officials have provided input and feedback on FSA’s proposed changes to the guidance  Audit guide revisions: In addition, OIG and FSA staff told us they expected the OIG’s 2016 revisions to the for-profit school audit guide to improve the quality of compliance audits for those schools  They said that because the revised guide clarified some issues that were confusing to auditors in the previous guide issued in 2000, auditors might be better able to implement the guidance  The audit guide revisions include more testing and reporting requirements, clarified procedures, and guidance on issues such as fraud reporting and coordinating financial and compliance audits  The 2016 revisions first applied to audits for fiscal years beginning after June 30, 2016, and FSA began receiving those audits at the end of 2017  In addition, although the OIG’s 2016 revisions only apply to audits of for-profit schools, FSA officials said they planned to establish a working group to consider improvements to audit guidance for public and nonprofit schools  FSA and OIG efforts to address audit quality could help ensure that compliance audits provide accurate and reliable information on school administrative capability for Education’s recertification decisions  We provided a draft of this report to Education for review and comment  Education’s Office of Inspector General provided technical comments, which we considered and incorporated as appropriate  Education did not provide other comments on the report  We are sending copies of this report to the appropriate congressional committees; the Secretary of Education; 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 (617) 788-0534 or emreyarrasm@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 III  In addition to the contact named above, Michelle St  Pierre (Assistant Director), Kristy Kennedy (Analyst-in-Charge), Edward Bodine, Marissa Jones, and Mark Ward made significant contributions  Also contributing to this report were Susan Aschoff, Deborah Bland, Nagla’a El-Hodiri, Monika Gomez, Sheila R  McCoy, Jessica Orr, Mimi Nguyen, John Mingus, Rhiannon Patterson, Monica Savoy, Benjamin Sinoff, and Rosemary Torres Lerma 
Report 2:  When interested entities contact VA to request information on the CHIP-IN pilot, VA officials told us they find the entities are often surprised by the donation commitment  For example, two entities that responded to VA’s RFI told us they were not clear about the donation requirement or the expected level of donation, or both  One respondent did not understand the pilot required a donation and would not provide an opportunity for a financial return on investment  Another respondent indicated that when they asked VA for clarification about the expected project’s scope, personnel from a headquarters office and the local VA medical center could not fully answer their questions  VA officials acknowledged these challenges and said they have changed their outreach efforts to focus on certain potential CHIP-IN locations, rather than RFIs aimed at a broader audience  Further, VA officials said that when speaking with potential donors going forward, they plan to involve a small group of officials who are knowledgeable about the pilot and its donation approach  Internal communication  While VA initially experienced some challenges in ensuring that all relevant internal stakeholders have been included in the pilot’s implementation, according to officials, the agency has taken recent steps to address this concern and involve appropriate internal offices  For example, officials from the Capital Asset Management Office said they could have assisted ORP in narrowing the list of potential projects in the RFIs but were not consulted  Later, after revising the marketing approach, ORP reached out to the Capital Asset Management Office and other relevant offices for help in determining priority locations for additional CHIP-IN projects, according to an ORP official  Officials from the Capital Asset Management Office told us that with improved engagement they were able to participate more actively in discussions about the pilot  In addition, initial plans for the CHIP-IN steering committee did not include VHA representation  However, in summer 2018 ORP expanded the planned steering committee to include VHA representatives, a plan that some other VA offices told us is needed to ensure that the pilot addresses the agency’s healthcare needs and that VHA offices are informed about pilot efforts  Based on the experience with the Omaha project, the CHIP-IN donation approach can result in potential cost and time savings—through the leveraging of private-sector funding, contracting, and construction practices—according to VA officials and the Omaha donor group  Regarding cost savings, one VA official stated that using donations makes VA’s appropriated funds available to cover other costs  In addition, based on the experience with the Omaha project, other VA officials told us that a CHIP-IN project can potentially be completed for a lower cost because of practices resulting from private sector leadership  Specifically, VA estimated that the Omaha ambulatory care center would cost about $120 million for VA to build outside of a donation partnership—as a standard federal construction project  Under the CHIP-IN pilot, however, the total estimated cost of the Omaha facility is $86 million—achieving a potential $34 million cost savings  Regarding time