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



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

Report 1: 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


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 

ground_truth: News reports in the late 1990s and early 2000s drew attention to a phenomenon sometimes called corporate "inversions" or "expatriations": instances where U.S. firms reorganize their structure so that the "parent" element of the group is a foreign corporation rather than a corporation chartered in the United States. The main objective of these transactions was tax savings, and they involved little to no shift in actual economic activity. Bermuda and the Cayman Islands (countries with no corporate income tax) were the locations of many of the newly created parent corporations. These types of inversions largely ended with the enactment of the American Jobs Creation Act of 2004 (JOBS Act; P.L. 108-357), which denied the tax benefits of an inversion if the original U.S. stockholders owned 80% or more of the new firm. The act effectively ended shifts to tax havens where no real business activity took place. However, two avenues for inverting remained. The act allowed a firm to invert if it has substantial business operations in the country where the new parent was to be located; the regulations at one point set a 10% level of these business operations. Several inversions using the business activity test resulted in Treasury regulations in 2012 that increased the activity requirement to 25%, effectively closing off this method. Firms could also invert by merging with a foreign company if the original U.S. stockholders owned less than 80% of the new firm. If the original U.S. shareholders owned less than 60%, the firm was not considered as inverting. Two features made a country an attractive destination: a low corporate tax rate and a territorial tax system that did not tax foreign source income. The U.K. joined countries such as Ireland, Switzerland, and Canada as targets for inverting when it adopted a territorial tax in 2009. At the same time, the U.K. also lowered its rate (from 25% to 20% by 2015). Inverted firms could reduce worldwide taxes by stripping taxable earnings out of the new U.S. subsidiary, largely through allocating debt to that subsidiary. Soon after, several high-profile companies indicated an interest in merging with a non-U.S. headquartered company, including Pfizer, Chiquita, AbbVie, and Burger King. This "second wave" of inversions again raised concerns about an erosion of the U.S. tax base. Chiquita and AbbVie canceled their plans in the wake of 2014 Treasury regulations, but Burger King and other firms completed merger plans. Pfizer subsequently terminated its planned merger with Allergan after Treasury regulations issued in 2016. Evidence suggests that these Treasury regulations have been an important factor in subsequently decreasing these merger-related inversions. Two policy options had been discussed in response: a general reform of the U.S. corporate tax and specific provisions to deal with tax-motivated international mergers. In December 2017, P.L. 115-97 (popularly known as the Tax Cuts and Jobs Act) lowered the corporate tax rate as part of broader tax reform which some argued would slow the rate of inversions. Other tax reform proposals suggested that if the United States moved to a territorial tax, the incentive to invert would be eliminated. There were concerns that a territorial tax could worsen the profit-shifting that already exists among multinational firms. P.L. 115-97, while moving in some ways to a territorial tax, also instituted a number of measures aimed at combatting profit shifting, including a global minimum tax on intangible income that limited the tax benefits of a territorial tax. The second option is to directly target inversions. The 2017 act included several provisions that discouraged inversions. In addition, further anti-inversion provisions have been introduced, most recently H.R. 5108 and S. 2459 in the 115th Congress, to treat all firms in which former U.S. shareholders have more than 50% ownership (or in which management and control is in the United States) as U.S. firms. These bills also provided that debt could also be allocated to the U.S. member of a worldwide operation in proportion to the U.S. ownership of assets.

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



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

Report 1: The U S  corporate income tax is based on worldwide economic activity  If all of a corporation's economic activity is in the United States, then tax administration and compliance is relatively straightforward  Many corporations, however, operate in several jurisdictions, which creates complications for tax administration and compliance  Further, corporations may actively choose where and how to organize to reduce their U S  and worldwide tax liabilities  Some of these strategies have been referred to as expatriation, inversions, and mergers  This report begins with a brief discussion of relevant portions of the U S  corporate income tax system before examining how inversions were commonly structured  The report then looks at how Congress and the Department of the Treasury have reduced the benefits of inversions  The report concludes with an examination of remaining methods for inverting and policy options available to prevent or limit these inversions  Achieving tax savings using an inversion became more difficult with the enactment of the American Jobs Creation Act of 2004 (JOBS Act; P L  108-357 )  The JOBS Act denied or restricted the tax benefits of an inversion if the owners of the new company were not substantially different from the owners of the original company  The act also allowed a firm to invert only if it had substantial business operations in the country where the new headquarters was to be located  Although the 2004 legislation largely prevented the types of inversions that drew attention prior to its adoption, several companies have successfully inverted in the past few years by using the substantive business operations mechanism or merging  Treasury regulations have subsequently limited the former mechanism  In spring 2014, several high-profile companies indicated an interest in merging or plans to merge with a non-U S  firm, including Pfizer, Chiquita, and Omnicom (an advertising firm)  News reports indicated that a group of Walgreens investors was also urging such a move  Although the Pfizer and Omnicon mergers and Walgreens headquarters shifts ultimately did not take place, other firms announced mergers in the late spring and early summer  A number of firms in the medical device or pharmaceuticals fields announced mergers or proposed mergers with a shift of headquarters: Medtronics, Salix, AbbVie, Mylan, and Hospira  In August 2014, concern about inversions increased with the announcement that Burger King was in talks to merge with Tim Hortons, a Canadian firm, with the merged firm's headquarters in Canada  An agreement was announced on August 26  Although Burger King is a smaller firm than AbbVie, for example, it is a household name and this proposed inversion garnered much attention  In September 2014, the Treasury Department released a notice of regulatory changes that would restrict some aspects of inversions or their benefits and indicated that other actions may follow  AbbVie, Chiquita, and some other firms canceled their plans in the wake of these Treasury regulations, although new merger proposals were also announced  In November 2015, the Treasury announced additional regulatory restrictions  Although new inversions slowed significantly, others continued but in many cases have been structured to avoid the regulations by reducing ownership below 60%  Most notable of these is the proposed merger of Pfizer with Allergan in November 2015  Pfizer terminated the merger after the release of the April 4, 2016, regulations  This "second wave" of inversions again raised concerns about an erosion of the U S  tax base  While the substantial business avenue appears to have been largely eliminated by Treasury regulations that increased the required share of activity, the option of merging with a smaller foreign company remains  U S  firms may also merge with larger firms, although in this case the tax benefits are less likely to be key factors in the decision to merge  Data released by the Bureau of Economic Analysis indicated that acquisitions by foreigners, which rose substantially in 2015, fell by 15% in 2016, and by 32% in 2017  Some of the largest declines were in countries associated with inversions, such as Ireland, where acquisitions fell from $176 billion in 2015, to $35 billion in 2016, and to $7 billion in 2017  In December 2017, a tax revision ( P L  115-97 ), often called the Tax Cuts and Jobs Act (TCJA), and subsequently referred to as the "Act," made major changes to the corporate tax and the international tax rules, along with some specific revisions aimed at discouraging inversions  Although data for 2018 are not yet available, one planned inversion, by Assurant, Inc , was revised to retain the headquarters in the United States  Ohio-based Dana, Inc  announced plans to merge and move the headquarters to the U K , although the merger would leave the U S  shareholders with less than 60% ownership, and therefore not make them subject to anti-inversion penalties  The United States uses a system that taxes both the worldwide income of U S  corporations and the income of foreign firms earned within U S  borders  All income earned within U S  borders is taxed the same—in the year earned and at statutory tax rates of 21% (reduced from 35% by the Act)  Under pre-Act law, U S  corporate income earned outside the United States was also subject to U S  taxation, though not necessarily in the year earned  This treatment occurred because U S  corporations could defer U S  tax on active income earned abroad in foreign subsidiaries until it was paid, or repatriated, to the U S  parent company as a dividend  To mitigate double taxation, tax due on repatriated income was reduced by the amount of foreign taxes already paid  The Act substituted a new system (Global Intangible Low-Taxed Income, or GILTI) that taxed foreign source income of U S  subsidiaries currently but with an exemption for a deemed return of 10% on tangible assets and a deduction from the remaining income (for 50% of income through 2025 and 37 5% afterward)  It allows a credit for 80% of foreign taxes  The new system also allows U S  firms a deduction for foreign derived intangible income, or FDII, which was designed to reduce tax rates on foreign earnings from the use of intangible assets held in the United States  The deduction is 37 5% of this estimated income through 2025 and 21 875% afterward  Income from certain foreign sources earned by subsidiaries—which generally includes passive types of income, such as interest, dividends, annuities, rents, and royalties, and is referred to as Subpart F income—is generally taxed in the year it is earned and was retained by the Act  Subpart F applies only to shareholders who may be able to influence location decisions at the corporate level  These subsidiaries are referred to as controlled foreign corporations (CFCs)  The Act also adopted the Base Erosion and Anti-Abuse tax (BEAT), an alternative minimum tax with the tax based increased by certain payments to related foreign parties  Its primary focus was to address profit shifting between foreign parents and U S  subsidiaries, but it applies in general  Notably, it excludes payments for costs of goods sold and for costs of services under some pricing rules  One way of shifting profits was to locate debt in high-tax countries  Preexisting thin capitalization rules limited interest to 50% of earnings before the deduction of interest, taxes, and amortization, deprec iation, and depletion (EBITA), although firms with a debt-to-asset rate of 1 5 or less were exempt  The new law adopted much stricter thin capitalization rules to prevent firms from deducting large amounts of interest  The new law lowers the cap to 30% of profits, eliminates the exemption based on the debt-to-asset ratio and, after 2021, measures the cap as a share of profits after amortization, depreciation, and depletion deductions  The Act also adopted some tax provisions targeted at discouraging inversions, which are discussed subsequently  A corporate inversion is a process by which an existing U S  corporation changes its country of residence  After the inversion, the original U S  corporation becomes a subsidiary of a foreign parent corporation  Corporate inversions occur through three different paths: the substantial activity test, merger with a larger foreign firm, and merger with a smaller foreign firm  Regardless of the form of the inversion, the typical result is that the new foreign parent company faces a lower home country tax rate and no tax on the company's foreign-source income  The U S  firm can use inversions to reduce taxes using various techniques  Foreign operations in the future can be formed as subsidiaries of the new foreign parent in a country with a territorial tax, so that future foreign income can be exempt from tax  Accumulated and future foreign income from the U S  company's foreign subsidiaries (which would be taxed by the United States if paid to the parent as a dividend) may be effectively repatriated tax free by lending or otherwise investing in the related foreign firm, such as a low-interest loan to the foreign parent holding company  These borrowed funds could then be used, for example, to pay dividends to shareholders or make loans to the U S  firm  In addition, the combined firm can engage in "earnings stripping": reducing income in the U S  firm by borrowing from the U S  company and increasing interest deductions  For example, a foreign parent may lend to its U S  subsidiary  This intercompany debt does not alter the overall company's debt, but does result in an interest expense in the United States (which reduces U S  taxes paid) and an increased portion of company income being "booked" outside the United States  Royalty payments, management fees, and transfer pricing arrangements are other avenues for earnings stripping, but are thought to be of lesser importance than intercompany debt  In this form of inversion, a U S  corporation with substantial business activity in a foreign company creates a foreign subsidiary  The U S  corporation and foreign subsidiary exchange stock—resulting in each entity owning some of the other's stock  After the stock exchange, the new entity is a foreign corporation with a U S  subsidiary, as the exchange is generally in proportion to the respective company valuations  As this form of inversion does not require any change in the effective control of the corporation, it is referred to as a "naked inversion " In this form of inversion, a U S  corporation would like to bolster its foreign operations and, perhaps, lower its U S  tax  To do so, the U S  corporation merges with a larger foreign corporation, with the U S  shareholders owning a minority share of the new merged company  This results in the effective control of the new company being outside U S  borders  While this form of inversion may be driven by business considerations, tax considerations may also be part of the decision  An example of this can be seen in the following statement by the board of directors of a U S  corporation recommending approval of a merger with a U K  corporation  The board of directors pursued the merger in part because Ensco was headquartered in a jurisdiction that has a favorable tax regime and an extensive network of tax treaties, which can allow the combined company to achieve a global effective tax rate comparable to Pride's competitors  In this case, a U S  firm, Pride, merged with a U K  firm, Ensco, and the headquarters remained in the U K  In this form of inversion, a U S  corporation would like to bolster its foreign operations and lower its U S  tax  To do so, the U S  corporation merges with a smaller foreign corporation, with the U S  shareholders owning a majority share of the new merged company  This merger results in the effective control of the new company staying with the shareholders of the U S  corporations  While this form of inversion may be driven by business considerations, tax considerations may also be part of the decision  An example is the Eaton Cooper merger  The following is an excerpt of a U S  corporation's (Eaton's) press release announcing the acquisition of an Irish company (Cooper), with the company headquartering in Ireland (with a 12 5% tax rate and a territorial system)  At the close of the transaction     Eaton and Cooper will be combined under a new company incorporated in Ireland, where Cooper is incorporated today  The newly created company, which is expected to be called Eaton Global Corporation Plc or a variant thereof ("New Eaton"), will be led by Alexander M  Cutler, Eaton's current chairman and chief executive officer  At the close of the merger, it was expected that the shareholders of the U S  company would control 73% of the combined company, with the shareholders of the Irish company controlling the remaining 27%  The press release notes expected tax benefits from the merger at $165 million in 2016, out of $535 million of total cost savings  In this case, a U S  corporation used a merger to achieve an inversion while its shareholders retained a significant majority of shares  In the late 1990s and early 2000s, news reports drew the attention of policymakers and the public to a phenomenon sometimes called corporate "inversions" or "expatriations": instances where firms that consist of multiple corporations reorganize their structure so that the "parent" element of the group is a foreign corporation rather than a corporation chartered in the United States  Among the more high-profile inversions were Ingersoll-Rand, Tyco, the PXRE Group, Foster Wheeler, Nabors Industries, and Coopers Industries  These corporate inversions apparently involved few, if any, shifts in actual economic activity from the United States abroad, at least in the near term  In particular, inverted firms typically continued to maintain headquarters in the United States and did not systematically shift capital or employment abroad post inversion  Further, Bermuda and the Cayman Islands were the location of many of the newly created parent corporations—jurisdictions that have no corporate income tax but that also do have highly developed legal, institutional, and communications infrastructures  A 2002 study by the U S  Treasury Department concluded that while inversions were not new—the statutory framework making them possible has long been in existence—there had been a "marked increase" in their frequency, size, and visibility  Taken together, these facts suggested that tax savings were one goal of the inversion, if not the primary goal  Beyond taxes, firms engaged in the inversions cited a number of reasons for undertaking them, including creating greater "operational flexibility," improved cash management, and an enhanced ability to access international capital markets  The 2002 Treasury report identified three main concerns about corporate inversions: erosion of the U S  tax base, a cost advantage for foreign-controlled firms, and a reduction in perceived fairness of the tax system  These concerns, along with a growing awareness of inversion transactions, may have resulted in congressional concern and debate about how to address the issues surrounding inversions, culminating with the enactment of an anti-inversion provision (Section 7874) in the American Jobs Creation Act of 2004 (AJCA; P L  108-357 )  The AJCA adopted two alternative tax regimes applicable to inversions occurring after March 4, 2003  The AJCA treats the inverted foreign parent company as a domestic corporation if it is owned by at least 80% of the former parent's stockholders  In these cases, the AJCA would deny the firm any tax benefits of the inversion (i e , it would continue to be taxed on the combined group's worldwide income)  The second regime applies when there is at least 60% continuity of ownership but less than 80%  In this case, the new foreign parent is not taxed like a domestic corporation, but any U S  toll taxes (taxes on gains) that apply to transfers of assets to the new entity are not permitted to be offset by foreign tax credits or net operating losses  The AJCA also exempted corporations with substantial economic activity in the foreign country from the anti-inversion provisions, but it did not define substantial business activity in the statute  Although the 2004 act largely eliminated the generic naked inversions, two alternatives remained that allowed a firm to shift headquarters and retain control of the business: the naked inversion via the business activity exemption, and merger with a smaller company  Using the business activity route would require significant economic operations in the target country  An inversion by merger would require a large firm that would be at least 25% of the size of the U S  firm  The post-2004 approaches to inversions no longer involved countries such as Bermuda and the Cayman Islands, but larger countries with substantial economic activity such as the U K , Canada, and Ireland  The U K , in particular, has become a much more attractive headquarters  Because of freedom of movement rules in the European Union, the U K  cannot have anti-inversion laws, which may have played a role in both moving to a territorial tax and lowering the corporate tax rate  A 2012 report in the Wall Street Journal highlighted some recent moves abroad  This report claimed 10 companies had inverted since 2009, with 6 within the past year or so  This was a small number of companies, but it is useful to look at the methods involved  The Wall Street Journal article identified by name 5 of the 10 companies that had moved abroad recently: Aon, ENSCO, Rowan, Eaton, and DE Master Blenders 1763  (The article also referred to Transocean and Weatherford International, but these were firms that had inverted before the 2004 legislation: Transocean first to the Cayman Islands, and then Switzerland, and Weatherford first to Bermuda, and then Switzerland ) The remaining firm mentioned in the Wall Street Journal article is Eaton  Eaton's move abroad was a merger; it merged with Coopers, a firm effectively operating its headquarters in the United States, but one that had inverted prior to the 2004 law change  An article by Bret Wells identified Aon, ENSCO, and Rowan as having inverted via the substantial business activity exemption (where the only apparent objective is tax savings)  All three moved to the United Kingdom, where a recent move to a territorial tax, as well as decisions in the European Court of Justice that limited their anti-abuse rules, had made their tax system more attractive  The U K  was also in the process of lowering its own corporate rate  Two of the firms are oil drilling firms; drilling in the North Sea might have affected their ability to use this exemption  Aon is an insurance firm  Wells mentions another firm, Tim Hortons, which also used a naked inversion using the substantial business activity exemption in 2009 to relocate to Canada  In doing so, the firm was returning to its origins, as it was founded in Canada  It became an American company when Wendy's acquired it in 1995, but it was subsequently spun off in 2006  DE Master Blenders 1763, like Tim Hortons, was returning to its origins as well (a Netherlands firm), as it was spun off from Sara Lee, which had acquired it in 1978  In response to increased use of the substantial business activity exemption, Treasury Regulations (T D  9592, June 12, 2012) increased the safe harbor for the substantial business activities test from 10% to 25%, effectively closing off this avenue in the future  This action could be done by regulation because the statute did not specify how the substantial business activity test was to be implemented  A number of mergers have either been effectuated or were proposed: Chiquita, Actavis, and Perrigo (the latter two are pharmaceutical firms) moving to Ireland; Valeant Pharmaceuticals and Endo Health Services moving to Canada; and Liberty Global (a cable company) to the U K  Subsequently, the new Irish firm Actavis (itself the result of two prior mergers) merged with Forest Labs  Omnicom (an advertising firm) planned a move to the U K  (after proposed merger with a French firm, creating a Netherlands holding company, resident in the U K  for tax purposes), but has abandoned its merger  Chiquita canceled its plans after Treasury regulations were issued in September 2014  Most of these firms are not household names or industry giants  Thus, perhaps none created as much interest as the attempt by pharmacy giant Pfizer to acquire AstraZeneca with a U K  headquarters, or the urging of some stockholders of Walgreens to invert to Switzerland  Pfizer represented a significant potential loss of future tax revenue, as much as $1 4 billion per year  According to a study by Martin Sullivan, in 2005, when a temporary tax exclusion of 85% of dividends (the repatriation holiday) was in force, Pfizer repatriated $37 billion, the single largest amount of repatriations of any firm  In 2009, Pfizer repatriated $34 billion (and paid U S  taxes on that amount) to finance the acquisition of Wyeth, but earnings abroad grew from $42 billion in 2009 (after the repatriation) to $73 billion by 2012  These earnings have not been repatriated and taxed in the United States  An inversion by Pfizer would, however, result in current shareholders paying capital gains taxes on any stock appreciation when they are converted into shares of the new company  Shares held in IRAs and 401(k)s would not typically owe this tax, but shares owned directly by individuals and in mutual funds would owe tax even if they did not sell their stock  Policymakers and the public remained interested in the issue of inversions through 2014  Although the initial Pfizer merger did not occur, the spate of mergers or proposed mergers in the medical device and pharmaceuticals industries continued in 2014  One example included one of the largest proposed mergers yet, AbbVie's acquisition of Shire, an Irish firm  The announcement of a proposed merger between Burger King and Tim Hortons also generated interest in the issue  As is the case with Chiquita, AbbVie canceled its plans after the issuance of Treasury regulations in September 2014, but Burger King planned to complete its merger and did so on December 12, 2014  Treasury continues to regulate inversions where regulations are possible  For example, in 2014 it took action to close a loophole stemming from the coordination of two sets of regulations—the "Anti-Killer B Regulations" and the "Helen of Troy Anti-Inversion Regulations"—that allowed Liberty Global shareholders to avoid some capital gains taxes  In response to the new wave of inversions, the Treasury Department released a notice of regulatory actions that would restrict inversions and their benefits  Treasury news releases, however, indicated that legislative action is the only way to fully rein in these transactions  Following this notice, several firms announced they were canceling plans to merge, and one firm, Medtronic, announced a change in financing plans (no longer using earnings abroad to pay acquisition costs)  Other firms, however, have announced inversion plans  There is no way to know how many unannounced mergers were, or will be, prevented by these regulations  The regulatory actions address two basic aspects of inversions  One set of changes limits the ability to access the accumulated deferred earnings of foreign subsidiaries of U S  firms  The second regulatory action restricts certain techniques used in inversion transactions that allowed firms to qualify with less than 80% ownership  This regulation is effective for inversions that closed on or after September 22, 2014  The regulations do not prevent inversions via merger and do not address earnings stripping by shifting debt to the U S  firm, although Treasury has indicated future action in this area  In an inversion, the foreign subsidiaries of the original U S  firm remain subsidiaries so that any dividends paid to the U S  parent would be taxed  Regulations also treat other direct investments in U S  property, such as loans to the U S  parent, as dividends  Once a firm has inverted and the U S  firm is now a subsidiary of a foreign parent, there are methods of accessing the earnings of overseas subsidiaries by transactions between the new foreign parent and the U S  firm's foreign subsidiaries  The regulation is intended to address three such methods  First, the regulation prevents the access to funds by, for example, a loan from the U S  company's foreign subsidiary to the new foreign parent (called "hopscotching")  Before the regulation, funds of this type could have been used to pay dividends to the individual shareholders or for other purposes  Under the regulation, acquiring any obligation (such as a loan) or stock of a foreign related person is treated as U S  property subject to tax  Second, the regulation addresses "decontrolling," where the foreign acquiring corporation issues a note or transfer of property for stock in the U S  firm's foreign subsidiaries  If a majority of stock is obtained, the U S  firm's subsidiary is no longer a controlled foreign corporation (CFC) and not subject to Subpart F, which taxes currently certain passive or easily shifted income  However, even a less than majority share can allow partial access to deferred earnings without a U S  tax  This regulation prevents this by treating acquisition of foreign subsidiary stock as acquisition of stock in the U S  parent  Third, the regulation addresses transactions where the foreign acquiring corporation sells stock of the former U S  parent corporation to that U S  parent corporation's CFC in exchange for property or cash  If such a transaction is structured properly, some interpretations of the old regulations would have permitted the income to avoid taxation  The new regulations would prevent that and would apply regardless of the firm's inversion status  A firm can realize the tax benefits of an inversion only if the shareholders of the original U S  firm retain, after the merger, less than 80% of the ownership in the new company  The regulation contains several provisions that limit certain techniques for achieving this goal  The avoidance techniques include inflating the foreign firm, shrinking the U S  firm, and inverting only part of the U S  firm  First, it prevents firms from reaching the less than 80% goal by inflating the size of the foreign merger partner (which must have more than 20% ownership subsequent to the merger) by use of passive assets (e g , an interest bearing bank deposit)  This notice disregards passive assets of the foreign firm if more than 50% of its value is in passive assets  (Banks and financial service companies are excluded ) Second, it prevents firms from shrinking the size of the U S  firm by paying extraordinary dividends before the merger  The notice disregards this reduction in value  Third, it prevents an inversion of part of a U S  company (a "spinversion") by spinning it off to a newly formed foreign corporation, by treating the new "foreign" company as a domestic corporation  After the 2014 Treasury regulations were issued, some firms revised their plans, and the pace of inversions slowed  Some mergers were structured to avoid the anti-inversion rules and Treasury regulations, by an ownership share of less than 60%  Among what appear to be inversions is the merger of telecom firm Arris and Pace (a U K  firm), CF Industries (fertilizer) and OCI NB (a Netherlands firm), Terex with Konecranes (a Finnish firm), and a consolidation of European Coca-Cola bottling firms (one such firm, Coca-Cola Enterprises, was a U S  headquartered firm)  Waste Connections Inc  merged with Progressive Waste Solutions Ltd (a Canadian Firm), with 70% ownership and a headquarters in Canada  Monsanto's proposal to merge with Syngenta (a Swiss firm) was called off  Some mergers that did not qualify as inversions under the tax law also occurred  The most significant in size was the proposed Pfizer merger  On November 23, 2015, Pfizer announced a proposed merger with Allergan, an Irish company, and the move of its headquarters to Ireland  This merger, which would result in the largest pharmaceutical company in the world, is not covered under the anti-inversion rules because Pfizer will own 56% of the value of the new firm  Allergan itself is the product of a merger involving both stock and cash acquisition by Actavis in 2015, with former Allergen shareholders owning a minority of the new company  Thus, this merger as well was not an inversion under the tax law  Actavis, in turn, was a former U S  firm that inverted by merger with Warner Chillcott, an Irish firm, in 2013 (where the former shareholders of the U S  firm acquired 77% of the stock)  Pfizer terminated its merger with Allergen after the April 4, 2016, regulations (discussed below)  Other notable mergers not subject to anti-inversion rules were the acquisition of Salix, a pharmaceutical company, by Valeant (a Canadian company); the acquisition of Auxilium by Endo (after Auxilium backed out of an inversion with Canadian firm QLT); the merger of Cyberonics with Italy's Sorin (to be headquartered in the U K ); and the merger of Broadcom (a chipmaker) with Avago (a Singapore firm)  Information and analytics provider HIS announced a merger with Markit Ltd, a U K  firm, to be headquartered in the U K , but the ownership share of HIS would be less than 60% of the firm  Johnson Controls also merged with Tyco, one of the earlier inverted firms  The 2015 Treasury regulations appear to have more limited consequences for inversions than the 2014 regulations did  Three regulatory changes were made by the notice  First, in the case where the foreign parent is a tax resident of a third country, stock issued by that parent to the existing foreign firm will be disregarded for purposes of the ownership requirement  That change will prevent a U S  firm from merging with a partner and then choosing a tax friendly third country to headquarter in  The second provision would clarify the so called "anti-stuffing" rules, where the foreign firm's size is inflated by adding assets to that firm  The notice clarifies that this rule applies to any assets, not just passive assets  Third, the current business activity exception requires 25% of business activity to be in the foreign country where the new parent is created or organized, but does not require it to be a foreign parent  This rule requires the business activity to be in the foreign parent  It prevents inversion based on the business activity test when the foreign parent has a tax residence in another country without substantial business activities  On April 4, 2016, the Treasury Department issued temporary and proposed regulations formalizing rules contained in Notices 2014-52 and 2015-79 limiting corporate tax inversions, as well as adding new rules addressing inversions and earnings-stripping transactions  In response to these new regulations, the proposed merger between Pfizer and Allergen PLC has been terminated  The April 4, 2016, Treasury regulations put in place several anti-inversion rules that target groups that have engaged in a series of inversion or acquisition transactions as well as a rule that restricts postinversion asset dilution  The temporary regulations target inversion transactions involving a new foreign parent that previously acquired one or more U S  entities in inversions or acquisitions in which the new foreign parent issued stock  These prior acquisitions would generally increase the value of the foreign entity, enabling it to subsequently engage in an inversion transaction with a larger U S  company while remaining below the 60% or 80% ownership thresholds  The temporary regulations disregard stock of the new foreign parent to the extent the value of such stock is attributable to its prior U S  entity acquisitions during the prior three years  According to analysis by Americans for Tax Fairness, the implementation of this rule would have increased Pfizer's share of the merged company to roughly 70% from 56% prior to the rule  Similar to the multiple domestic entity acquisition rule, the multiple-step acquisition rule targets certain inversions that are structured as back-to-back foreign acquisitions  Specifically, it targets transactions that are part of a plan in which a foreign corporation acquires substantially all of the assets of a U S  entity and, subsequent to this first acquisition, a second foreign corporation acquires substantially all of the assets of the first foreign corporation  The temporary regulations, under certain circumstances, treat each acquisition as an acquisition of a U S  entity that may be subject to anti-inversion rules  Unlike the multiple domestic entity acquisition rule, which has a three-year look-back period, the multiple-step acquisition rule can be applied to all acquisitions that are part of the same plan regardless of time  A third rule modified existing regulations to restrict the ability of inverted companies to avoid paying tax on unrealized gains (under Section 965) through a transfer to a controlled foreign corporation (CFC) (under Section 351)  This would address situations where a CFC of an inverted U S  company engages in a postinversion exchange that could dilute a U S  shareholder's indirect interest in the exchanged asset, allowing the U S  shareholder to avoid U S  tax on any realized gain in the asset that is not recognized at the time of the transfer  The rule requires a CFC of an inverted U S  group to recognize all realized gain with respect to any such postinversion Section 351 exchange  The earnings-stripping regulations aim to restrict the ability of foreign-parent groups to shift earnings out of the United States through dividends or other economically similar transactions (under Section 385)  In these cases certain related-party debt will be characterized as equity for tax purposes  The result of equity classification is that interest deductions will be disallowed, and withholding obligations of 30% (or lower rate based on an applicable income tax treaty) could ensue  The regulations do not normally apply for related-party debt that is incurred to fund actual business investment, such as building or equipping a factory  The regulations also require documentation of debt instruments issued and held by certain members of an expanded group to establish that such instruments are properly characterized as debt  The regulations also allow the IRS on audit to treat an instrument issued to a related party as in part debt and in part equity  The final regulations issued on October 21, 2016, scaled back the original regulations in response to the comment period  The final regulations removed the general bifurcation rule that would have allowed a debt instrument to be classified as part debt and part equity and an exemption for debt for foreign issuers  The rules also provided exemptions for cash pools (a pool of cash to be accessed for short-term needs), short-term loans, regulated financial entities, and pass-throughs (firms not taxed as corporations)  The Treasury delayed documentation rules for a year on July 28, 2017  Treasury announced on July 7, 2017, that these debt-equity regulations were to be among eight rules targeted for review  The Treasury issued final regulations for the temporary regulations introduced in April 2016 on July 12, 2018, as TD 9834 with minor changes  Two days after the regulations were issued, Pfizer withdrew from its merger with Allergen, an Irish-based company that was an inverted firm  It appears that this merger was affected by the multiple-entity rule, which has come to be called "serial inversion " Mergers between Shire (Ireland based) and Basalta, and between HIS and Markit Group Inc  (U K  based) went forward  The CF Industries merger with OCI NV (based in the Netherlands) was also called off; Johnson Controls and Tyco went forward  A merger between Konecranes (a Finnish firm) and Terex was scaled down to an acquisition of a share of Terex with the U S  firm owning 25%, thus avoiding the effect of regulations  In May 2016 Cardtronics, Inc , an ATM operator, announced a plan to move to the U K  using the substantial business activities test  Also in May, an oil and gas industry service and technology firm announced a merger with Technip SA (France) to form a U K  company, with each firm holding about half the stock and thus avoiding any of the recent regulations and establishing a new headquarters in another country  In 2017, Praxaire (a U S  industrial gas company) announced a merger with Linde AG (a German gas and technology company), also with each owning half of the new company  As noted in the introduction, statistical data suggest a decline in inversions from 2015 to 2016, and again from 2016 to 2017, and these data are consistent with the limited news reports of major inversions  Pfizer's CEO has recently indicated that deals are on hold generally while tax reform is being considered  The 2017 legislation not only made fundamental changes to the overall treatment of corporate income at home and abroad, but also adopted several provisions specifically aimed at inverted corporations (those with 60% to 80% ownership)  Under the new law, existing untaxed earnings held abroad are taxed under a deemed repatriation rule, but at a lower rate (8% for earnings reinvested in noncash assets and 15 5% for earnings held as cash or cash equivalents)  A special recapture rule applies on deemed repatriations of newly inverted firms  This recapture rule applies if a firm first becomes an expatriated entity at any time during the 10-year period beginning on December 22, 2017  In this case, the tax will be increased from 8% and 15 5% to 35% tax for the entire deemed repatriation, with no foreign tax credit allowed for the increase in tax rate  The additional tax is due on the full amount of the deemed repatriation in the first tax year in which the taxpayer becomes an expatriated entity  BEAT excludes payments which reduce gross receipts with the result that payment for the cost of goods sold is not included under BEAT  An exception applies for firms that invert after November 9, 2017, where payments to a foreign parent or any foreign firm in the affiliated for cost of goods sold is included in BEAT  The constructive ownership rules for purposes of determining 10% U S  shareholders, whether a corporation is a CFC and whether parties satisfy certain relatedness tests, were expanded in the 2017 tax revision  Specifically, the new law treats stock owned by a foreign person as attributable to a U S  entity owned by the foreign person (so-called "downward attribution")  As a result, stock owned by a foreign person may generally be attributed to (1) a U S  corporation, 10% of the value of the stock of which is owned, directly or indirectly, by the foreign person; (2) a U S  partnership in which the foreign person is a partner; and (3) certain U S  trusts if the foreign person is a beneficiary or, in certain circumstances, a grantor or a substantial owner  The downward attribution rule was originally conceived to deal with inversions  In an inversion, without downward attribution, a subsidiary of the original U S  parent could lose CFC status if it sold enough stock to the new foreign parent so the U S  parent no longer had majority ownership  With downward attribution, the ownership of stock by the new foreign parent in the CFC is attributed to the U S  parent, so that the subsidiary continues its CFC status, making it subject to any tax rules that apply to CFCs (such as Subpart F and repatriation taxes under the old law, and Subpart F and GILTI under the new law)  Dividends (like capital gains) are allowed lower tax rates than the rates applied to ordinary income  The rates are 0%, 15%, and 20% depending on the rate bracket that ordinary income falls into  Certain dividends received from foreign firms (those that do not have tax treaties and PFICs ) are not eligible for these lower rates  Dividends paid by firms that inverted after the date of enactment of P L  115-97 are added to the list of those not eligible for the lower rates  In 2004, an excise tax of 15% was imposed on stock compensation received by insiders in an expatriated corporation; the new law increases it to 20%, effective on the date of enactment for corporations that first become expatriated after that date  As noted earlier, there are no aggregate data available yet for 2018, but there are also indications that most tax-motivated inversions had already been discouraged by the 2016 regulations  Considering announcements of individual companies, one planned inversion, by Assurant, Inc  was revised to retain the headquarters in the United States  Ohio-based Dana, Inc  announced plans to merge and move the headquarters to the U K , although the merger would leave the U S  shareholders with less than 60% ownership, and therefore not make them subject to anti-inversion penalties  A recent announcement indicated that the Dana merger was called off  Some firms may be considering reversing their headquarters decisions  The AJCA was successful at limiting a form of inversions, at least initially  In particular, the AJCA stopped the practice of basic "naked inversions," in which little activity or presence in the new jurisdiction is required and the new parent is domiciled in a tax haven  Further, through regulation, Treasury has limited the use of the substantial business activity test safe harbor to invert  Recent activity (as noted above), however, suggests that mergers continued to be used as a vehicle for corporate inversions after these changes  These more recent mergers have increasingly resulted in a U K  parent company (e g , FMC-Technip, HIS-Markit), due to policy decisions by the U K  government  Specifically, the U K  lowered its corporate tax rate and adopted a territorial tax system  In addition, anti-abuse provisions for foreign source income were weakened by the European Union courts  The U K  has also proposed taxing certain intangible income at a 10% rate  (This is referred to as a patent box ) To restrict the occurrence of tax-motivated inversions, both a general reform of the U S  corporate tax and specific provisions to deal with tax-motivated international mergers were discussed  Some important changes were made in 2017; other options remain  Interest in reforming the corporate income tax was long-standing, including calling for explicit accommodation of international concerns  As noted earlier, two aspects of the U S  corporate tax system are particularly relevant to corporate location decisions: the corporate tax rate and the taxation of foreign-source earnings  Taken together, these factors, under prior law, could yield a substantial reduction in taxes paid  In the case of the proposed merger of Forest Laboratories Inc  (a U S  company) and Actavis (an Irish company) in 2014, the tax reduction was estimated to be roughly $100 million per year  Prior to the 2017 changes, the U S  corporate statutory tax rate was higher than both the average statutory rates of the other Organisation for Economic Co-operation and Development (OECD) countries and that of the 15 largest economies in the world  Many asserted that the U S  statutory tax rate needed to be lowered to reduce the incentive for inversion transactions  With the rate lowered from 35% to 21%, the combined central and subnational corporate tax rates are similar to most rates in the OECD  While lowering the corporate tax rate would reduce the incentive to invert, there are reasons to suggest that it would be impractical to reduce the rate to the level needed to stop inversions  Namely, to stop inversions through a reduction in the corporate tax rate would require a U S  corporate tax rate set equal to the lowest tax rate of a destination company, or zero  A lower corporate tax rate alone reduced the incentive for corporate inversions, primarily by reducing the tax rate applied to repatriated earnings  For a company like Pfizer, with large foreign earnings, a rate reduction could yield significantly lower taxes paid  However, as discussed below, the benefit of a lowered rate is negligible relative to the benefit to corporate taxpayers afforded by territorial tax systems, when income earned in low- or no-tax foreign jurisdictions is never subject to U S  tax  Two factors present challenges for lowering the corporate tax rate further  First, if revenue neutrality is a goal, there may not be enough base-broadening provisions with revenue offsets to provide deep cuts in the corporate tax; and, if such offsets were found, they might have their own consequences for investment  Reducing the corporate tax without corresponding base broadening would likely reduce corporate tax revenue, adding to chronic budget deficits  Prior to the 2017 revision, the United States was one of the few countries that had a worldwide tax system and levied a tax on the foreign-source income of domestic corporations  Changing corporate tax residence to a country with a territorial tax system (where foreign earnings would not be taxed at all) was thought to drive inversion decisions  This issue led to proposals for the United States to adopt a territorial tax system to stop inversion transactions  One concern about adopting a territorial tax system is the strain it would likely place on the current transfer pricing system  From this perspective, the worldwide tax system provided a backstop on the amount of profit shifting or base erosion possible, because shifted profits will eventually be repatriated  Under a territorial tax system, this is not the case  Research has found evidence of significant profit shifting, especially related to mobile intellectual property, suggesting a lot of income from foreign sources is really U S  income in disguise  Numerous other issues surround the adoption of a U S  territorial tax  For example, while some supported a territorial tax to eliminate the incentive to keep earnings abroad, others opposed it because it likely discourages domestic investment and activity in the United States  The revisions in 2017 maintained a worldwide system, but with some changes  Income from U S  subsidiaries is taxed on a current basis but at a lower rate and with an exemption for a deemed return on tangible assets  It also provided a subsidy for locating intangible assets with earnings from abroad in the United States  Many of the inverting firms had significant intangible assets, and it is not clear whether this new regime (a lower tax rate but on a current basis) is more or less generous to firms considering inverting  Moving closer to a pure territorial tax, as in the case of a rate reduction, would likely reduce corporate tax revenue and add to current budget pressures unless it is offset by other tax increases, although this effect would be less costly at the lower 21% tax rate  In 2027, GILTI is projected to raise $21 billion  GILTI could be retained and the rate lowered or the temporarily lower rate could be made permanent  There has been some agreement that adopting a territorial tax without some significant anti-abuse provisions could be problematic, as it would likely increase profit shifting abroad by U