savings, CHIP-IN projects can potentially be completed at a faster pace because of the use of certain private sector practices and because projects can be addressed earlier than they otherwise would be, according to VA officials  The use of private-sector building practices can result in cost and time savings in a number of ways, according to VA officials and the Omaha donor group, as follows: The use of private-sector building standards contributed to cost savings for the Omaha project, according to VA officials and donor group representatives  VA and the donor group negotiated a combination of industry and VA building standards  A CFM official told us that using this approach and working with the private sector donor group encouraged the design team to think creatively about the risk assessment process and about how to meet the intent of VA’s physical security standards, but at a lower cost than if they were required to build a facility using all of VA’s building standards as written  For example, when assessing the safety and physical-security risk, the donor group and VA identified a location where two sides of the facility will not have direct exposure to the public or roadway traffic  Prohibiting exposure to roadways on two sides of the facility will mean spending less money to harden (i e , protect) the facility against threats such as vehicular ramming  According to VA officials, using the combined standards did not compromise security on the Omaha project  Involving the general contractor early on in the design for the Omaha project, an approach VA does not typically take, contributed to both time and cost savings  VA officials told us that engaging the general contractor during the project’s design stage allowed the project to begin more quickly and was also helpful in obtaining information about costs and keeping the project within budget  However, VA officials said that depending on the project and contracting method used, it might not be possible to apply this contracting practice to VA construction projects outside of the pilot program  A private-sector design review method helped to save time  The Omaha donor group used a software package that allowed all design- document reviewers to simultaneously review design documents and then store their comments in a single place  VA officials said this approach was more efficient than VA’s typical review method and cut about 18 weeks from the project’s timeline  VA officials also said use of this software was a best practice that could be applied to VA construction projects more broadly  In addition, the donor group and VA employed fewer rounds of design reviews than VA typically uses; this streamlining also helped to save time during the design process, according to VA officials  Further, VA officials said that the CHIP-IN donation approach can allow VA to address projects more quickly because they are addressed outside of VA’s typical selection and funding process  For example, VA officials told us that because of the agency’s current major construction backlog, using the CHIP-IN donation approach allowed work on the Omaha project to begin at least 5 years sooner than if the CHIP-IN approach had not been used  The Omaha project’s priority was low relative to other potential projects, so that it was unlikely to receive additional funding for construction for several years  For example, one agency official noted that even if the project was at the top of VA’s priorities, there is a backlog of 20 major construction projects worth $5 billion ahead of it—meaning the Omaha project would probably not be addressed for at least 5 years  VA officials also told us that as they consider future CHIP-IN projects, they are looking for other projects that, like the one in Omaha, are needed, but may not be a top priority given available funding and could be moved forward with a private sector donation  In addition, use of the CHIP-IN donation approach and decision to pursue an ambulatory care center contributed to an earlier start on a project to address veterans’ needs  However, as mentioned earlier, VA officials said that future construction projects will be necessary to address some needs that were part of the original replacement medical center plan  A main challenge to establishing pilot partnerships is the reliance on large philanthropic donations, according to VA officials, the Omaha donor group, and RFI respondents  In general, the potential donor pool may not be extensive given the size of the expected donations—in some cases tens or hundreds of millions of dollars—and the conditions under which the donations must be made  For example, as discussed earlier, VA officials said that when interested entities contact them about the pilot, they are often surprised by the donation commitment  When we spoke with two entities that responded to VA’s RFI, one told us that they “could not afford to work for free” under the pilot while another told us that developers are more likely to participate in the pilot if they see an incentive, or a return on their financial contribution  Also, VA officials told us that some potential project locations have not received any appropriations—making the projects’ implementation less appealing to potential donors  The Omaha donor group noted that a VA financial contribution at or above 50 percent of a project’s estimated cost is essential for demonstrating the agency’s commitment and for leveraging private-sector