S  firms  Evidence suggests that administrative remedies were successful at dramatically slowing inversions; the targeted legislative changes in the 2017 Act may have had some impact as well  There are further changes that could be made to discourage inversions  This section discusses the history of these proposals, both legislative and administrative  One approach would be to extend the rate recapture enacted in the 2017 Act for a period longer than 10 years, or to make it apply indefinitely to future inversions  A second alternative is to directly restrict the ability of U S  firms to invert by merger  The President's FY2015, FY2016, and FY2017 budget proposals contained a provision that would have further restricted the use of inversions  The proposal would modify the 80% test enacted in the AJCA to a 50% test and eliminate the 60% test  In effect, this proposal would reduce the percentage of shareholders that are owners of the "old U S  company" and the "new foreign merged company " The proposal would also require that the new foreign corporation be managed and controlled from outside the United States and prohibit transactions where the new foreign company has substantial business activities in the United States  In November 2015, then-Senate Finance Committee Chairman Hatch indicated the possibility of adding an anti-inversion provision to legislation to extend expired provisions  Many of these bills were introduced in the 115 th Congress  H R  1931 (Doggett), the Corporate EXIT Fairness Act, and H R  3434 (Levin) and S  1636 (Durbin, along with a number of cosponsors), the Stop Corporate Inversions Act, would have treated all mergers as U S  firms when the U S  firm's shareholders hold more than 50% or when management and control primarily takes place in the United States  H R  1932 (Doggett) and S  851 (Whitehouse), as with bills introduced in the 114 th Congress, would have included anti-inversion provisions as part of a broader proposal to address tax havens and deferral  H R  3603 (Levin) would have addressed earnings stripping of inverted corporations  H R  3424 (DeLauro) would disallow federal contracts for inverted firms  H R  1451 (Schakowsky) and S  586 (Sanders) would make major changes in the tax treatment of foreign source income and include anti-inversion rules  Following the change in the international system adopted at the end of 2017, Representative Doggett and Senator Whitehouse introduced the "No Tax Break for Outsourcing Act" ( H R  5108 , S  2459 ) which, in addition to other changes, would have treated foreign corporations that are managed and controlled in the United States as domestic corporations and treated inverted firms as U S  firms when the shareholders of the former U S  company own more than 50% of the shares  These bills would have also limited interest deductions in the United States to the proportionate share of the firm's assets  The last proposal (to allocate worldwide interest) was in both the House and Senate versions of the legislation ( H R  1 ; 115 th Congress) in somewhat different form but was not retained in the final legislation  While this proposal was not specifically targeted at inverted firms it would have increased the restrictions that limit earnings stripping  Former President Obama had encouraged Congress to act directly to limit inversions, but had also indicated on August 6, 2014, that administrative changes to limit inversions were under examination  Prior to that announcement, Steve Shay, a Harvard professor and former practitioner and Treasury official, outlined two regulatory actions that he believed could be taken  The first would limit earnings stripping by reclassifying debt as equity due to excessive related party debt in an inversion  (The second provision is no longer relevant under the new international tax regime ) A number of other administrative proposals that have been suggested (such as provisions relating to taxing accumulated deferred earnings) are no longer relevant and others have been adopted in the regulatory changes discussed above  Expanding the scope of Section 7874 (which treats inverted firms as U S  firms) by combining multiple transactions into single ones, or vice versa  The scope of Section 7874 could also be expanded by treating certain stock as disqualified (because it is expected to be held temporarily or because it is accompanied by restrictions on voting rights); this provision was adopted in Treasury regulations; Potentially recognizing accumulated deferred earnings as currently taxable under authority such as Subpart F, Section 367, or other rules (this provision is no longer relevant with the end of deferral, but it may have influenced the decision to tax deferred earnings of newly inverted firms at the full 35% rate for the next 10 years); Issuing regulations that would generally tighten restrictions on interest deductions under the thin capitalization rules of Section 163(j)  These changes would probably apply to corporations in general, and not just to inverted corporations (this change was made in the 2017 tax revision); Stricter regulations under Section 367 to immediately include foreign earnings in the case of actions that attempt to move foreign operations out from under the U S  parent  This would make future earnings of these operations nontaxable; Strengthening and modernizing the effectively connected income rules that determined whether trade or business activity is taking place in the United States by foreign firms; and Closely monitoring the creation of non-U S  subsidiaries owned by the foreign parent after inversion, and ensuring that assets (including intangibles such as inventions, knowhow, etc ) transferred from the U S  firm are transferred at arms-length prices  There is disagreement among experts about whether the types of regulatory changes discussed in this section are feasible or desirable  A number of legislative proposals were advanced in 2014, when the wave of inversions through merger began  Representative Levin, the ranking member of the House Ways and Means Committee, introduced the Stop Corporate Inversions Act of 2014 ( H R  4679 ), which would have reflected the Administration's proposed changes, retroactive to May 8, 2014  The inversion would have not been recognized if the U S  stockholders had 50% of the shares or if 25% of the business activity is in the United States  A companion bill, which would have sunset in two years to provide time for tax reform, was introduced in the Senate by Senator Levin in 2014 ( S  2360 )  The Joint Committee on Taxation estimated the permanent proposal to gain $19 5 billion in revenue over FY2015-FY2024  The two-year proposal would have raise $0 8 billion over the same period  In the 114 th Congress, these legislative proposals were introduced as H R  415 (Levin) and S  198 (Durbin)  Senator Casey proposed an anti-inversion amendment to an education bill ( S  1177 )  In the 114 th Congress, H R  297 (Doggett) and S  174 (Whitehouse) included anti-inversion provisions as part of a broader proposal to address tax haven abuses and restrict the benefits of deferral  S  922 (Sanders) and H R  1790 (Schakowsky) also included anti-inversion provisions, as well as earnings-stripping provisions (discussed below) and broader provisions, including the repeal of deferral  In 2014 a number of legislative proposals were introduced that would limit the tax benefits associated with inversions for certain corporations  For example, H R  1554 (Doggett), H R  3666 (DeLauro), H R  3793 (Maffei), S  268 (Levin), S  1533 (Levin), and S  1844 (Shaheen) would each treat corporations managed and controlled from the United States as domestic corporations regardless of their legal tax home or status as an inverted company  This provision was also included in S  922 (Sanders) and H R  1790 (Schakowsky)  Other proposals in 2014, H R  694 (Schakowsky) and S  250 (Sanders), would have eliminated deferral (taxing foreign source income currently), in addition to limiting the benefits of inversions when management and control continues to reside in the United States  Legislative proposals were also under discussion in 2014 by Representative Levin (announced July 31, 2014) and by Senator Schumer (announced August 14, 2014) to address earnings stripping, where foreign parent companies borrow from the U S  subsidiary to increase interest deductions and reduce taxable income in the United States  Both of these proposals would have tightened the rules allowing interest deductions by reducing the current limit on interest deductions relative to adjusted income from 50% to 25% and repealing an alternative safe-harbor debt-to-equity test  Both proposals would have also eliminated or limited interest carryforwards  The Schumer proposal was intended to apparently apply to inverted firms while the Levin proposal would have applied generally  The Levin proposal would have also limited other transactions between related parties within the firm that allow untaxed investment of funds in the United States  The restrictions on interest in the Levin bill were the same as those initially proposed in the House in 2004  Senator Schumer introduced his proposal, S  2786 , the Corporate Inverters Earnings Stripping Reform Act of 2014  Its limits on interest deductions would have applied to inverted firms where U S  shareholders own more than 50% of the firm  The restriction also would have applied to firms that inverted using the substantial business activities test  The bill had nine Democratic cosponsors; five of them were on the Senate Finance Committee  In the 114 th Congress, S  922 (Sanders) and H R  1790 (Schakowsky) included general earnings-stripping provisions for firms with a foreign parent  Earnings stripping provisions were also addressed in the report of the Senate Finance Committee's working group on Tax Reform  H R  5278 (DeLauro) and S  2704 (Levin), introduced May 30, 2014, would have disallowed awarding federal contracts to inverted firms  These proposals were introduced in the 114 th Congress as H R  1809 (DeLauro) and S  975 (Durbin)  In 2014, Senators Brown and Durbin proposed S  2895 , and Representative Doggett introduced H R  5549 , the Pay What You Owe Before You Go Act, that would have taxed the accumulated deferred earnings of inverting firms  Then Senate Finance Committee Chairman Ron Wyden had proposed having draft legislation in place in September 2014, and also referred to Schumer's earnings-stripping proposal  Senator Wyden had previously announced that any changes would be retroactive to May 8, 2014 


Report 2: To help manage its multi-billion dollar acquisition investments, DHS has established policies and processes for acquisition management, requirements development, test and evaluation, and resource allocation  The department uses these policies and processes to deliver systems that are intended to close critical capability gaps, helping enable DHS to execute its missions and achieve its goals  DHS policies and processes for managing its major acquisition programs are primarily set forth in its Acquisition Management Directive 102-01 and Acquisition Management Instruction 102-01-001  DHS issued the initial version of this directive in November 2008 in an effort to establish an acquisition management system that effectively provides required capability to operators in support of the department’s missions  DHS’s Under Secretary for Management is currently designated as the department’s Chief Acquisition Officer and, as such, is responsible for managing the implementation of the department’s acquisition policies  DHS’s Under Secretary for Management serves as the acquisition decision authority for the department’s largest acquisition programs, those with LCCEs of $1 billion or greater  Component Acquisition Executives—the most senior acquisition management officials within each of DHS’s components—may be delegated acquisition decision authority for programs with cost estimates between $300 million and less than $1 billion  Table 1 identifies how DHS has categorized the 28 major acquisition programs we review in this report, and table 7 in appendix III specifically identifies the programs within each level  DHS acquisition management policy establishes that a major acquisition program’s decision authority shall review the program at a series of predetermined acquisition decision events to assess whether the major program is ready to proceed through the acquisition life-cycle phases  Depending on the program, these events can occur within months of each other, or be spread over several years  Figure 1 depicts the acquisition life cycle established in DHS acquisition management policy  An important aspect of an acquisition decision event is the decision authority’s review and approval of key acquisition documents  See table 2 for a description of the type of key acquisition documents requiring department-level approval before a program moves to the next acquisition phase  DHS acquisition management policy establishes that the APB is the agreement between program, component, and department-level officials establishing how systems will perform, when they will be delivered, and what they will cost  Specifically, the APB establishes a program’s schedule, costs, and key performance parameters  DHS defines key performance parameters as a program’s most important and non- negotiable requirements that a system must meet to fulfill its fundamental purpose  For example, a key performance parameter for an aircraft may be airspeed and a key performance parameter for a surveillance system may be detection range  The APB schedule, costs, and key performance parameters are defined in terms of an objective and minimum threshold value  According to DHS policy, if a program fails to meet any schedule, cost, or performance threshold approved in the APB, it is considered to be in breach  Programs in breach are required to notify their acquisition decision authority and develop a remediation plan that outlines a time frame for the program to return to its APB parameters, re-baseline—that is, establish new schedule, cost, or performance goals—or have a DHS-led program review that results in recommendations for a revised baseline  In addition to the acquisition decision authority, other bodies and senior officials support DHS’s acquisition management function: The Acquisition Review Board reviews major acquisition programs for proper management, oversight, accountability, and alignment with the department’s strategic functions at acquisition decision events and other meetings as needed  The board is chaired by the acquisition decision authority or a designee and consists of individuals who manage DHS’s mission objectives, resources, and contracts  The Office of Program Accountability and Risk Management (PARM) is responsible for DHS’s overall acquisition governance process, supports the Acquisition Review Board, and reports directly to the Under Secretary for Management  PARM develops and updates program management policies and practices, reviews major programs, provides guidance for workforce planning activities, provides support to program managers, and collects program performance data  Components, such as U S  Customs and Border Protection, the Transportation Security Administration, and the U S  Coast Guard sponsor specific acquisition programs  The head of each component is responsible for oversight of major acquisition programs once the programs complete delivery of all planned capabilities to end users  Component Acquisition Executives within the components are responsible for overseeing the execution of their respective portfolios  Program management offices, also within the components, are responsible for planning and executing DHS’s individual programs  They are expected to do so within the cost, schedule, and performance parameters established in their APBs  If they cannot do so, programs are considered to be in breach and must take specific steps, as noted above  Figure 2 depicts the relationship between acquisition managers at the department, component, and program level  DHS established a Joint Requirements Council (JRC) to develop and lead a component-driven joint requirements process for the department  The JRC has issued policies outlining a process for analyzing and validating capability gaps, needs, and requirements  The JRC consists of a chair and 14 members who are senior executives or officers that represent key DHS headquarters offices and seven of the department’s operational components  The JRC chair rotates annually among the seven operational components  JRC members represent the views of their components or office leadership, endorse and prioritize validated capability needs and operational requirements (user-defined performance parameters outlining what a system must do), and make recommendations that are supported by analytical rigor  Figure 3 depicts the current headquarters and component members of the JRC  The JRC provides input to two senior-level entities: The Acquisition Review Board—as a member, the JRC chair advises the board on capability gaps, needs, and requirements at key milestones in the acquisition life cycle  The Deputy’s Management Action Group, which the Secretary established in April 2014, is a decision-making body that is chaired by the Deputy Secretary  Its membership consists of the DHS Chief of Staff, DHS Under Secretaries, senior operational component deputies and select support component deputies, and the Chief Financial Officer  The group provides recommendations to the Deputy Secretary for consideration in the annual resource allocation process that reflects DHS’s investment priorities  The group reviews JRC- validated capability needs and recommendations, provides direction and guidance to the JRC, and endorses or directs related follow-on JRC activities  The JRC is responsible for validating proposed capability needs and requirements for all major acquisitions, as well as for programs that are joint or of interest to the Deputy’s Management Action Group, regardless of level  See table 3 for a description of the key requirements documents requiring JRC validation  In general, the DHS requirements development process moves from broad mission needs and capability gaps to operational requirements  See figure 4  In May 2009, DHS established policies that describe processes for testing the capabilities delivered by the department’s major acquisition programs  The primary purpose of test and evaluation is to provide timely, accurate information to managers, decision makers, and other stakeholders to reduce programmatic, financial, schedule, and performance risks  We provide an overview of each of the 28 programs’ test activities in the individual program assessments presented in appendix I  DHS testing policy assigns specific responsibilities to particular individuals and entities throughout the department: Program managers have overall responsibility for planning and executing their programs’ testing strategies, including scheduling and funding test activities and delivering systems for testing  They are also responsible for controlling developmental testing, which is used to assist in the development and maturation of products, manufacturing, or support processes  Developmental testing includes engineering- type tests used to verify that design risks are minimized, substantiate achievement of contract technical performance, and certify readiness for operational testing  Operational test agents are responsible for planning, conducting, and reporting on operational test and evaluation, which is intended to identify whether a system can meet its key performance parameters and provide an evaluation of the operational effectiveness, suitability, and cybersecurity of a system in a realistic environment  Operational effectiveness refers to the overall ability of a system to provide a desired capability when used by representative personnel  Operational suitability refers to the degree to which a system can be placed into field use and sustained satisfactorily  The operational test agents may be organic to the component, another government agency, or a contractor, but must be independent of the developer in order to present credible, objective, and unbiased conclusions  The Director, Office of Test and Evaluation is responsible for approving major acquisition programs’ operational test agent and test and evaluation master plans, among other things  A program’s test and evaluation master plan must describe the developmental and operational testing needed to determine technical performance and operational effectiveness, suitability, and cybersecurity  As appropriate, the Director is also responsible for observing operational tests, reviewing operational test agents’ reports, and assessing the reports  Prior to a program’s acquisition decision event 3, the Director provides the program’s acquisition decision authority a letter of assessment that includes an appraisal of the program’s operational test, a concurrence or non-concurrence with the operational test agent’s evaluation, and any further independent analysis  As an acquisition program proceeds through its life cycle, the testing emphasis moves gradually from developmental testing to operational testing  See figure 5  DHS has established a planning, programming, budgeting, and execution process to allocate resources to acquisition programs and other entities throughout the department  DHS uses this process to produce the department’s annual budget request and multi-year funding plans presented in the FYHSP, a database that contains, among other things, 5-year funding plans for DHS’s major acquisition programs  According to DHS guidance, the 5-year plans should allow the department to achieve its goals more efficiently than an incremental approach based on 1-year plans  DHS guidance also states that the FYHSP articulates how the department will achieve its strategic goals within fiscal constraints  At the outset of the annual resource allocation process, the department’s Offices of Policy and Chief Financial Officer provide planning and fiscal guidance, respectively, to the department’s components  In accordance with this guidance, the components should submit 5-year funding plans to the Chief Financial Officer  These plans are subsequently reviewed by DHS’s senior leaders, including the DHS Secretary and Deputy Secretary  DHS’s senior leaders are expected to modify the plans in accordance with their priorities and assessments, and they document their decisions in formal resource allocation decision memorandums  DHS submits the revised funding plans to the Office of Management and Budget, which uses them to inform the President’s annual budget request—a document sent to Congress requesting new budget authority for federal programs, among other things  In some cases, the funding appropriated to certain accounts in a given fiscal year can be carried over to subsequent fiscal years  Figure 6 depicts DHS’s annual resource allocation process  Federal law requires DHS to submit an annual FYHSP report to Congress at or about the same time as the President’s budget request  This report presents the 5-year funding plans in the FYHSP database at that time  Two offices within DHS’s Office of the Chief Financial Officer support the annual resource allocation process: The Office of Program Analysis and Evaluation (PA&E) is responsible for establishing policies for the annual resource allocation process and overseeing the development of the FYHSP  In this role, PA&E develops the Chief Financial Officer’s planning and fiscal guidance, reviews the components’ 5-year funding plans, advises DHS’s senior leaders on resource allocation issues, maintains the FYHSP database, and submits the annual FYHSP report to Congress  The Cost Analysis Division is responsible for reviewing, analyzing, and evaluating acquisition programs’ LCCEs to ensure the cost of DHS programs are presented accurately and completely, in support of resource requests  This division also supports affordability assessments of the department’s budget, in coordination with PA&E, and develops independent cost estimates for major acquisition programs upon request by DHS’s Under Secretary for Management or Chief Financial Officer  Of the 24 programs we assessed with approved schedule and cost goals, 10 were on track to meet those goals during 2017  The other 14 programs were not on track because they changed or breached their schedule goals, cost goals, or both  We found that most programs updated their cost estimates in response to requirements DHS established in January 2016 that are intended to provide decision makers with more timely information  These actions are in accordance with GAO’s best practice to regularly update cost estimates and we plan to use these updated estimates to measure programs’ cost changes going forward  Based on our April 2014 recommendation, DHS revised the format of its fiscal year 2018–2022 FYHSP report to Congress to include acquisition affordability tables for select major acquisition programs  However, the report shows—and our analysis of programs’ current cost estimates confirms— that some programs face acquisition funding gaps in fiscal year 2018  We also reviewed 4 programs that were early in the acquisition process and planned to establish department-approved schedule and cost goals in calendar year 2017  However, these programs were delayed in getting department approval for their initial APBs for various reasons and, therefore, we excluded them from our assessment of whether programs were on track to meet their schedule and cost goals during 2017  DHS leadership subsequently approved initial APBs for 2 particularly complex and costly programs—a border wall system along the southwest U S  border and the Coast Guard’s Heavy Polar Icebreaker—in January 2018  We plan to assess these programs in next year’s review, but provide more details on all 4 additional programs we reviewed in the individual assessments in appendix I  Table 4 summarizes our findings and we present more detailed information after the table  From January 2017 to January 2018, 10 of the 24 programs we assessed with department-approved APBs were on track to meet their schedule and cost goals  This is fewer than our last annual review in which we found that 17 of the 26 programs we assessed were on track during 2016  Three of the 10 programs on track during 2017 were on track against initial schedule and cost goals; that is, the schedule and cost estimates in the baseline DHS leadership initially approved after the department’s acquisition management policy went into effect in November 2008  The other 7 programs had re-baselined prior to January 2017 and were on track against revised schedules and cost estimates that reflected past schedule slips, cost growth, or both  However, some of the programs on track in 2017 identified risks that may lead to schedule slips or cost growth in the future  For example, officials from the Technology Infrastructure Modernization program told us that staffing challenges may impede their ability to execute the program in accordance with its current APB  We also identified 2 programs that are in the process of re-baselining or plan to re-baseline in the near future to account for significant program changes or to add capabilities  For example, the Next Generation Networks Priority Services program plans to update its APB to establish schedule, cost, and performance goals for the next increment, which is intended to address landline capabilities for providing government officials emergency telecommunication services  During 2017, 14 of the 24 programs we assessed with department- approved APBs were not on track  Twelve of these programs had at least one major acquisition milestone that slipped, including 6 of these programs that also changed or breached their cost goals  Two additional programs changed or breached only their cost goals  As of January 2018, 6 of the 12 programs that experienced a schedule slip were in breach and had not yet revised their goals  Therefore, the magnitude of the schedule slips is unknown  For the remaining 6 programs, the change in schedule during 2017 ranged from a delay of 6 months to 66 months  Figure 7 identifies the programs that experienced schedule slips and the extent to which their major milestones slipped in 2017, as well as—for additional context—in prior years  While there are various reasons for schedule delays, the result is that end users may not get needed capabilities when they originally anticipated  Examples of the reasons why these key milestones slipped in 2017 include the following: New requirements: For example, the Passenger Screening Program re-baselined in May 2017 for the fifth time since its initial APB was approved in January 2012  This latest re-baseline was to remediate a 17-month breach caused by delays in incorporating new cybersecurity requirements in one of the program’s transportation security equipment technologies, known as the Credential Authentication Technology  The program now plans to achieve full operational capability for this system by December 2023—more than 9 years later than it initially planned  In another example, the Tactical Communications Modernization program re-baselined in November 2017—4 months after the program notified DHS leadership that it would not achieve full operational capability as planned  The reason for this re-baseline was to resolve issues related to federal information security requirements  The program now plans to achieve this milestone by March 2019, which is more than a year later than its initial APB threshold  Technical challenges: For example, the Continuous Diagnostics and Mitigation program re-baselined in June 2017 to account for significant coverage gaps identified during the deployment of phase 1 sensors and to establish cost, schedule, and performance goals for phase 3 tools  The program’s full operational capability date slipped almost 4 years after this milestone was redefined as the point in time at which phase 1–3 tools are available to all participating civilian agencies  Additionally, the Automated Commercial Environment program declared a schedule breach in April 2017—its second in less than a year—after encountering difficulties developing its remaining functionality  These difficulties have caused further delays to the program’s final acquisition milestone decision  External factors: Officials from the Logistics Supply Chain Management System program notified DHS leadership in September 2017 that the program would not complete all required activities to achieve acquisition decision event 3 and subsequent events, including full operational capability  The primary reason for the delay was because program staff were deployed to support response and recovery efforts during the 2017 hurricane season  Additionally, the Medium Lift Helicopter program experienced delays in getting key acquisition documents approved in time to achieve its acquisition decision event 3  These delays were attributed, in part, to DHS leadership directing Customs and Border Protection to develop a comprehensive border plan that included the helicopter’s capabilities  We elaborate on the reasons for all 12 programs’ schedule slips in the individual assessments in appendix I  Of the 14 programs not on track during 2017, 8 revised or breached their established cost goals  Four of these 8 programs revised their cost goals when they re-baselined to address new requirements and technical challenges, among other things  When the Passenger Screening Program re-baselined in May 2017, the program’s APB threshold for its life-cycle costs increased $418 million (8 percent) over its previous APB  However, the revised threshold is $1 billion below the threshold established in the program’s initial APB, which was approved in January 2012  From 2012 to 2015, the program’s scope was reduced in response to funding constraints  However, emerging threats drove the program to increase capability requirements, which has subsequently increased costs  When the Continuous Diagnostics and Mitigation program re- baselined in June 2017, the APB threshold for life-cycle costs decreased by $15 million (1 percent)  However, the program shifted some acquisition costs to operations and maintenance (O&M) to be consistent with DHS’s new common appropriations structure  This, in addition to other changes, increased the APB threshold for O&M by $631 million (3,712 percent)  When the National Security Cutter program re-baselined in November 2017 to account for a ninth ship—as directed by Congress—the APB cost thresholds for acquisition and O&M increased by $453 million (8 percent) and $123 million (1 percent), respectively  When the Immigration and Customs Enforcement’s TECS Modernization program re-baselined in November 2017 in preparation for acquisition decision event 3, the APB cost thresholds increased overall  Specifically, the acquisition cost threshold decreased by $14 million (6 percent) when the program included actual costs through fiscal year 2016, among other things, and the O&M cost threshold increased by $147 million (92 percent) when the program extended the estimate by 4 years and included support costs for an additional 11 years  The other 4 programs breached their established cost goals during 2017  The Medium Lift Helicopter and Electronic Baggage Screening programs breached certain APB cost thresholds when they shifted costs between categories, such as O&M to acquisitions or vice versa, to be consistent with DHS’s new common appropriations structure  The Tactical Communications Modernization program experienced a cost breach primarily because of increases in costs for contractor labor and support for facilities and infrastructure  The program’s APB cost threshold for O&M increased by $110 million (23 percent) when it re-baselined in November 2017  The Automated Commercial Environment program experienced a cost breach because it had to extend its contracts to address the development difficulties discussed above  The magnitude of the program’s cost goal changes is not yet known because the program does not plan to revise its APB until August 2018  We elaborate on the reasons for all 8 programs’ cost goal changes or breaches in the individual program assessments in appendix I  In January 2016, based on several of our past recommendations, DHS required major acquisition programs to begin submitting to headquarters (1) detailed data on program affordability, such as updates to the program’s LCCE and funding source information, to help inform the department’s annual resource allocation process, and (2) an annual LCCE update  These requirements are intended to provide more timely information that may improve DHS’s efforts to address acquisition program affordability issues, as well as internal and external oversight of programs’ progress against its cost goals  These actions are in accordance with GAO’s cost estimating best practices, which state that cost estimates should be updated with actual costs so that they are always relevant and current  As a result, we have used these sources to provide the programs’ current estimate in the individual assessments in appendix I, as appropriate, and plan to use these data sources to measure programs’ cost changes going forward  According to officials from the Cost Analysis Division, a program’s annual LCCE update should inform the affordability submission to support the annual resource allocation process and can be completed at any point during the fiscal year leading up to this process  We examined documentation to ascertain whether the programs we reviewed complied with the two requirements  For the 24 programs we assessed with department-approved APBs, we found the following: All 24 programs submitted the detailed data on program affordability to headquarters by June 2017 to inform the fiscal year 2019 resource allocation cycle  Most programs’ submissions accounted for changes since the program’s last LCCE was approved by DHS’s Chief Financial Officer, except three  For example, the Long Range Surveillance Aircraft program’s submission reflected no updates from its November 2011 LCCE because the program was in the process of re-baselining to account for significant changes  The program began re-baselining nearly 3 years ago and has been delayed for various reasons, including challenges with the vendor hired to complete a revision of the program’s LCCE  Eighteen of the 24 programs submitted annual LCCE updates  Three programs—Automated Commercial Environment, H-65, and Transformation—did not submit an annual LCCE update because they were in breach  The other 3 programs—all within the Coast Guard—did not submit an annual LCCE because, according to Coast Guard officials, they have limited internal cost estimating capability and rely on outside sources for this service, which led to delays in completing the annual LCCEs for these programs  Coast Guard officials said they are reviewing options to resolve these delays and improve the Coast Guard’s cost estimating capability  Cost Analysis Division officials anticipate the Coast Guard will increase compliance with the annual LCCE requirement in fiscal year 2018  They also plan to update the annual LCCE template to include additional information, such as comparisons of the updated estimates to the program’s APB cost goals and projected funding  In addition, DHS revised the format of its FYHSP report to Congress, improving insight into major programs’ acquisition funding, but decreasing insight into O&M funding  In April 2014, we found that DHS could better communicate its funding needs for acquisition programs to Congress and recommended that DHS enhance the content for future FYHSP reports by presenting programs’ annual cost estimates and any anticipated funding gaps, among other things  DHS concurred with the recommendation and, for the first time, included acquisition affordability tables that presented programs’ annual acquisition cost estimates compared to projected acquisition funding for select major acquisition programs in its FYHSP report for fiscal years 2018–2022  However, DHS no longer reported O&M funding for individual programs  DHS reported in the FYHSP that it focused on acquisition information because O&M funding estimates are generally stable year-to-year and components manage O&M in various ways, such as by individual program or across a portfolio of programs  By removing O&M funding information in the FYHSP for all programs, DHS presents an incomplete picture of programs’ full funding needs and affordability  In April 2018, we assessed the extent to which DHS had accounted for O&M costs and funding in greater detail and recommended that DHS reverse the exclusion of O&M funding at the acquisition program level in its FYHSP report to Congress for all components  DHS officials stated that they plan to re-introduce O&M funding for major acquisition programs in the FYHSP report for fiscal years 2019–2023 based on multiple internal discussions about the best way to present a more comprehensive view of programs’ total costs and feedback from key stakeholders, such as the Office of Management and Budget  Based on the information presented in the FYHSP report for fiscal years 2018–2022, DHS’s acquisition portfolio is not affordable over the next 5 years  For example, the report contained acquisition affordability tables for 18 of the 24 programs we assessed that have approved APBs  Of these 18 programs, 9 were projected to have an acquisition affordability gap in fiscal year 2018  However, some of these projections are outdated since the FYHSP report—which was issued in September 2017—relied on cost information as of April 2016  Therefore, we updated these tables using the programs’ current acquisition cost estimate presented in the individual assessments in appendix I  Based on our assessment of programs’ current cost estimates, we also found that a total of 9 programs are projected to have an acquisition affordability gap in fiscal year 2018  However, 3 of these 9 programs were different programs than those identified based on the FYHSP report  Of the 9 programs we identified with a projected acquisition affordability gap in fiscal year 2018, we found the following: Five programs identified other funding, such as funding from previous fiscal years that remained available for obligation—known as carryover funding—which would address their projected acquisition funding gap  For example, in the FYHSP report, DHS projected allocating approximately $16 million in funding for the Technology Infrastructure Modernization program in fiscal year 2018 to cover an estimated $16 million in acquisition costs  However, in its November 2017 annual LCCE update, this program’s acquisition cost increased to almost $30 million, resulting in a projected acquisition affordability gap of almost 45 percent  The program plans to realign $57 million in O&M carryover funding to cover this and any future acquisition shortfalls  Four programs did not identify other funding that would address their projected acquisition funding gap, which increases the likelihood that they will cost more and take longer to deliver capabilities to end users than expected  For example, in the FYHSP report, DHS projected allocating $109 million in funding for the Non-Intrusive Inspection Systems program in fiscal year 2018 to cover an estimated $103 million in acquisition costs  However, in its April 2017 annual LCCE update, this program’s acquisition costs increased to nearly $186 million, resulting in a projected acquisition affordability gap of 41 percent  The program identified only $2 5 million in fiscal year 2017 acquisition carryover funding  Further, 5 of the 24 programs we assessed were not included in the fiscal years 2018–2022 FYHSP report because they were no longer expected to receive acquisition funding  Officials from 3 of these 5 programs projected funding gaps that could cause future program execution challenges, such as schedule slips or cost growth  For example, the National Bio and Agro-Defense Facility anticipates a projected funding shortfall of approximately $90 million over the next 5 years, which officials said could delay a number of activities to make the facility operational  We elaborate on programs’ affordability over the next 5 years in the individual program assessments in appendix I  We assessed DHS’s policies outlining the department’s processes for acquisition management, resource allocation, and requirements and found that, when considered collectively, they generally reflect key portfolio management practices  In March 2007, we examined the practices that private sector entities use to achieve a balanced mix of new projects and found that successful commercial companies use a disciplined and integrated approach to prioritize needs and allocate resources when making investments  This approach, known as portfolio management, requires companies to view each of their investments as contributing to a collective whole, rather than as independent and unrelated  With this perspective, companies can effectively (1) identify and prioritize opportunities, and (2) allocate available resources to support the highest priority—or most promising—opportunities  Based on this and other work, we identified four key practice areas for portfolio management in September 2012  We previously assessed DHS’s acquisition management and resource allocation policies against our key portfolio management practices in September 2012 and April 2014, respectively  We found that the policies in place at the time of our reviews did not fully reflect all of the key portfolio management practices and recommended that DHS revise its policies to do so  DHS concurred with our recommendations and subsequently took actions to mature and solidify the department’s portfolio management processes and policies  In April 2014, the Secretary of Homeland Security issued a memorandum titled Strengthening Departmental Unity of Effort, which aimed to strengthen DHS’s structures and processes to improve departmental cohesiveness and operational effectiveness, among other things  The memorandum identified several initial focus areas intended to build organizational capacity, one of which centered on improving and integrating the department’s processes for acquisition oversight, resource allocation, and joint requirements analysis  To improve these processes, the memorandum directed senior DHS leaders to update the existing acquisition management and resource allocation processes, as well as lead an expedited review to provide alternatives for developing and facilitating a component-driven joint requirements process, which ultimately led to the re-establishment of the JRC  In response to our recommendations and the Unity of Effort memorandum, DHS issued new policies outlining the acquisition management, resource allocation, and requirements processes in 2016  We assessed these policies and found that, when considered collectively, they generally reflect the key portfolio management practices, as shown in table 5  Because DHS’s new policies were issued in 2016, we did not specifically assess DHS’s implementation of them  However, we did review documentation resulting from the acquisition management, resource allocation, and requirements processes since January 2016 to get a sense of how the department began implementation  Examples of how DHS’s policies reflect the key portfolio management practices and their implementation status are outlined below  Clearly define and empower leadership: the policies identify the roles and responsibilities for decision makers in the acquisition management, resource allocation, and requirements processes, as well as establish cross-functional teams to support those decision makers  For example, to fulfill the role of acquisition decision authority, the Under Secretary for Management is supported by the Acquisition Review Board, which consists of key DHS senior leaders responsible for managing the department’s finances, contracts, and testing, among other things  We reviewed the memorandums issued since January 2016 that document Acquisition Review Board decisions and found that, through this group, DHS has taken steps to manage across programs through its acquisition management process  For example, after reviewing the status of several individual Customs and Border Protection programs in 2016, the Acquisition Review Board identified the need for a comprehensive border plan that depicts the component’s current land, maritime, and air domain awareness capabilities  In October 2016, the Deputy Under Secretary for Management—who was serving as acquisition decision authority at the time—directed Customs and Border Protection to develop such a plan  The plan is to consist of separate analyses for each of the three domains—starting with land— that reflect end users’ capability requirements for systems, such as Integrated Fixed Towers, Multi-Role Enforcement Aircraft, and Medium Lift Helicopter, that address relevant domain threats  As of February 2018, Customs and Border Protection had not yet completed the analysis for land domain awareness capabilities  Establish standard assessment criteria and demonstrate comprehensive knowledge of the portfolio: the policies establish standard criteria for assessing major acquisition programs through the acquisition management, resource allocation, and requirements processes  For example, the updated resource allocation handbook established that PA&E conduct annual assessments of all major investments using standard criteria in five main categories— contribution to DHS’s mission, program health, risk, resources, and governance—to assess the portfolio of investments and present alternatives for leadership decision  PA&E officials told us they used these criteria when assessing components’ resource allocation requests during development of the President’s fiscal year 2018 budget to develop funding options for the Deputy’s Management Action Group, which is responsible for making resource allocation recommendations for the Secretary’s approval  PA&E presented its funding options by DHS mission, which, according to officials associated with the Deputy’s Management Action Group, allowed the group to make cross-component allocation decisions that directly aligned with the department’s strategic goals  We could not verify these officials’ assertions based on the documentation we were provided, but will continue to monitor PA&E’s assessment of major acquisition programs against the standard criteria as the department’s implementation of its resource allocation policies matures  In addition, PARM formally established its Acquisition Program Health Assessments in October 2016 after more than a year of development and pilot efforts  These assessments are intended to monitor major acquisition programs quarterly (both on an individual program level and in aggregate) by rating programs against standard criteria in several categories—such as program management, financial management, and human capital—that DHS deemed important for successful program execution  We reviewed the quarterly reports issued from January 2016 to April 2017 and found that they primarily focused on individual programs  The portfolio-level information contained in these reports was limited to program results grouped in various categories, such as by component, by acquisition life-cycle phase, and by investment type (e g , information technology)  PARM officials said they plan to use the health assessments as a portfolio management tool in the future and are working to determine how to best to analyze and present portfolio-level data  We will continue to track PARM’s implementation of the health assessment process moving forward through GAO’s High Risk work to determine DHS’s progress in demonstrating that major acquisition programs are on track to achieve their established goals  Prioritize investments by integrating the requirements, acquisition, and budget processes: the policies identify areas where DHS’s requirements, acquisition management, and resource allocation processes are integrated and establish processes for prioritizing investments  For example, the updated resource allocation policies require reviews of DHS’s major acquisition portfolio during this annual process  When the portfolio faces a funding gap, programs are to be returned to their respective components for scope or funding adjustments, or prioritized by department leadership to identify an affordable set of programs  For the fiscal year 2018 resource allocation cycle, PA&E officials provided an example where DHS leadership directed components to identify funding from alternative sources to fund specific purposes related to DHS’s mission to prevent terrorism and enhance security  However, as previously discussed, the resulting FYHSP report for fiscal years 2018–2022 showed that DHS’s portfolio of major acquisition programs is not affordable over the next 5 years  In addition, the requirements policies established the Joint Assessment of Requirements, an annual process to prioritize emerging and existing requirements to inform the department’s resource allocation decisions  As we found in October 2016, the JRC plans to implement the Joint Assessment of Requirements through a 3-year phased approach that is expected to be fully implemented in time to inform DHS’s fiscal year 2021 budget request  In fiscal year 2016, the JRC completed the first phase, which included (1) developing initial criteria to evaluate emerging requirements, and (2) evaluating and prioritizing