donations  To address challenges involving the philanthropic nature of the pilot, ORP officials told us that VA has tried to identify strategies or incentives that could encourage donor involvement  For example, the CHIP-IN steering committee is considering what incentives might be effective to encourage greater participation  One ORP official told us that such incentives could include potential naming opportunities (that is, authority to name items such as facility floors, wings, or the actual facility), although offering such incentives may require changes in VA’s authority  Further, because it may be difficult to secure donations for larger, more costly projects, some VA officials, donor group representatives, and one RFI respondent we spoke to suggested that VA consider developing less costly CHIP-IN projects—giving VA a better chance of serving veterans by filling gaps in service needs  Other VA officials, however, said they wanted to focus on larger projects because the pilot allows only five projects  Another challenge is that VA generally does not possess marketing and philanthropic development experience  VA officials told us that this makes the inherent challenge of finding donors more difficult  While VA officials have used the assistance of a nonprofit entity that has marketing expertise, they also said that going forward it would be helpful to have staff with relevant marketing and philanthropic development experience to assist with identifying donors  VA officials said this expertise could possibly be acquired through hiring a contractor, but funding such a hire may be difficult within their existing resources  As discussed above, the CHIP-IN pilot presents an uncharted approach to VA’s implementation of projects, and using CHIP-IN has aspects of an organizational transformation in property acquisition for the agency because it leverages donation partnerships and streamlines VA’s typical funding process  We have found that a key practice of organizational transformation includes a dedicated implementation team to manage the transformation process and that leading practices for cross-functional teams include clear roles and responsibilities, and committed members with relevant expertise  VA officials and Omaha donor group representatives acknowledged that a dedicated CHIP-IN team could help focus pilot implementation—and that no such team existed within the agency  ORP officials told us that the newly formed CHIP-IN steering committee would provide the necessary leadership for pilot implementation  They anticipate that a working group will be part of the committee and serve as a dedicated team for the pilot  However, as discussed below, roles and responsibilities have not been defined and staff resource decisions have not been made  Clear and documented roles and responsibilities  Several VA officials told us that responsibility for managing the overall pilot effort had not been assigned, and that they had different interpretations of which office had responsibility for leading the pilot  Some officials identified ORP as the leader, while others thought it was CFM or the Center for Strategic Partnerships  One CFM official told us that a clear definition of responsibilities is needed under the pilot along with a dedicated office or person with the ability to make decisions when an impasse across offices exists  Similarly, a senior VHA official told us that leadership roles and responsibilities for the pilot are not fully understood within the agency, which has made establishing partnerships under the pilot a challenge  For example, both VA officials and Omaha donor group representatives identified the lack of a senior-level leader for the pilot as a challenge and emphasized the need for strong pilot leadership going forward  Now that a CHIP-IN steering committee is being formed to provide pilot leadership, ORP officials intend to discuss committee members’ roles and responsibilities  This discussion was planned for the first committee meeting but was rescheduled for the next meeting in October 2018  ORP officials, however, told us that they do not expect to assign individual members’ roles and responsibilities until a future date  VA officials did not have a timeline for when committee or individual members’ roles and responsibilities would be formally documented  ORP officials said that roles and responsibilities for the pilot have not been defined because after enactment of the CHIP-IN Act, their first priority was to engage the Omaha donor group and negotiate an agreement  Later, after the Omaha project was progressing, ORP officials said they turned their attention to formalizing the pilot program and identifying additional donation partnerships  While it is important to concentrate on completion of individual projects, it is also important to plan for the overall pilot’s implementation—to help ensure that the pilot’s purpose and goals are met and in a timely manner  We have found that clarifying roles and responsibilities is an important activity in facilitating strong collaboration and building effective cross-functional teams  In addition, we have found that articulating roles and responsibilities is a powerful tool in collaboration and that it is beneficial to detail such collaborations in a formal, written document  Committed team members  Various VA offices and staff members have worked on the CHIP-IN pilot in addition to their other responsibilities, but