a sample of those requirements against the initial criteria  Based on these results, JRC officials told us in September 2017 that they are working to develop assessment metrics for the criteria as part of the next phase  We will continue to track the JRC’s progress through GAO’s High Risk work to determine DHS’s progress to effectively operate the JRC  Continually make go/no go decisions to rebalance the portfolio: the requirements policies outlining the Joint Assessment of Requirements process also reflected the key practices to conduct reviews (1) annually to make requirement scoping adjustments as priorities change and (2) when new investments are identified  However, as previously discussed, the JRC is still in the process of implementing this process  We consider this overall key practice area to be partially met because DHS’s policies do not reflect the key practice (3) to reassess programs that breach established thresholds within the context of the portfolio to determine if the program remains relevant and affordable  PARM officials told us that—in practice—DHS reassesses programs in the context of their component’s overall acquisition portfolio based on a certification of funds memorandum submitted to DHS’s Chief Financial Officer when programs re-baseline as a result of a cost, schedule, or performance breach  The memorandum is intended to enable the Acquisition Review Board to discuss affordability by certifying a program’s funding levels and identifying trade-offs necessary to address any projected funding gaps  We previously found that the certification of funds memorandum was an effective tool for DHS leadership to assess program affordability  However, DHS’s acquisition management policy requires components to submit this memorandum prior to most acquisition decision events, but not when a program re-baselines as a result of a cost, schedule, or performance breach  During our review of programs’ progress against schedule and cost goals in 2017, we found one instance where a component did not follow the practice to submit this memorandum when one of its programs re-baselined as a result of a breach  Specifically, Customs and Border Protection did not submit a certification of funds memorandum when the Tactical Communications Modernization program re-baselined in November 2017 as a result of a schedule and cost breach  Nevertheless, DHS leadership approved the program’s revised APB and removed it from breach status, even though DHS’s Chief Financial Officer identified that the program’s revised LCCE was not affordable  PARM officials stated that this instance was an oversight because, at the time, the department was still determining when certification of funds memorandums should be submitted  According to the federal standards for internal control, documentation of internal control practices is necessary so that they can be implemented effectively  By amending its acquisition management policy to require a certification when a program re-baselines as a result of a cost, schedule, or performance breach, DHS can ensure that leadership receives the necessary information to reassess that program’s affordability in the context of a larger portfolio  PARM officials stated that, moving forward, components will be required to submit a certification of funds memorandum for each program when a new APB is submitted for DHS leadership approval  In contrast, the acquisition management policy does reflect the key practice (4) to use information gathered from post-implementation reviews to fine tune investment processes and the portfolio to achieve strategic outcomes  For example, DHS’s acquisition management policy requires programs to conduct post-implementation reviews 6 to 18 months after initial operational capability to identify and document any deployment or implementation and coordination issues, how they were resolved, and how they could be prevented in the future  These reviews are intended to help identify capability gaps that may inform future acquisitions, among other things  However, PARM officials said that they do not consider the results of the post-implementation reviews when managing the department’s current acquisition portfolio because these reviews are typically conducted after program oversight shifts from PARM to the component  While post-implementation reviews are conducted later in the acquisition life cycle, the insights they provide could be leveraged by other programs in the acquisition portfolio, not just the program under review  For example, the Integrated Fixed Towers program completed a post-implementation review in June 2016 after its initial deployment of capabilities to the Arizona border  The review found that changes in illegal traffic patterns as a result of the program’s deployment may be predicted, and other technologies may be able to compensate for changes in these patterns  This information could help other programs under development plan for similar outcomes or enable DHS to change deployment plans for existing programs to address changes in threats  PARM has an opportunity to use the results from programs’ post- implementation reviews since it is responsible for overseeing the department’s acquisition portfolio by monitoring each investment’s cost, schedule, and performance against established baselines  Federal standards for internal control state that management should obtain data on a timely basis so that they can be used for effective monitoring and that separate evaluations may provide feedback on the effectiveness of ongoing monitoring  By leveraging the results from post-implementation reviews in its monitoring efforts, PARM may be better able to ensure that programs in the current acquisition portfolio achieve their baselines  PARM officials stated they have generally focused on leveraging information gathered from canceled acquisition programs, such as where and why plans went wrong  However, they agreed that they could better leverage post- implementation review information gathered from programs that complete planned capability deployments  DHS’s mission to safeguard the American people and homeland requires a broad portfolio of acquisitions  However, the performance of DHS’s major acquisition portfolio during 2017 did not improve compared to our last review because we found that more programs will require more time and may require more money to complete than initially planned  DHS is collecting more timely cost estimate information on its acquisition programs to make more informed investment decisions  Yet DHS continues to face challenges in funding its acquisition portfolio, which highlights the need for disciplined policies that reflect best practices to ensure that the department does not pursue more programs than it can afford  DHS leadership has taken positive steps in recent years by strengthening its policies for acquisition management and resource allocation, and establishing policies related to requirements  Collectively, these policies reflect an integrated approach to managing investments  However, opportunities remain to further strengthen the acquisition management policy by documenting DHS’s current practice to reassess programs that breach their established cost, schedule, or performance thresholds to ensure they are still worth pursuing within the context of the portfolio  Additionally, leveraging information learned once programs complete deployment across the acquisition portfolio could help ensure that programs stay on track against their baselines in the first place  This is particularly relevant because DHS is initiating a number of complex and costly acquisition programs, such as development of a wall system along the southwest border and the Coast Guard’s Heavy Polar Icebreaker, which could benefit from this type of information  We are making the following two recommendations to DHS: The Under Secretary for Management should update DHS’s acquisition management policy to require components to submit a certification of funds memorandum when a major acquisition program re-baselines in response to a breach  (Recommendation 1) The Under Secretary for Management should require PARM to assess the results of major acquisition programs’ post-implementation reviews and identify opportunities to improve performance across the acquisition portfolio  (Recommendation 2) We provided a draft of this report to DHS for review and comment  In its comments, reproduced in appendix IV, DHS concurred with both of our recommendations and identified actions it planned to take to address them  DHS also provided technical comments, which we incorporated as appropriate  We are sending copies of this report to the appropriate congressional committees and the Secretary of Homeland Security  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-4841 or makm@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 V  This appendix presents individual assessments for each of the 28 programs we reviewed  Each assessment presents information current as of January 2018  They include standard elements, such as an image, a program description, and summaries of the program’s progress in meeting cost and schedule goals, performance and testing activities, and program management-related issues, such as staffing  Each assessment also includes the following figures: Fiscal Years 2018–2022 Affordability  This figure compares the funding plan presented in the Future Years Homeland Security Program report to Congress for fiscal years 2018–2022 to the program’s current cost estimate  We use this funding plan because the data are approved by the Department of Homeland Security (DHS) and Office of Management and Budget, and was submitted to Congress to inform the fiscal year 2018 budget process  The figure only presents acquisition funding because DHS did not report operations and maintenance (O&M) funding for individual programs in its funding plan to Congress  In addition, the data do not account for other potential funding sources, such as carryover  Acquisition Program Baseline (APB) vs  Current Estimate  This figure compares the program’s cost thresholds from the initial APB approved after DHS’s acquisition management policy went into effect in November 2008 and the program’s current DHS-approved APB to the program’s expected costs as of January 2018  The source for the current estimate is the most recent cost data we collected (i e , a department-approved life-cycle cost estimate, updated life-cycle cost estimates submitted during the resource allocation process to inform the fiscal year 2019 budget request, or a fiscal year 2017 annual life- cycle cost estimate update)  Schedule Changes  This figure consists of two timelines that identify key milestones for the program  The first timeline is based on the initial APB DHS leadership approved after the department’s current acquisition management policy went into effect  The second timeline identifies when the program expected to reach its major milestones as of January 2018 and includes milestones introduced after the program’s initial APB  Dates shown are based on the program’s APB threshold dates or updates provided by the program office  Test Status  This table identifies key recent and upcoming test events  It also includes DHS’s Director, Office of Test and Evaluation’s assessment of programs’ test results, if an assessment was conducted  Staffing Profile  This figure identifies the total number of staff a program needs (measured in full time equivalents) including how many are considered critical and how many staff the program actually has  Lastly, each program assessment summarizes comments provided by the program office and identifies whether the program provided technical comments  AUTOMATED COMMERCIAL ENVIRONMENT (ACE) CUSTOMS AND BORDER PROTECTION (CBP) The ACE program is developing software that will electronically collect and process information submitted by the international trade community  ACE is intended to provide private and public sector stakeholders access to information, enhance the government’s ability to determine whether cargo should be admitted into the United States, and increase the efficiency of operations at U S  ports by eliminating manual and duplicative trade processes, and enabling faster decision making  Final deployment and operational testing of ACE functionality delayed  Program plans to identify an approach to address collections functionality in March 2018  We last reported on this program in March 2018 and April 2017 (GAO-18-271, GAO-17-346SP)  CBP declared a cost and schedule breach in April 2017—5 months after re-baselining the program in response to a prior breach—because of difficulties developing the collections aspect of ACE’s remaining functionality, which collects and processes duties owed on imported goods  CBP reported that its officials were not versed in the complexities of collections in the legacy system and underestimated the level of effort required to integrate collections capabilities into ACE  As a result, the program delayed final deployment of ACE functionality several times and missed the deadlines for completing the remaining milestones in its current acquisition program baseline (APB), including achieving acquisition decision event (ADE) 3 and full operational capability (FOC) by the revised dates of June 2017 and September 2017, respectively  Additional coding and testing to complete ACE development also required contract extensions that exceeded the current APB cost thresholds  The program subsequently decoupled collections from ACE’s remaining functionality to permit deployment of the other post-release capabilities—such as liquidations and reconciliation—using a phased approach between September 2017 and February 2018  In November 2017, CBP officials estimated that efforts to decouple collections from post-release functionality would be an additional $32 million in acquisition costs  CBP officials plan to cover these costs with $18 million in fiscal year 2017 carryover funding and by reprogramming $14 million from ACE disaster recovery funding  CBP is in the process of determining a path forward for collections, which is due to Department of Homeland Security (DHS) leadership by the end of March 2018  CBP then plans to update the program’s acquisition documentation, including APB and life- cycle cost estimate, by August 2018  Until then, the time frame for completing ACE’s remaining milestones and true cost of the program, including the cost to complete collections development is unknown  The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs  CBP officials anticipate receiving approximately $535 million in O&M funding over this 5-year period  Customs and Border Protection (CBP) AUTOMATED COMMERCIAL ENVIRONMENT (ACE) When DHS leadership re-baselined ACE’s cost, schedule, and performance parameters in 2013, the program adopted an agile software development methodology to accelerate software creation and increase flexibility in the development process  As of October 2017, the ACE program office oversees 11 agile teams that conduct development and O&M activities  CBP officials said they extended the program’s agile development contracts in 2017 to permit further development of the collections function  In identifying a path forward for collections, CBP officials stated there are three main options: 1  leave collections in the legacy system, 2  continue to pursue development and deployment in ACE, or 3  move collections to a different program altogether  The program previously experienced a schedule breach in June 2016 because it delayed events to address external stakeholders’ concerns about transitioning to ACE  According to CBP officials, CBP has signed a memorandum of understanding with each of the 22 partner agencies responsible for clearing or licensing cargo that provides access to ACE  As of February 2018, 21 of the partner agencies had transitioned to ACE and the program was piloting a solution for the remaining partner  In September 2017, CBP reported that ACE continued to lack a director of testing and evaluation  CBP officials said they do not plan to fill this vacancy despite plans to conduct further testing because existing staff have successfully covered the workload and a large portion of testing has already been completed  CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  CUSTOMS AND BORDER PROTECTION (CBP) The Biometric Entry-Exit Program is developing capabilities to enhance traveler identification upon departure from the U S  at air, land, and sea ports of entries by collecting biometric data, such as fingerprints and facial recognition  The program plans to match this data to biometric data obtained from travelers upon their arrival into the U S  to identify foreign nationals that stay in the U S  beyond their authorized periods of admission and verify the identities of travelers leaving the U S  CBP completed four biometric pilot programs and selected a solution for development  DHS has explored biometric exit capabilities since 2009, but was directed to expedite implementation in March 2017  GAO last reported on this program in February 2017 (GAO- 17-170)  In June 2017, the Department of Homeland Security’s (DHS) Under Secretary for Management (USM) granted the Biometric Entry-Exit Program acquisition decision event (ADE) 1 approval after CBP completed several pilot initiatives to study the feasibility of proposed biometric exit solutions at air and land ports of entry  The USM also authorized the program to continue testing a pilot exit solution at Hartsfield-Jackson Atlanta International Airport and conduct technology demonstrations as needed, but directed the program to achieve ADE 2A prior to deploying a solution to the 20 U S  airports with the most international flights  CBP officials initially planned to achieve ADE 2A approval in September 2017—the point at which the program would establish cost, schedule, and performance goals in a DHS-approved acquisition program baseline (APB)—and pursue separate ADE 2B decisions to initiate development of a biometric solution for each type of port of entry, starting with air  As of December 2017, the program had yet to conduct its ADE 2A because CBP officials have had to resolve several issues identified by the Joint Requirements Council that has delayed approval of the program’s operational requirements document (ORD)  In January 2018, CBP officials said the program plans to conduct ADE 2A in February or March 2018 and is aiming for ADE 2B for the biometric air solution in December 2018  In December 2015, Congress established an account to be used for the development and implementation of the biometric entry-exit system starting in 2017  Specifically, Congress provided that half the amount collected from fee increases for certain visa applications from fiscal years 2016 through 2025—up to $1 billion—would be available to DHS until expended  In February 2017, DHS leadership approved the program to use about $73 million of this funding in fiscal year 2017 for information technology investments and programmatic and operational support, among other things  In September 2017, DHS’s Chief Financial Officer approved the program’s life-cycle cost estimate (LCCE), which CBP expects to refine as the program progresses to meet the fee-funding limit  According to CBP officials, the current funding structure poses challenges because the fees will fluctuate based on immigration rates  Customs and Border Protection (CBP) of a traveler to different sources—one technology compared the photo to the traveler’s passport upon entrance to the U S ; the other technology compared the photo to a gallery of photos based on the outbound flight manifest during an airline’s boarding process  According to CBP officials, the facial recognition technology that matched photos during an airline’s boarding process was the most viable approach and served as the foundation for its development of the ADE 2A acquisition documents  Officials stated a similar approach may be feasible for land border crossings, but will require further planning  In January 2018, CBP officials stated they were developing a test and evaluation master plan—which will outline the developmental and operational test approach—for the biometric exit air solution  DHS’s Director, Office of Test and Evaluation will need to review and approve this plan prior to the program’s ADE 2B  Since 1996, several federal statutes have required development of an entry and exit system for foreign nationals  DHS has been exploring biometric exit capabilities since 2009 and an Executive Order issued in March 2017 directed DHS to expedite the implementation of the biometric entry-exit system  The Biometric Entry-Exit Program plans to develop a capability to match a traveler’s biometric data against data contained in existing DHS biometric data repositories— primarily the National Protection and Program Directorate’s IDENT system  DHS is in the process of replacing and modernizing IDENT through the Homeland Advanced Recognition Technology (HART) program because IDENT is at risk of failure  However, HART has experienced delays, which could affect the Biometric Entry-Exit Program’s development progress  For the air biometric solution, CBP plans to pursue a public/private partnership in which airlines and airports invest in the equipment to collect biometric data  According to CBP officials, this approach could reduce program costs and improve the passenger boarding process  In August 2017, CBP officials told GAO that several airlines have expressed interest in partnering with the program, including one that expanded CBP’s pilot of facial recognition matching for outbound flights to additional gates at the Hartsfield-Jackson Atlanta International Airport  CBP officials reported a staffing gap of 14 full time equivalent staff which the program plans to fill once partnerships with airlines are established  CBP officials stated that authorized funds are collected from visa fee increases that expire in fiscal year 2025  Beyond 2025, officials stated that additional funding will need to be appropriated or the fee increases extended to continue the program  They added that fee collections are currently below forecasted levels and may come under the current $1 billion limit  CBP officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  CUSTOMS AND BORDER PROTECTION (CBP) The border wall system is intended to prevent the illegal entry of people, drugs, and other contraband by enhancing and adding to the 654 miles of existing barriers along the U S  southwest border  CBP plans to create a border enforcement zone between a primary barrier—such as a fence—and a secondary barrier  To establish the enforcement zone, the wall system may also include detection technology, surveillance cameras, lighting, and roads for maintenance and patrolling  CBP has evaluated prototypes for new barrier designs, but risks with planned detection technologies exist  CBP is leveraging staff and the contracting strategy from prior border fencing programs  GAO last reported on the existing Southwest border barriers in February 2017 (GAO-17-331)  In April 2017, Department of Homeland Security (DHS) leadership granted CBP permission to procure barrier prototypes to inform new design standards and approved the construction of the first segment of the wall system  CBP subsequently awarded 8 task orders with a total value of over $3 million for the development of prototypes and selected San Diego as the first segment  CBP plans to replace an existing 14 miles of primary and secondary barriers in San Diego  DHS plans to use fiscal year 2017 funding for the replacement of the primary barrier, which it plans to rebuild to existing design standards  DHS has requested funding for replacement of the secondary barrier beginning in fiscal year 2018 that it plans to rebuild to new design standards once established  DHS leadership plans to approve acquisition documentation—including an acquisition program baseline (APB) and a life-cycle cost estimate (LCCE)—for each segment to determine affordability prior to authorizing construction  However, CBP officials said they do not plan to develop an APB for the San Diego segment because DHS already approved construction  In January 2018, DHS leadership approved an APB establishing cost, schedule, and performance goals for a second segment in the Rio Grande Valley (RGV), which will extend an existing barrier by 60 miles  To inform leadership’s decision, DHS headquarters conducted an independent cost estimate, which CBP adopted as the program’s LCCE  The LCCE includes costs for both the San Diego and RGV segments  However, DHS officials stated that the amounts in the LCCE are not releasable until CBP evaluates the prototypes, determines, and designs a final solution for the San Diego secondary barrier, and updates the LCCE—which is not expected to be complete until June 2018  The costs presented here are only for the RGV segment  CBP reported that construction of the RGV segment would be sufficiently funded if it receives $1 3 billion of acquisition funding in fiscal year 2018  However, CBP identified a shortfall in operations and maintenance (O&M) funding from fiscal years 2019 to 2022 that it plans to cover with existing funding from the Tactical Infrastructure program, which will be responsible for maintenance of the wall system as segments are complete  If funded, the program expects to achieve full operational capability for the RGV segment in March 2023  Customs and Border Protection (CBP) The Border Wall System Program was initiated in response to an Executive Order issued in January 2017 stating that the executive branch is to secure the southern border through the immediate construction of a physical wall on the southern border of the U S  To expedite the acquisition planning process, CBP