several VA officials told us the resources currently dedicated to the pilot are insufficient  During our review, an ORP official told us that two ORP staff each spent about 4 to 6 hours per week on the pilot, as collateral duties  However, since that time, one of these two staff members has left the agency  A senior VA official told us that ORP and the Center for Strategic Partnerships could each use two to three more dedicated staff members to work solely on the pilot  While one ORP official said that additional staff would likely be assigned after other CHIP-IN projects are identified, a Center for Strategic Partnerships official said a specified percentage of staff time should be dedicated now to identifying potential donors  As mentioned above, VA officials told us they anticipate a working group will be part of the CHIP-IN steering committee and will serve as the dedicated team to implement the pilot  However, VA has not yet documented how it will staff the working group, including how it will obtain the needed expertise within its existing resources  According to one VA official, staff had not been initially dedicated to the pilot because the CHIP-IN Act did not provide resources to fund a dedicated team for the pilot, so VA has needed to implement the pilot within its existing resources  This VA official also told us that they were not certain VA could support a dedicated team with existing resources  Another official indicated that VA would need to consider how to incorporate CHIP-IN into the agency’s operations if the pilot program were expanded beyond the initial pilot and then dedicate needed resources  Dedicating a strong and stable implementation team is important to ensuring that the effort receives the focused, full-time attention needed  Team members with relevant knowledge and expertise  As previously discussed, VA officials told us that it would be helpful for a CHIP-IN team to include stakeholders with certain expertise, such as marketing and philanthropic development experience  In addition, representatives from the Omaha donor group said going forward, proactive public relations expertise is needed from VA headquarters (in particular, for external communications outside of the partnership) to quickly and positively address any incidents that could negatively impact VA’s ability to encourage donor participation in the pilot at the local level  For example, in the event of critical news reports about a local VA facility, such as what occurred in Omaha, donor group representatives said that additional public relations support would be helpful  VA officials also told us that a CHIP-IN team should be a collaborative effort across several offices  Specifically, one senior VA official said a cross-functional team with representation from ORP, CFM Operations, the Center for Strategic Partnerships, VHA, and the Office of Asset Enterprise Management (which has budget and finance expertise) would be useful in focusing and implementing the pilot  Leading practices for cross-functional teams include having members with a wide diversity of knowledge and expertise  Having a dedicated team or working group that consists of committed members with clear roles and responsibilities could assist VA in implementing the CHIP-IN pilot  For example, the working group could focus time and attention on strengthening design of the pilot program as a whole, instead of implementing projects on a piecemeal basis  Further, clearly identifying and documenting roles and responsibilities could help relevant stakeholders define and agree upon pilot objectives as well as an assessment methodology and evaluation plan  In addition, including stakeholders with relevant expertise on the dedicated team may assist VA in identifying viable projects and negotiating partnership agreements more readily  The CHIP-IN pilot is a unique, time-limited opportunity for VA to test a new way of building needed medical facilities by using non-federal funding sources—donors—to leverage federal funds  Though the first project is still under way, stakeholders have already noted benefits of the donation partnership approach, including potential cost and time savings as well as learning about private sector practices that could be applied more broadly to VA construction  However, VA is not yet collecting the information it needs to support decisions by VA or Congress about the pilot  Without a strengthened pilot design—including measurable objectives, an assessment methodology, and an evaluation plan—that can help inform decisions about the scalability of the pilot, it may not be clear to VA and Congress whether the CHIP-IN approach could be part of a longer-term strategy or how lessons learned could enhance other VA construction efforts  While leadership for the pilot had not been previously assigned, a newly formed CHIP-IN steering committee is meant to focus on the pilot’s implementation  Defining and documenting roles and responsibilities for this committee—and identifying the resources needed to effectively implement the pilot—could assist VA in partnering with additional donors and creating new opportunities to meet the urgent needs of veterans  We are making the following three recommendations to VA  The Secretary of VA should ensure that internal stakeholders—such as the CHIP-IN steering committee’s members—agree to and document clear, measurable objectives for the CHIP-IN pilot that will help inform decisions