officials said they leveraged expertise from staff that worked on previous border fencing programs and were familiar with implementation challenges, such as land access  CBP intends to prioritize segments based on threat levels, land ownership, and geography, among other things  From fiscal years 2007 to 2015, CBP spent approximately $2 3 billion to construct pedestrian and vehicle fencing along the southwest border  CBP’s Tactical Infrastructure program is responsible for sustaining this fencing and other infrastructure—such as gates, roads, and bridges— over its lifetime  CBP plans to continue coordinating with the U S  Army Corps of Engineers (USACE) for engineering support and for awarding and oversight of construction contracts  CBP anticipates that all contract awards issued by USACE in support of the RGV segment will be firm fixed price  If appropriations are received, the program plans to award construction contracts for the first portion of RGV in May 2018 and for the secondary barrier in San Diego in August 2018  In February 2018, CBP officials stated that staffing the program office is a challenge because funding has not yet been received  CBP officials said that existing work for the program is being handled by current CBP staff  CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  INTEGRATED FIXED TOWERS (IFT) CUSTOMS AND BORDER PROTECTION (CBP) The IFT program helps the Border Patrol detect, track, identify, and classify illegal entries in remote areas  IFT consists of fixed surveillance tower systems equipped with ground surveillance radar, daylight and infrared cameras, and communications systems linking the towers to command and control centers  CBP plans to deliver or upgrade approximately 53 IFT systems across six areas of responsibility (AoR) in Arizona: Nogales, Douglas, Sonoita, Ajo, Tucson, and Casa Grande  System acceptance test completed in Douglas AoR and requirements were met  Program is adequately staffed, but simultaneous deployments in the future may have a negative impact  GAO last reported on this program in November and April 2017 (GAO-18-119, GAO-17-346SP)  In December 2017, CBP declared a schedule breach of the IFT program’s current acquisition program baseline (APB) because the program did not receive the funding needed to complete planned deployments on time to achieve its full operational capability (FOC) date of September 2020  The program’s FOC date previously slipped 5 years because of delays in the initial contract award process and funding shortfalls  CBP completed IFT deployments to the Douglas AoR in June 2017 and anticipates completing deployments to the Sonoita AoR in December 2017, as scheduled  However, in September 2017, CBP officials stated that they requested—but did not receive—additional funding from the Department of Homeland Security (DHS) to address new IFT requirements, including camera upgrades and replacement of existing tower systems deployed under a legacy program  In January 2015, Border Patrol requested the program prioritize replacement of the legacy systems in the Tucson and Ajo AoRs because the technology was obsolete and more expensive to maintain than the IFT technology planned for deployment in other AoRs  Without additional funding, CBP officials stated that they would be unable to exercise the contract options for the remaining AoRs on time  In June 2017, the program updated its life-cycle cost estimate (LCCE), which is slightly less than its current APB cost thresholds  This LCCE update includes estimated costs for the new requirements  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs  CBP identified $8 million in acquisition carryover funding for fiscal year 2018 and officials anticipate receiving $126 million in O&M funding to cover $100 million in O&M costs over the next 5 years  The program plans to submit a revised APB to DHS leadership by June 2018  However, the FOC date may be further delayed because of land access issues  CBP officials told GAO that they have not yet reached an agreement with the Tohono O’odham Nation—a sovereign Native American Nation—to access tribal lands, which these officials said is necessary for the construction of IFTs in the Ajo and Casa Grande AoRs  10/15 Initial operational capability (Nogales) Customs and Border Protection (CBP) INTEGRATED FIXED TOWERS (IFT) When CBP initiated the IFT program, it decided to procure a non-developmental system, and it required that prospective contractors demonstrate their systems prior to CBP awarding the contract  The program awarded the contract to EFW, Inc  in February 2014, but the award was protested  GAO sustained the protest and CBP had to reevaluate the offerors’ proposals before it again decided to award the contract to EFW, Inc  As a result, EFW, Inc  could not initiate work at the deployment sites until fiscal year 2015  According to CBP officials, the number of IFT systems deployed to a single AoR is subject to change based on assessments by the Border Patrol  DHS leadership directed CBP to develop a comprehensive border plan in October 2016 that includes IFT capabilities and—when preparing for the last budget cycle—the program estimated costs for expansion to the southwest border beginning in fiscal year 2019  In September 2017, CBP officials told GAO that they did not have any current staffing gaps  However, CBP officials added that if the program receives full funding and reaches an agreement with the Tohono O’odham Nation to initiate IFT deployments to the Ajo and Casa Grande AoRs, while concurrently deploying capability to the Sonoita and Tucson sectors, they will be short on government and contracted staff  CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  MEDIUM LIFT HELICOPTER (UH-60) CUSTOMS AND BORDER PROTECTION (CBP) UH-60 is a medium-lift helicopter that CBP uses for law enforcement and border security operations, air and mobility support and transport, search and rescue, and other missions  CBP’s UH-60 fleet consists of 20 aircraft acquired from the U S  Army in three different models  CBP previously acquired 4 modern UH-60M aircraft and converted 6 of its older 16 UH-60A aircraft into more capable UH-60L models  CBP is replacing the remaining 10 UH-60A with reconfigured Army HH-60L aircraft  CBP test agent and the Army completed testing of reconfigured HH-60L prototype  CBP has initiated efforts to acquire additional converted HH-60L aircraft from the Army  GAO last reported on this program in April 2017 (GAO-17-346SP)  The program breached the cost and schedule goals in its acquisition program baseline (APB) and, as of December 2017, CBP officials stated they were in the process of developing the breach notification required under the Department of Homeland Security’s (DHS) acquisition policy  In its annual life-cycle cost estimate (LCCE) update, the program shifted some operations and maintenance (O&M) costs to acquisitions to be consistent with DHS’s new appropriation structure  For example, the program shifted costs for recurring upgrades from O&M to acquisition because these upgrades require development and production  As a result, the program’s updated acquisition cost estimate exceeded the APB acquisition cost threshold, which constitutes a cost breach under DHS’s acquisition policy  CBP officials stated that they did not initially declare a cost breach because the program’s total LCCE was within the APB threshold  The program also did not hold its acquisition decision event (ADE) 3 by the APB deadline of September 2017  The ADE 3 is intended to approve the transfer of CBP’s remaining UH-60A aircraft for reconfigured Army HH60-L aircraft based on an evaluation of a reconfigured prototype  According to CBP officials, the program did not complete the required acquisition documentation by the ADE 3 deadline, in part, because DHS leadership directed CBP to develop a comprehensive border plan in October 2016 that includes UH-60 capabilities  It is unclear when the ADE 3 will occur because, as of December 2017, several documents were pending validation by the Joint Requirements Council  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs  In addition, CBP officials previously told GAO that UH-60 O&M is funded through a separate, central funding account for all of CBP’s air and marine assets  CBP officials stated that the projected acquisition funding gap in fiscal years 2019 and 2020 is primarily for replacing obsolete parts that were previously considered O&M  According to these officials, the Army conducts an annual obsolescence study that will help CBP identify and prioritize replacements across the UH-60 fleet based on available funding levels  Customs and Border Protection (CBP) MEDIUM LIFT HELICOPTER (UH-60) CBP previously acquired UH-60 as a part of its Strategic Air and Marine Program (StAMP)  In July 2016, DHS leadership designated UH-60 as a separate and distinct major acquisition program  CBP initially planned to convert all 16 of its UH-60A aircraft into UH-60L models, but changed its strategy once it learned the Army planned to divest several HH-60L aircraft that could more easily be converted into UH-60L aircraft for CBP missions  CBP officials anticipated the new strategy could reduce the program’s costs by an estimated $70 million, accelerate its schedule, and result in newer aircraft since the Army’s HH-60L airframes had fewer operating hours than CBP’s existing UH-60A aircraft  In September 2017, CBP officials told GAO they had initiated efforts to acquire additional HH-60L aircraft by conducting a study of current capability gaps and drafting a mission need statement  As of September 2017, program officials confirmed that they maintain a consolidated program office where the same staff from StAMP continue to support all remaining acquisitions, including the UH-60  However, these officials stated that they plan to realign staff to a dedicated asset over time  Program officials also stated that the program has hired a dedicated cost estimator and would like to hire additional staff to focus on procuring spare parts and common component issues, such as radio replacements, for CBP’s air and marine assets  CBP officials reiterated that the changes in acquisition costs were primarily a result of cost realignment and that the program’s total life-cycle cost is still within the initial APB LCCE goals  CBP officials also stated that—to supplement Army test data—the program’s OTA participated in the flight tests and will provide a formal report on the results  MULTI-ROLE ENFORCEMENT AIRCRAFT (MEA) CUSTOMS AND BORDER PROTECTION (CBP) MEA are fixed-wing, multi-engine aircraft that can be configured to perform multiple missions including maritime, air, and land interdiction, as well as signals detection to support law enforcement  The current MEA configuration is equipped with marine search radar and an electro-optical/infrared sensor to support maritime and land surveillance and airborne tracking missions  MEA will replace CBP’s fleet of aging C-12, PA-42, and BE-20 aircraft  Testing of new configuration planned for May 2018, but requirements not yet defined  Began retrofitting accepted MEA with new mission system in fiscal year 2017  GAO last reported on this program in April 2017 (GAO-17- 346SP)  According to CBP officials, the program is on track to meet the cost and schedule goals in its current acquisition program baseline (APB) for 16 maritime interdiction MEA and is actively pursuing additional aircraft  In April 2016, CBP developed a report that identified capability needs in three mission areas and proposed increasing the program’s total to 38 aircraft by adding 13 air and 6 land interdiction MEA, and 3 signals detection MEA  The Joint Requirements Council endorsed CBP’s findings, but recommended CBP develop a number of requirements documents—including an operational requirements document—to fully validate the findings  As of September 2017, CBP officials told GAO they were in the process of updating these documents to focus on air interdiction capabilities—the next MEA configuration  These officials stated that completing these documents has been delayed, in part, because Department of Homeland Security (DHS) leadership directed CBP to develop a comprehensive border plan in October 2016 that includes MEA capabilities  Despite not yet completing all the updated documents, DHS leadership approved CBP’s request to procure MEA 17 in September 2017 after the congressional conferees agreed to an additional aircraft beyond DHS’s budget request  CBP anticipates delivery of MEA 17 by September 2018, which is within the program’s full operational capability (FOC) date  However, if the program receives approval to acquire additional aircraft, the FOC date will be extended  The program completed an annual life-cycle cost estimate update, which exceeds the program’s current APB cost thresholds, because it reflects costs for all 38 aircraft, among other reasons  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs  In addition, CBP officials previously told GAO that MEA’s O&M is funded through a separate, central funding account for all of CBP’s air and marine assets  In September 2017, CBP officials said that the program was fully funded for 17 aircraft but had some affordability challenges with spare parts, which they are working with CBP and DHS headquarters to address  Customs and Border Protection (CBP) MULTI-ROLE ENFORCEMENT AIRCRAFT (MEA) CBP is replacing the mission system processor on the MEA with a system used by the U S  Navy and U S  Coast Guard that is intended to enhance operator interface and sensor management, as well as replace obsolete equipment  CBP’s OTA tested a prototype of the processor during an operational assessment in July 2015  The OTA found that the MEA had resolved issues found during prior testing, but also made 29 additional recommendations and findings to improve the aircraft and new mission system’s effectiveness  DHS’s Director, Office of Test and Evaluation (DOT&E) concurred with the OTA’s findings  CBP previously acquired MEA as a part of its Strategic Air and Marine Program (StAMP)  In July 2016, DHS leadership designated MEA as a separate and distinct major acquisition program  CBP initially planned to procure 50 MEA and awarded the first production contract in September 2009  However, the aircraft did not perform well during testing  In October 2014, DHS leadership said CBP could not procure or accept transfer of additional MEA without approval  CBP procured 12 aircraft under the initial contract and—with DHS approval—CBP awarded a new indefinite delivery, indefinite quantity contract in September 2016 for 1 base year and four 1-year options to support procurement of additional aircraft  In December 2017, CBP officials said the program had received 12 aircraft and awarded contracts for 5 more  According to program officials, MEA 13-16 will be delivered with the new mission system and CBP began retrofitting previously delivered aircraft in fiscal year 2017  As of September 2017, program officials confirmed that they maintain a consolidated program office where the same staff from StAMP continue to support all remaining acquisitions, including MEA  However, these officials stated that they plan to re-align staff to a dedicated asset over time  Program officials also stated that the program has hired a dedicated cost estimator and would like to hire additional staff to focus on procuring spare parts and common component issues, such as radio replacements, for CBP’s air and marine assets  CBP officials stated that delays in receiving approval of the program’s requirements documents may pose a risk to exercising options for additional MEA on an existing contract, which could stop production and increase contract costs associated with procuring future aircraft  CBP officials added that air and marine requirements officers continue to produce documentation requested by the Joint Requirements Council to provide sufficient context for the mission need and border security  CBP officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  CUSTOMS AND BORDER PROTECTION (CBP) The NII Systems Program supports CBP’s interdiction of weapons of mass destruction, contraband such as narcotics, and illegal aliens being smuggled into the United States, while facilitating the flow of legitimate commerce  CBP officers use large- and small-scale NII systems at air, sea, and land ports of entry; border checkpoints; and international mail facilities to examine the contents of containers, railcars, vehicles, baggage, and mail  CBP initiated efforts for future NII requirements and procurements  66 percent staffing gap contributed to delays in NII deployments  GAO last reported on this program in April 2017 (GAO-17-346SP)  The NII Systems Program is on track to meet its approved schedule and cost goals  The estimates in the program’s annual life-cycle cost estimate (LCCE) update continued to decrease overall compared to its approved acquisition program baseline (APB) cost thresholds  Specifically, compared to the prior year’s estimate, the program’s acquisition costs decreased by $96 million and operations and maintenance (O&M) costs increased by $22 million  However, the LCCE update only estimated costs through fiscal year 2026—9 years short of the program’s final year  The LCCE primarily decreased because of a reduction of 1,977 planned additional and replacement NII systems  CBP officials said fewer large- and small-scale systems are needed because some systems have longer estimated lives than expected, and systems procured have better capability  CBP officials do not anticipate that the reduction in quantities will have an adverse effect on operations because they stated that the new systems can provide dual purpose capabilities (i e , one system can replace multiple separate systems)  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs  CBP officials anticipate receiving approximately $605 million of O&M funding over this 5-year period to cover about $626 million in estimated O&M costs, which includes $100 million to operate and maintain radiation detection equipment acquired by the Domestic Nuclear Detection Office  These officials also identified $37 million in carryover funding to cover the remaining $21 million of O&M estimated costs  However, the program is projected to have a $266 million acquisition funding gap from fiscal years 2018 to 2022 The program has a plan to address funding shortfalls but, according to CBP officials, it has not yet needed to implement the strategies in this plan because of several factors, including cost reductions achieved through combined life-cycle contracts and lower-than-expected actual technology costs in fiscal year 2016  Customs and Border Protection (CBP) trucks as they are driven through the inspection portals—low dose X-ray to inspect the truck cab and high dose X-ray to inspect the cargo trailer  In March 2017, the Joint Requirements Council validated a capability analysis report that assessed current capability gaps in NII operations to assist with identifying potential upgrades to existing systems and developing requirements for future systems  According to program officials, CBP plans to review and update, as necessary, the mission need statement in fiscal year 2018  Additionally, program officials are preparing a consolidated acquisition plan for future procurements  These officials said CBP has not yet determined whether future procurements would be included into the current NII Systems Program of record or constitute a new acquisition program  CBP’s ability to successfully execute the existing NII Systems Program and plan for future efforts may be at risk because of understaffing  As of January 2018, the NII Systems Program continued to face a staffing gap of approximately 66 percent, including critical vacancies such as the acquisition program manager and a logistics program manager  Officials also noted that a lack of adequate personnel to procure, test, and deploy NII systems forces the program to prioritize its acquisitions, which can result in delays of NII deployments and testing efforts  For example, one manufacturer increased its output rate of NII systems, but the program did not have the staff to accept the systems at the increased rate  Officials anticipate the program may remain understaffed until CBP completes a reorganization that started more than a year ago, in which acquisition programs are realigned from a mission-support office to their operational entity  CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  REMOTE VIDEO SURVEILLANCE SYSTEM (RVSS) CUSTOMS AND BORDER PROTECTION (CBP) The RVSS program helps the Border Patrol detect, track, identify and classify illegal entries across U S borders  RVSS consists of daylight and infrared video cameras mounted on fixed towers and buildings with communications systems that link to command and control centers  From 1995 to 2005, CBP deployed approximately 310 RVSS towers along the U S  northern and southern borders, and initiated efforts to upgrade legacy RVSS towers in Arizona in 2011  Program does not plan to conduct additional operational testing on future deployments  Once funded, program plans to award a new contract for deployments in sectors along the southwest border  GAO last reported on this program in November 2017 (GAO-18-119)  In April 2016, Department of Homeland Security (DHS) leadership elevated RVSS from a level 3 program—which focused on upgrading legacy RVSS in Arizona—to a level 1 program after approving CBP’s plan to expand deployments to the Rio Grande Valley (RGV) sector and adding an additional 6 sectors along the southwest border  At this time, DHS leadership approved the program to move forward with deployments to two RGV stations, which can be completed as options under the program’s existing contract  However, the program was required to re-baseline to account for its expanded scope and conduct an acquisition decision event (ADE) to obtain approval for additional deployments  As of January 2018, the program had not yet conducted its ADE or obtained DHS approval for an acquisition program baseline (APB) that established cost, schedule, and performance goals for the expanded program  In September 2017, CBP officials told us that they had drafted the APB and other required documentation, such as a life-cycle cost estimate (LCCE), but were unsure when the ADE would occur because the program had not received funding for the additional deployments  In addition, the ADE may have been delayed because DHS leadership directed CBP to develop a comprehensive border plan in October 2016 that includes RVSS capabilities  In September 2017, DHS leadership approved the RVSS’s revised LCCE which totaled nearly $4 billion for all program costs from fiscal years 2011 through 2042, including expansion along the southwest border and new initiatives such as a pilot for relocatable RVSS towers  DHS conducted an independent cost estimate for the program, which DHS cost estimating officials stated was within 2 percent of the program’s LCCE  RVSS was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because it had not yet been elevated to a level 1 program at the time the plan was developed  CBP officials stated that the program has received acquisition funding to cover the approved RGV deployments  However, CBP officials told GAO that the program may also assume responsibility for maintaining all legacy RVSS, but has not received adequate operations and maintenance funding to do so  Customs and Border Protection (CBP) REMOTE VIDEO SURVEILLANCE SYSTEM (RVSS) In July 2013, CBP awarded a firm fixed-price contract for a commercially available, non-developmental system  This contract covered the program’s initial scope to deploy upgraded RVSS in Arizona and two stations within the RGV sector, which can be completed as options  According to CBP officials, the program will need to award a new contract to cover expansion to the remaining six sectors along the southwest border  In September 2017, CBP officials said that the request for proposals for the new contract had been drafted but it cannot be released until the program receives funding  CBP officials told GAO that RVSS is coordinating with CBP’s Border Wall System Program on some planned deployments within the RGV sector  For example, CBP is considering moving 2 of the planned RVSS towers to be co-located with the planned barrier, which officials stated may provide better surveillance  If the Border Wall System Program does not receive funding, CBP officials said the towers will be placed in the originally planned locations  CBP officials stated that the RVSS program requires additional staff for contracting activities, maintenance activities for legacy RVSS, and for relocatable tower pilot deployments  To mitigate the staffing gap, CBP officials said they prioritize responsibilities of current personnel to meet program execution needs  CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  CUSTOMS AND BORDER PROTECTION (CBP) The TACCOM program is intended to upgrade land mobile radio infrastructure and equipment to support approximately 95,000 users at CBP and other federal agencies  It is replacing obsolete radio systems with modern digital systems across various sectors located in 19 different service areas, linking these service areas to one another through a nationwide network, and building new communications towers to expand coverage in 5 of the 19 service areas  Issues related to security requirements have delayed full operational capability by more than a year  Program is being re-organized under Border Patrol, but still faces staffing challenges  GAO last reported on this program in April 2017 (GAO-17-346SP)  In November 2017, Department of Homeland Security (DHS) leadership re-baselined the TACCOM program, removing it from breach status after the program experienced a schedule slip and cost growth  In July 2017, CBP officials notified DHS leadership that the program would not achieve full operational capability (FOC) as planned due to issues related to federal information security requirements  The program now plans to achieve FOC by March 2019—more than a year later than its initial acquisition program baseline (APB) deadline  According to CBP officials, FOC will include planned upgrades to the San Diego system, which requires transitioning management of the legacy system from the Department of Justice to DHS  In August 2017, CBP officials stated that both agencies were reviewing an agreement with plans to complete the transition in fiscal year 2018  CBP officials stated that the program realized it would exceed its initial APB cost thresholds as it was developing its annual life-cycle cost estimate (LCCE) update and subsequently submitted a revised LCCE for DHS leadership approval  The program’s costs primarily grew because of increases in costs for contractor labor and support for facilities and infrastructure  CBP officials said the program’s initial estimates were immature; however, DHS leadership approved the initial LCCE in December 2015—4 years after the program began sustaining capabilities  DHS’s Chief Financial Officer (CFO) approved the program’s revised LCCE in November 2017, but noted that the program’s estimate exceeded its available funding and requested that the program address the affordability gap before it was re-baselined  CBP officials said that they are conducting an affordability analysis, which they anticipate will be completed by March 2018  Nevertheless, DHS leadership approved the program’s re-baseline in November 2017  CBP officials subsequently identified errors in the approved APB cost threshold tables and provided revised amounts, which are presented here  The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs  CBP officials anticipate receiving approximately $120 million in O&M funding over this 5-year period  Customs and Border Protection (CBP) CBP officials told GAO that in January 2018, the program will move from a mission support office to a joint program office under Border Patrol as a part of CBP’s reorganization that started more than a year ago  The goal of this move is to make CBP land mobile radio capabilities seamless by combining the mission critical voice functions of Air and Marine Operations, the Border Patrol, and the Office of Field Operations—the TACCOM program’s primary customers—under one organizational leader, the Border Patrol Chief  CBP officials anticipate that the current TACCOM program structure will remain in place after this move with the exception of the program’s engineers, which will move to CBP’s Office of Information and Technology but be assigned to support TACCOM full time  In August 2017, CBP officials told GAO they were in the process of hiring staff to fill the program’s vacant positions  They added that the fiscal year 2019 budget contains plans for additional infrastructure enhancements, which will require technical staff to assist in the planning and execution of these efforts and may put additional strain on the program’s limited government technical staff  They noted that the hiring and retention of qualified land mobile radio engineers and information technology technical staff is a challenge because of competition with the private sector, among other factors  In addition to maintenance of the CBP Land Mobile Radio System that provides critical communication needs for CBP agents and officers protecting U S  borders, CBP officials stated the TACCOM program is providing infrastructure, such as building an engineering lab to facilitate design, development, test, and evaluation activities, to support improvements in CBP’s current and future Land Mobile Radio Systems  CBP officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  CUSTOMS AND BORDER PROTECTION (CBP) TECS (not an acronym) is a law-enforcement information system that has been in place since the 1980s and helps CBP officials determine the admissibility of persons entering the United States at border crossings, ports of entry, and prescreening sites located abroad  CBP initiated efforts to modernize TECS to provide users with enhanced capabilities for accessing and managing data  Immigration and Customs Enforcement has a separate TECS Modernization program  System operationally effective and suitable, but cybersecurity testing needed  CBP working to address and prevent major system outages  GAO last reported on this program in April 2017 (GAO-17-346SP)  In July 2017, Department of Homeland Security (DHS) leadership granted the program acquisition decision event (ADE) 3 approval, but required CBP to conduct follow-on operational test and evaluation (OT&E) before declaring full operational capability (FOC)  This is more than a 2-year delay from CBP’s initial FOC date and a 9-month delay from its most recent revised FOC date  DHS approved the fourth version of the program’s acquisition program baseline (APB) in July 2016  In this APB, CBP split FOC into two separate operational capability milestones at its data centers to better reflect the program’s activities  CBP delivered operational capability at the primary data center in Decemberas scheduled—which provides redundant TECS access to minimize downtime during system maintenance or unscheduled outages  However, not all test results were available in time for the program’s ADE 3 decision, which contributed to DHS leadership’s decision to delay declaring FOC  2016, which included transitioning all TECS users to the modernized system  CBP delivered operational capability at the secondary data center in June 2017—The program updated its life-cycle cost estimate (LCCE) for ADE 3, which is within its current APB cost thresholds  However, the LCCE only included costs through fiscal year 2021—7 years short of DHS’s guidance that states program cost estimates should cover at least 10 years from the FOC date  Nevertheless, DHS granted the program ADE 3 approval without an understanding of the program’s full life-cycle costs, as required by its acquisition policy  CBP officials plan to update the LCCE by the end of calendar year 2018 to include costs for future years and other items, such as costs associated with follow-on OT&E and moving the data centers to a cloud environment—a CBP-wide initiative  The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs  CBP officials anticipate receiving approximately $205 million in O&M funding over the next 4 years and have identified carryover for each year  However, CBP officials said there may be a small funding gap starting in fiscal year 2020, but they expect to achieve savings by migrating the data centers to a cloud environment  Customs and Border Protection (CBP) Since the program has completed development, CBP is focused on ensuring that the modernized TECS system works as intended by addressing operational issues as they are identified  For example, on January 2, 2017, a primary TECS Modernization application experienced a major outage that resulted in long airport delays  In August 2017, CBP officials said they continually monitor system health through a 24/7 operations center and have established a group dedicated to addressing the issues related to the January 2, 2017, outage  In September 2017, DHS’s Office of Inspector General (OIG) found that nearly 100 outages, periods of latency, or degraded service were reported for three TECS Modernization applications between June 2016 and March 2017  The OIG also found that CBP’s monthly reports on TECS system availability did not include periods of slowness or service interruptions that were caused by external factors  For example, the January 2, 2017, incident was identified in CBP outage reports, but was not captured in the monthly report because it was caused by a change to an external feed to the TECS system  CBP officials clarified that the monthly reports only account for interruptions that result in a full loss of operations for all TECS system users  The OIG recommended that CBP develop a plan to address factors that contributed to challenges regarding availability of primary traveler screening applications, among other things  CBP concurred with the recommendations  On January 1, 2018, the TECS system experienced another major outage that caused long airport delays; CBP officials said this incident is under review  CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  LOGISTICS SUPPLY CHAIN MANAGEMENT SYSTEM (LSCMS) FEDERAL EMERGENCY MANAGEMENT AGENCY (FEMA) LSCMS is a computer-based tracking system that FEMA officials use to track shipments during disaster-response efforts  It is largely based on commercial-off-the- shelf software  FEMA initially deployed LSCMS in 2005, and initiated efforts to enhance the system in 2009  According to FEMA officials, LSCMS can identify when a shipment leaves a warehouse and the location of a shipment after it reaches a FEMA staging area near a disaster location  FEMA now anticipates reaching full operational capability by June 2019, up to 6 months late  Recent testing shows progress, but additional operational testing delayed to May 2018  GAO last reported on this program in April 2017 (GAO-17-346SP)  In November 2017, Department of Homeland Security (DHS) leadership approved a revised acquisition program baseline (APB) after the LSCMS program experienced a schedule breach  In September 2017, FEMA officials notified DHS leadership that it would not complete all required activities—including follow-on operational test and evaluation (OT&E)—to achieve acquisition decision event (ADE) 3 and full operational capability (FOC) by its initial APB dates of September 2018 and December 2018, respectively  According to FEMA officials, the delay was primarily caused by the need to deploy LSCMS program personnel in support of response and recovery efforts during the 2017 hurricane season  The program now plans to achieve FOC by June 2019—up to 6 months later than initially planned  DHS leadership authorized LSCMS to resume all development and acquisition efforts in March 2016 after a nearly 2-year program pause following program management issues  In October 2017, FEMA officials told GAO that they had completed several development efforts—such as integration with DHS’s asset management system—and were in the process of adding Electronic Data Interchange (EDI) to allow LSCMS to interface with its partners’ information systems  The program’s annual life-cycle cost estimate (LCCE) update continued to be within its APB cost thresholds  However, the program’s APB thresholds are not adjusted to account for risk, which increases the chance that the program could experience a cost breach  As of November 2017, FEMA officials did not anticipate that its schedule delays would lead to a cost breach  Federal Emergency Management Agency (FEMA) LOGISTICS SUPPLY CHAIN MANAGEMENT SYSTEM (LSCMS) The LSCMS program previously experienced significant execution challenges because of poor governance  FEMA initially deployed the enhanced LSCMS in 2013 without DHS leadership approval, a DOT&E letter of assessment, or a DHS-approved APB documenting the program’s costs, schedule, and performance parameters, as required by DHS’s acquisition policy  DHS’s Office of Inspector General also found that neither DHS nor FEMA leadership ensured the program office identified all mission needs before selecting a solution  In response, DHS leadership paused all LSCMS development efforts in April 2014 until the program addressed these issues, among others  FEMA subsequently completed an analysis of alternatives and developed an APB based on this assessment  DHS leadership approved the APB in December 2015 and authorized FEMA to resume all LSCMS development and acquisition efforts in March 2016  In October 2017, FEMA officials told GAO that the LSCMS program had minimal staffing shortages and was working to recruit additional staff  Officials previously attributed the program’s governance and testing challenges, in part, to staffing shortages and we previously found that it only had 7 of the 22 5 full time equivalents it needed in fiscal year 2014  Although the program has obtained more staff since then, FEMA officials noted in October 2017 that during disasters—such as 2017 hurricanes Harvey, Irma, and Maria—LSCMS program personnel are deployed to support response and recovery efforts, which leave program positions vacant for the duration of the deployment  FEMA officials stated that during the response to hurricanes Harvey, Irma and Maria in 2017, LSCMS processed supply chain transactions that exceeded the total number of transactions from the preceding 12 years—which includes the response to Hurricane Katrina  They added that the program provided support for nearly 130 million meals in 2017 compared to a total of approximately 84 million from the 12 previous years  FEMA officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  IMMIGRATION AND CUSTOMS ENFORCEMENT (ICE) Since the 1980s, TECS (not an acronym) has provided case management, intelligence reporting, and information sharing capabilities to support ICE’s mission to investigate and enforce border control, customs, and immigration laws  ICE initiated efforts to modernize TECS in 2009 to replace aging functionality and provide end users with additional functionality to meet mission needs  Customs and Border Protection (CBP) executes a separate TECS Modernization program  Conducted additional testing of a revised key performance parameter and cybersecurity  Program has improved integration with external systems  GAO last reported on this program in April 2017 (GAO-17-346SP)  In November 2017, Department of Homeland Security (DHS) leadership approved a revised life-cycle cost estimate (LCCE) and acquisition program baseline (APB) in preparation for the program’s acquisition decision event (ADE) 3 following deployment of final functionality  According to ICE officials, the program completed deployment of full operational capability (FOC) functionality in August 2017—4 months earlier than initially planned  FOC functionality included enhancements to case management capabilities, such as improved system search capabilities  The functionality was deployed in conjunction with enhancements and fixes for initial operational capability (IOC) functionality  The program achieved IOC in June 2016, which entailed delivering 80 percent of the modernized TECS functionality and successfully transitioning ICE off the legacy system  The overall cost thresholds in the current APB increased compared to the program’s prior APB from July 2016  Specifically, the acquisition cost threshold decreased by $14 million and the operations and maintenance (O&M) cost threshold increased by $147 million  These costs changed for various reasons, such as the following: The acquisition cost threshold decreased when ICE included actual costs through fiscal year 2016 and accounted for funding shortfalls  ICE officials told GAO that the program experienced a funding shortfall in fiscal year 2017 that led it to adjust spending under multiple contracts and shift some costs to fiscal year 2018  The O&M cost threshold increased when ICE extended the estimate from fiscal years 2024 to 2028 and continued contractor and systems engineering support for an additional 11 years  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs  ICE officials anticipate receiving approximately $94 million in O&M funding to cover an estimated $105 million in O&M costs over this 5-year period  ICE officials said that they are pursuing strategies to reduce future O&M costs, such as awarding a competitive contract in March 2018 for O&M activities and any future enhancements  ICE officials continue to work closely with CBP to provide users access to various systems through the modernized TECS system  The program previously worked to resolve technical problems with CBP support services that emerged during final integration testing of the ICE and CBP modernized TECS systems, which contributed to a 3-month delay in achieving IOC  Users reported during initial OT&E that the modernized ICE TECS system was an improvement over the legacy system but they requested better integration with external systems, such as CBP’s Seized Assets and Case Tracking System (SEACATS), which they use to determine the disposition of seized assets for case management and reporting purposes  According to ICE officials, CBP subsequently decided to modernize SEACATS  ICE officials stated that they have coordinated closely with CBP to integrate the two modernized systems and ensure un-interrupted access to SEACATS for TECS users  For example, ICE developed a workaround so that TECS users maintain access to the latest seizure data available from the modernized SEACATS  ICE officials added that they continue to make improvements in interfaces with other external systems as prioritized by end users  In July 2017, ICE reported that the program was fully staffed  ICE officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  CONTINUOUS DIAGNOSTICS AND MITIGATION (CDM) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) The CDM program aims to strengthen the cybersecurity of the federal government’s networks at more than 65 participating civilian agencies by providing tools and dashboards that continually monitor and report on network vulnerabilities  Tools are delivered in four phases: phase 1 and 2 tools report vulnerabilities in hardware and software, and user access controls, respectively; phase 3 tools will report on efforts to prevent attacks; and phase 4 tools will provide encryption to protect network data  Program revised its key performance parameters and test and evaluation master plan as a part of its rebaseline  Program plans to change its acquisition strategy and continues to face workforce challenges  GAO last reported on this program in April 2017 (GAO-17-346SP)  In June 2017, Department of Homeland Security (DHS) leadership re-baselined the CDM program for the third time to approve initiating development of phase 3 and to address challenges encountered during phase 1  Specifically, contractors previously found large gaps—ranging from 19 to 384 percent—in the actual number of devices needing phase 1 tools than what was originally reported by 12 agencies  The operations and maintenance (O&M) cost thresholds increased by $631 million when the program shifted some potential acquisition costs to beThe program’s new acquisition program baseline (APB) modified the program’s cost, schedule, and performance parameters  For example: consistent with DHS’s new appropriation structure, among other things  The O&M cost thresholds previously decreased by $1 2 billion, in part, because DHS leadership determined the program would only fund CDM tools for the first 2 years after deployment  The acquisition costs did not increase despite phase 1 challenges, in part, because coverage for the U S  Postal Service— The program’s full operational capability (FOC) date slipped almost 4 years after which had the largest gap in estimated devices—will no longer be funded by the CDM program  it was redefined from deployment of phase 1-3 tools at 5 agencies to the availability of these tools to all participating agencies  However, the program’s costs will increase and its FOC date may slip further once the program establishes goals for phase 4  NPPD officials said they were unable to complete planning efforts for phase 4 in time to incorporate it into the most recent APB revision and, therefore, plan to re-baseline the CDM program again in 2018  The CDM program identified a potential acquisition affordability gap in fiscal year 2018 based on its revised life-cycle cost estimate, which it addressed by adjusting the phase 3 schedule to shift some acquisition costs out to fiscal year 2020  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs  However, the program anticipates receiving approximately $281 million in O&M funding over the 5-year period  12/16 Phase 1 initial operational capability (IOC) National Protection and Programs Directorate (NPPD) CONTINUOUS DIAGNOSTICS AND MITIGATION (CDM) The CDM program updated its acquisition plan as a part of its re-baselining efforts, which reflects a change in strategy for procuring CDM tools and integration services for participating agencies through the General Services Administration (GSA)  Previously, the CDM program issued task orders for these tools and services through blanket purchase agreements established under vendors’ GSA Federal Supply Schedule contracts  These agreements are set to expire in August 2018  Going forward, the program plans to use an existing GSA government-wide acquisition contract—known as Alliant—to obtain CDM tools and services  According to NPPD officials, the new acquisition strategy is intended to provide greater flexibility in contracting for current capabilities and to support future capabilities  It will also allow participating agencies to order additional CDM-approved products or services from GSA’s schedule for information technology equipment, software, and services; however, as of September 2017, NPPD officials stated they were in the process of determining how this process will work  NPPD officials said that the program continues to face workforce challenges related to managing the program’s change in contracts and planning for phase 4  In February 2018, NPPD officials stated that they had on-boarded 5 staff to help address the program’s reported fiscal year 2017 gap of 16 full time equivalents  They noted that another 5 candidates were in the hiring process and that NPPD continues to work with officials from DHS’s Office of the Chief Security Officer to reduce continued challenges in onboarding new staff due to the lengthy security clearance process  In addition to activities outlined in this assessment, NPPD officials stated that the CDM program continues to manage its budget to ensure program costs match available funding, and is leveraging the collective buying power of federal agencies and strategic sourcing to achieve government cost savings on CDM products  NPPD officials also stated that, as of December 2017, CDM has deployed agency dashboards to 23 agencies and was conducting and testing information exchanges of data between agency dashboards and the federal dashboard  HOMELAND ADVANCED RECOGNITION TECHNOLOGY (HART) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) HART will replace and modernize the Department of Homeland Security’s (DHS) legacy biometric identification system—known as IDENT—which shares information on foreign nationals with U S  government and foreign partners to facilitate legitimate travel, trade, and immigration  NPPD plans to develop HART in four increments: increments 1 and 2 will replace and enhance IDENT functionality; increments 3 and 4 will provide additional biometric services, as well as a web portal and new tools for analysis and reporting  Key performance parameters will be demonstrated as capability is developed  Program has developed mitigation plans to address workforce risks  GAO last reported on this program in April 2017 (GAO-17-346SP)  In June 2017, NPPD declared a schedule breach when it determined the HART program would not be able to meet its initial acquisition program baseline (APB) milestones  DHS leadership approved the program’s APB in April 2016 and authorized the program to initiate development efforts for increments 1 and 2 in October 2016  NPPD officials attribute the schedule slip to multiple delays in awarding the contract for increments 1 and 2 as a result of issues with the request for proposals (RFP)  The program released the RFP in February 2017 and awarded the contract in September 2017—approximately 9 months later than NPPD officials had planned  However, the program experienced additional delays after a bid protest to the contract award was filed with GAO in October 2017  GAO subsequently denied the protest and NPPD officials said the program plans to initiate work with the contractor in March 2018  HART initially planned to achieve initial operational capability (IOC) with the deployment of increment 1 in December 2018, at which point program officials anticipated beginning to transition users from IDENT to HART  However, it is unclear when this will now occur, which is a significant challenge because IDENT is at risk of failure and may be unable to fully support requirements related to new programs— such as Customs and Border Protection’s Biometric Entry-Exit  As a result, delays in HART could contribute to delays in other DHS acquisition programs  The program updated its life-cycle cost estimate (LCCE) in June 2017 to inform the budget process  This LCCE is within its current APB cost thresholds, but does not account for the contractor’s solution  The program plans to update its LCCE and other acquisition documentation, such as its APB, after initiating work with the contractor  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs  However, the program anticipates receiving approximately $1 3 billion in O&M funding to cover $1 5 billion in O&M costs  NPPD officials explained that the current O&M cost estimate includes costs for maintaining IDENT  Future LCCE updates will reflect delivery of services through HART, which NPPD officials anticipate will be more cost effective  National Protection and Programs Directorate (NPPD) HOMELAND ADVANCED RECOGNITION TECHNOLOGY (HART) NPPD officials told GAO they are currently planning for increments 3 and 4 and plan to refine the cost, schedule, and performance goals for these increments in its next APB  NPPD plans to pursue a separate contract for the development and delivery of increments 3 and 4  However, the program will require DHS leadership approval prior