about whether and how to scale the program  (Recommendation 1) The Secretary of VA should ensure that internal stakeholders—such as the CHIP-IN steering committee’s members—develop an assessment methodology and an evaluation plan that are linked to objectives for the CHIP-IN pilot and that help inform decisions about whether and how to scale the program  (Recommendation 2) The Secretary of VA should ensure that the CHIP-IN steering committee documents the roles and responsibilities of its members and identifies available staff resources, including any additional expertise and skills that are needed to implement the CHIP-IN pilot program  (Recommendation 3) We provided a draft of this report to VA for comment  In its written comments, reproduced in appendix I, VA concurred with our recommendations and stated that it has begun or is planning to take actions to address them  VA also provided a general comment on the role of VHA in the CHIP-IN pilot, which we incorporated in our report  We are sending copies of this report to the appropriate congressional committees, the Secretary of Veterans Affairs, 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 regarding this report, please contact me at (213) 830-1011 or vonaha@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 II  In addition to the contact named above, Cathy Colwell (Assistant Director), Kate Perl (Analyst in Charge), Melissa Bodeau, Jennifer Clayborne, Peter Del Toro, Shirley Hwang, Terence Lam, Malika Rice, Crystal Wesco, and Elizabeth Wood made key contributions to this report 

ground_truth: Education provided over $122 billion in grants, loans and work study funds to help students pay for college at about 6,000 schools in fiscal year 2017. Education is responsible for certifying that these schools are eligible for and capable of properly administering federal student aid funds. Schools are required to submit an annual compliance audit that provides information on schools' administrative capability, which Education considers in its school certification decisions. GAO was asked to review Education's process for certifying schools to receive federal student aid. This report examines (1) how Education certifies schools to administer federal student aid and how frequently schools are approved and denied certification; and (2) the role of compliance audits in the certification process and what, if any, steps Education has taken to address the quality of the audit information. GAO analyzed data on school certification outcomes for calendar years 2006-2017 (when GAO determined data were most reliable); reviewed data and reports summarizing Education's reviews of compliance audit quality for fiscal years 2006-2017; reviewed a non-generalizable sample of 21 school certification decisions from fiscal years 2015 and 2016, selected for a mix of decisions, school characteristics, and geographic regions; examined relevant federal laws, regulations, policy manuals and guidance; and interviewed Education officials. The Department of Education (Education) is responsible for evaluating a variety of information to determine whether a postsecondary school should be certified to administer federal student aid programs, and agency data show that it approves most schools that apply. Education procedures instruct regional office staff to review school policies, financial statements, and compliance audits prepared by independent auditors, among other things. Education can certify schools to participate in federal student aid programs for up to 6 years, or it can provisionally certify them for less time if it determines that increased oversight is needed—for example, when a school applies for certification for the first time or when it has met some but not all requirements to be fully certified. In calendar years 2006 through 2017, Education fully or provisionally approved most schools applying for initial or recertification to receive federal student aid (see figure). Note: Schools applying for certification for the first time and approved are placed in provisional certification. In deciding whether to certify schools, Education particularly relies on compliance audits for direct information about how well schools are administering federal student aid, and Education's offices of Federal Student Aid and Inspector General have taken steps to address audit quality. The Inspector General annually selects a sample of compliance audits for quality reviews based on risk factors, such as auditors previously cited for errors. In fiscal years 2006 through 2017, 59 percent of the 739 selected audits received failing scores. Audits that fail must be corrected; if not, the school generally must repay federal student aid covered by the audit. Because higher risk audits are selected for review, Inspector General officials said they cannot assess the overall prevalence of quality problems in compliance audits. These two Education offices have taken steps to improve audit quality. For example, the Inspector General offered additional training to auditors on its revised 2016 audit guide and provided guidance to schools on hiring an auditor, while Federal Student Aid created a working group to strengthen its procedures for addressing poor quality compliance audits. Education's efforts to address audit quality could help ensure that these audits provide reliable information for school certification decisions. GAO is not making recommendations in this report.