to initiating these development efforts  In September 2017, NPPD officials told GAO they had hired two staff and planned to hire additional staff to address the program’s staffing gap of 5 5 full time equivalents  In response to DHS leadership’s direction, the program coordinated with DHS’s Chief Technology Officer to assess the skills and functions of staff necessary to execute the program and to develop the HART staffing plan  In its June 2017 staffing plan, the program identified workforce risks, including the potential for experiencing insufficient technical skillsets and inadequate resources to simultaneously execute development of HART and operate IDENT  To mitigate these risks, the program plans to develop a training plan to address the gap in skills, leverage support within the program by cross- training staff, and issue contracts for additional support as needed, among other things  However, if the program does not have adequate staff to complete these efforts, it may experience further schedule delays  NPPD officials stated that the program’s schedule delays pose a challenge because IDENT remains at risk of failure despite incremental improvements to extend its service life and may be unable to fully support new customer requirements or requirements related to new programs  They added that the program has a risk management process, which it is using to manage a variety of identified risks—including several related to workforce  They noted that these risks have not yet materialized  NPPD officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  NATIONAL CYBERSECURITY PROTECTION SYSTEM (NCPS) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) NCPS is intended to defend the federal civilian government from cyber threats  NCPS develops and delivers capabilities through a series of “blocks ” Blocks 1 0, 2 0, and 2 1 are fully deployed and provide intrusion-detection and analytic capabilities across the government  The NCPS program is currently deploying EINSTEIN 3 Accelerated (EA) to provide intrusion-prevention capabilities and plans to deliver block 2 2 to improve information sharing across agencies  A at 95 percent of agencies and departments  GAO last reported on this program in April 2017 (GAO-17-346SP)  NPPD officials said the program is on track to meet the schedule and cost goals in its current acquisition program baseline (APB), which reflected changes resulting from the adoption of some of the Department of Homeland Security’s (DHS) Homeland Security Information Network (HSIN) capabilities for block 2 2 rather than developing custom solutions  However, challenges in completing test plans delayed testing: Initial operational test and evaluation (OT&E) for EA transition to sustainment— slipped from September 2016 to May 2017  The initial test event for block 2 2—intended to inform the ADE 2C for deploying additional block 2 2 capabilities—slipped from March 2017 to September 2017  As of August 2017, NPPD officials said NCPS had adopted all planned HSIN capabilities but one because of security concerns, which HSIN is addressing by piloting a new tool  The program updated its life-cycle cost estimate (LCCE) in June 2017 to inform the budget process, which is within its current APB cost thresholds  However, the program plans to update the LCCE again to support the EA, and costs through fiscal year 2022  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan no longer contained O&M funding for individual programs  NPPD officials anticipate receiving $1 8 billion in O&M funding over this 5-year period  The program is also projected to have an $83 million surplus in acquisition funding over this 5-year period, which NPPD officials anticipate will be less once the LCCE revision is complete  National Protection and Programs Directorate (NPPD) NATIONAL CYBERSECURITY PROTECTION SYSTEM (NCPS) A intrusion-prevention capabilities have been primarily provided through sole source contracts with internet service providers (ISP) and a contract to provide basic intrusion-prevention services  In December 2015, Congress required DHS to make available for use by federal agencies, certain capabilities, such as those provided by NCPS’s EA at approximately 93 percent of civilian federal agencies and departments and, in January 2018, NPPD officials said NCPS was up to 95 percent  According to NPPD officials, the program first focused on integrating EA for individual agencies and departments, but stated that they continue to work with all agencies and departments to provide EA services and approximately 95 percent of the federal civilian  gov user population is protected by at least one EA and an OA of NCPS block 2 2 information sharing capabilities in 2017  NPPD officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  NEXT GENERATION NETWORKS PRIORITY SERVICES (NGN-PS) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) NGN-PS is intended to address an emerging capability gap in the government’s emergency telecommunications service, which prioritizes select officials’ phone calls when networks are overwhelmed  NPPD executes NGN-PS through commercial telecommunications service providers, which addresses the government’s requirements as they modernize their own networks  NPPD is executing NGN-PS in two phases—(1) voice and (2) data and video  Initial operational capability for voice phase wireless capabilities achieved in August 2017  Acquisition of data and video phase capabilities to begin in September 2021  GAO last reported on this program in April 2017 (GAO-17-346SP)  In November 2017, the Department of Homeland Security’s (DHS) Chief Financial Officer approved a revised life-cycle cost estimate (LCCE) for NGN-PS, which includes costs for the entire program’s voice phase and eliminates operations and maintenance (O&M) costs  The program removed O&M costs because capabilities acquired through NGN-PS are transferred to and funded through NPPD’s Priority Telecommunications Service (PTS) once they become operational  NGN-PS is currently focused on delivering its voice phase, which is divided into three increments: Increment 1 maintains current priority service on long distance calls as commercial service providers update their networks; Increment 2 delivers wireless capabilities; and Increment 3 is intended to address landline capabilities  The program’s previous LCCE and current acquisition program baseline (APB) only include costs associated with increments 1 and 2  NPPD officials told GAO they plan to update the program’s APB in January 2018 to include costs, schedule, and performance goals for increment 3 and expect to receive DHS leadership approval to initiate development by August 2018  NGN-PS remains on track to meet its cost and schedule goals for the first two increments of the voice phase  The program’s full operational capability (FOC) for increment 1 previously slipped from June 2017 to March 2019, which NPPD officials attributed to funding shortfalls  NGN-PS achieved initial operational capability (IOC) for increment 2 wireless capabilities in August 2017 when priority service via cellular towers was demonstrated by the program’s largest service provider  The program projects an acquisition affordability gap of $92 million from fiscal years 2018 to 2022  However, DHS’s current funding plan does not include funding for increment 3, which accounts for the funding shortfall in fiscal years 2021 and 2022  NPPD officials said they anticipate receiving an additional $79 million in acquisition funding over this 2-year period, but will continue to prioritize capabilities if additional funding is not provided  These officials also said the program has achieved cost savings on increments 1 and 2 that will mitigate some of the projected shortfall in fiscal years 2018 and 2019  National Protection and Programs Directorate (NPPD) NEXT GENERATION NETWORKS PRIORITY SERVICES (NGN-PS) NGN-PS was established in response to an Executive Order requiring the federal government to have the ability to communicate at all times during all circumstances to ensure national security and manage emergencies  A Presidential Policy Directive issued in July 2016 superseded previous directives requiring continuous communication services for select government officials  According to NPPD officials, the new directive validates the program’s requirements for the voice phase and was used to develop requirements for the video and data phase  The program expects to begin the acquisition of the phase 2 for video and data in September 2021  In July 2017, NPPD reported that the program needed a systems engineer and was mitigating the vacancy with contracted support staff  The program also identified a need for an additional systems engineer and program support staff starting in fiscal year 2019 to support the start of increment 3  In August 2017, NPPD officials told GAO they continue to face challenges hiring and retaining engineers with adequate experience because of competition with the private sector  The program has historically mitigated staffing gaps by leveraging support from contracted and PTS program staff, as needed  In addition to activities identified in this assessment, NPPD officials stated that the program has received Joint Requirements Council validation of the phase 2 concept of operations and DHS leadership approval of the phase 2 operational requirements document  As of January 2018, the updated APB was in the approval process  NPPD officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  NATIONAL BIO AND AGRO-DEFENSE FACILITY (NBAF) SCIENCE AND TECHNOLOGY DIRECTORATE (S&T) The NBAF program is constructing a state-of-the-art laboratory in Manhattan, Kansas to replace the Plum Island Animal Disease Center  The facility will enable the Department of Homeland Security (DHS) and the Department of Agriculture (USDA) to conduct research, develop vaccines, and provide enhanced diagnostic capabilities to protect against foreign animal, emerging, and zoonotic diseases that threaten the nation’s food supply, agricultural economy, and public health  Commissioning process underway, but performance will not be demonstrated until construction is complete  NBAF adequately staffed, but staffing needs will change as operational stand-up activities begin  GAO last reported on this program in April 2017 (GAO-17-346SP)  The program’s annual life-cycle cost estimate (LCCE) update is within its current acquisition program baseline (APB) cost thresholds and, according to NBAF officials, the program remains on track to meet its schedule goals  In August 2017, NBAF officials said that construction activities thus far—such as pouring concrete for the main laboratory and steel framing—have proceeded as anticipated and will continue through December 2020  NBAF officials told GAO the program has already received full acquisition funding for facility construction efforts through federal appropriations and gift funds from the state of Kansas  As construction continues, the program plans to begin operational stand-up activities for the facility  However, a potential affordability gap may delay the program’s ability to complete these stand-up activities, which are needed to begin conducting laboratory operations  The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs  However, NBAF officials anticipate receiving only $149 million in O&M funding to cover an estimated $239 million in O&M costs over the next 5 years, resulting in a projected shortfall of approximately $90 million  NBAF officials stated the O&M funding gap could delay a number of operational stand-up activities, including plans to award a management operations and research support contract in October 2018, the purchase of laboratory and information technology equipment, and hiring of operations management staff  According to NBAF officials, if operational stand-up activities are delayed, there is a risk the facility will not be fully operational by December 2022, as is currently planned  This may delay the transition from the Plum Island Animal Disease Center, which is nearing the end of its useful life  NBAF officials reported that S&T plans to communicate the program’s future funding needs to DHS leadership through the annual budget process  If the program does not receive the funding it requests, these officials stated that S&T will prioritize the operational stand-up activities that best reduce the risk of schedule delays  Science and Technology Directorate (S&T) NATIONAL BIO AND AGRO-DEFENSE FACILITY (NBAF) NBAF officials reported that they coordinate regularly with key stakeholders  For example, they hold regular coordination meetings with USDA officials to discuss NBAF operations, including operational stand-up activities and future procurement  The NBAF program office has also begun outreach to the federal regulators responsible for awarding the registrations needed for NBAF to conduct laboratory operations to begin planning for this authorization process  The NBAF program office is currently fully staffed  However, NBAF officials reported the program’s staffing needs will change in the coming years, as the program progresses through construction and begins operational stand-up of the facility  For example, over the next 5 years, the program will need to hire an operations director, bio-risk manager, chief information officer, and facility manager, among others, for NBAF operations management  However, the projected O&M funding shortfall during this same period could affect the program’s ability to hire new staff when needed and complete operational stand-up activities on time  NBAF officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  ELECTRONIC BAGGAGE SCREENING PROGRAM (EBSP) TRANSPORTATION SECURITY ADMINISTRATION (TSA) Established in response to the terrorist attacks of September 11, 2001, EBSP tests, procures, and deploys transportation security equipment, such as explosives trace detectors and explosives detection systems, across approximately 440 U S  airports to ensure 100 percent of checked baggage is screened for explosives  EBSP is primarily focused on delivering new systems with enhanced screening capabilities and developing software upgrades for existing systems  Program is incorporating requirements to address cybersecurity risk for existing systems  EBSP plans to pursue a new procurement approach in 2018, and staffing challenges exist  GAO last reported on this program in April 2017 (GAO-17-346SP)  In the program’s annual life-cycle cost estimate update, its operations and maintenance (O&M) costs exceeded the acquisition program baseline (APB) cost threshold, which constitutes a breach under the Department of Homeland Security’s (DHS) acquisition policy  The O&M costs increased when TSA accounted for updated maintenance costs and quantities, and shifted salaries from acquisition to O&M to align with DHS’s new appropriation structure  TSA officials said they did not submit a breach notification because they considered the movement of salaries to be an administrative change  The program plans to update its APB in calendar year 2018 to reflect a new plan for procuring equipment under its current acquisition strategy  TSA officials said this APB will also reflect the cost changes  In May 2016, DHS leadership approved a revised APB for EBSP, which reflects its current acquisition strategy to competitively procure systems on an ongoing basis using qualified product lists  The program’s revised APB cost thresholds decreased compared to its initial APB, which TSA officials attributed to various reasons, including shortening the program’s end date by 3 years and lower than anticipated actual costs, among other things  TSA officials told GAO that one of their primary challenges is funding, and the program is projected to face a $72 million acquisition funding shortfall in fiscal year 2018  TSA identified $70 million in carryover funding to address this gap  To mitigate anticipated funding gaps in future years, TSA officials said they may shift projects from one fiscal year to another or cancel them altogether, which may result in the delay or elimination of screening capabilities  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs  TSA anticipates receiving $980 million in O&M funding over this 5-year period to cover $1 billion in O&M costs  TSA officials anticipate achieving the program’s final APB milestone—initial operational capability (IOC) for systems that detect additional materials and provide an advanced threat detection algorithm—by its revised threshold date  Previously, EBSP planned to award contracts for these systems in September 2015 and September 2018, respectively  Transportation Security Administration (TSA) ELECTRONIC BAGGAGE SCREENING PROGRAM (EBSP) As of December 2017, EBSP had deployed 1,664 explosives detection systems and 2,638 explosives trace detectors nationwide  In 2018, EBSP plans to pursue a new competitive procurement approach to replace and update existing systems that will include: New contract vehicles to better align EBSP procurement activities with the program’s strategic roadmap  Updates to EBSP’s vendor qualification process to allow for vendor collaboration before testing  Transitioning from procuring systems with different sizes and speeds to two types: (1) inline systems that integrate with a baggage handling system and are linked through a network and (2) standalone systems that may be integrated with a baggage handling system, but not linked to a network  The program is in the process of updating its acquisition documentation to reflect this new procurement approach and TSA officials anticipate opening a qualified products list for new systems starting in June 2018  TSA officials said that staffing remains a challenge for the program because of cuts in government and contracted mission support staff and critical vacancies, including a division director  In September 2017, TSA reported that existing personnel across the program have assumed responsibilities of these positions, but workloads are unsustainable at current staffing levels  TSA officials stated that EBSP continues to procure, test, and deploy equipment and capabilities to recapitalize older equipment, improve security screening capability at airports, and enhance the detection capabilities of the fleet  They added that TSA employs extensive testing to verify the suitability and effectiveness of equipment to meet requirements  Moving forward, EBSP intends to establish IOC milestones for new technologies and capabilities, while allowing TSA the flexibility to make risk-based decisions  TSA officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  PASSENGER SCREENING PROGRAM (PSP) TRANSPORTATION SECURITY ADMINISTRATION (TSA) The Department of Homeland Security (DHS) established PSP in response to the terrorist attacks of September 11, 2001  PSP identifies, tests, procures, deploys, and sustains transportation security equipment across approximately 440 U S  airports to help TSA officers identify threats concealed on people and in their carryon items  The program aims to increase threat detection capabilities, improve the efficiency of passenger screening, and balance passenger privacy and security  Started testing on the Credential Authentication Technology in TSA Precheck lanes during 2017  Critical staffing vacancies persist and may delay followon acquisition planning efforts  GAO last reported on this program in April 2017 (GAO-17-346SP)  In May 2017, the DHS Under Secretary for Management (USM) approved the sixth version of the PSP acquisition program baseline (APB) and subsequently removed the program from breach status  In January 2016, TSA declared a schedule breach of a key milestone—acquisition decision event (ADE) 3—for the Credential Authentication Technology (CAT) because of delays in incorporating new cybersecurity requirements  Consistent with previous versions of the program’s APB, the new baseline modified the program’s cost, schedule, and performance parameters  For example, the program established the following: Separate CAT milestone dates for TSA Precheck and standard lanes  TSA officials stated there is no capability difference between screening lanes, but an initial focus on TSA Precheck lanes will assist with demonstrating CAT requirements and resolving past testing issues that contributed to an initial 4-year delay to CAT’s full operational capability (FOC) date  PSP now plans to reach FOC for CAT more than 5 years later than its revised target of June 2018 and more than 9 years later than initially planned  New FOC dates for other technologies, which TSA officials said are expected to be more realistic about delivery dates and account for changes in some FOC quantities  For example, TSA requested and received approval in September 2017 to increase FOC quantities for second generation Advanced Technology (AT-2) TierI systems to meet increasing passenger volume and expected airport growth  In May 2017, the USM also directed the program to revise its life-cycle cost estimate (LCCE) in response to less-than-expected funding levels  The new LCCE also shifted some acquisition costs to operations and maintenance (O&M) to be consistent with DHS’s new appropriation structure  TSA officials believe the new funding profile will be sufficient to sustain legacy PSP equipment, but will significantly limit the program’s ability to enhance existing equipment capabilities and support operational needs  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs  TSA anticipates receiving $906 million in O&M funding over this 5-year period to cover $923 million in O&M costs  05/17 APB version 6 0 approved 03/20 CAT ADE 3 (precheck lanes) 09/21 CAT ADE 3 (standard lanes) 12/21 CAT FOC (precheck lanes) 12/23 CAT FOC (standard lanes) Transportation Security Administration (TSA) PASSENGER SCREENING PROGRAM (PSP) Automated screening lanes operational utility assessment AT-2 tier II follow-on operational test & evaluation (OT&E) TSA employs two acquisition strategies to acquire PSP systems: Qualified Product List (QPL) approach—used for proven technologies when capability requirements are rigid and contractors’ systems are mature  Any contractors’ systems that demonstrate they meet the capability requirements are added to the QPL  TSA has used this approach to acquire the second generation AT-2 systems, Bottled Liquid Scanners, and Explosive Trace Detectors  Low Rate Initial Production (LRIP) approach—used when capability requirements are flexible and contractors’ systems are evolving  Under this approach, PSP uses a series of development contracts to enhance systems’ capabilities over time  PSP is currently using this approach to acquire CAT  TSA planned to initiate new acquisition programs starting in fiscal year 2018 that will replace PSP, but this effort may be at risk because of understaffing  In August 2017, TSA reported that its checkpoint screening division—whose staff is concurrently responsible for PSP and its follow-on programs—continued to have staffing vacancies, including project managers, analysts, and a deputy program manager  TSA is mitigating these gaps with existing staff and, according to TSA officials, the staffing challenges may decrease because the new programs may be delayed in response to funding cuts  TSA officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  TECHNOLOGY INFRASTRUCTURE MODERNIZATION (TIM) TRANSPORTATION SECURITY ADMINISTRATION (TSA) The TIM program was initiated to address shortfalls in TSA’s threat assessment screening and vetting functions by providing a modern and centralized end-to-end credentialing system  The TIM system will manage credential applications and the review process for millions of transportation workers and travelers across three segment populations: maritime, surface, and aviation  It will support large programs, such as TSA Precheck and the Transportation Worker Identification Credential  Operational testing identified limitations with the system; cybersecurity has not been assessed  Staffing gaps in key areas, such as systems engineering and testing, are a significant program risk  GAO last reported on this program in October and April 2017 (GAO-18-46, GAO-17- 346SP)  The TIM program is on track to meet the cost and schedule goals in its current acquisition program baseline (APB)  In September 2016, the Department of Homeland Security’s (DHS) Under Secretary for Management approved the TIM program’s revised APB—which reflected a new technical approach to deploy capabilities using an agile development methodology—and subsequently removed the program from breach status, authorizing TSA to resume new development after a nearly 22-month pause  DHS leadership paused new development in January 2015 after the program breached its initial APB goals for various reasons, including technical challenges, insufficient contractor performance, and the addition of new requirements after DHS leadership had approved the program’s initial acquisition strategy  The program now plans to achieve full operational capability (FOC) in March 2022 and its life-cycle cost estimate (LCCE) increased to account for this 6-year schedule slip and integration with the Transportation Vetting System, among other things  Since the program’s re-baseline, it has been developing and deploying capabilities in 2-month incremental agile releases, such as functionality to transition TSA Precheck program to the TIM system  The program updated its LCCE in November 2017 to inform a program review with DHS leadership, which is within its current APB cost thresholds  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs  TSA officials anticipate receiving approximately $318 million in O&M funding over this 5-year period, which includes nearly $118 million in fees from vetting programs  TSA officials plan to realign $57 million to cover the projected acquisition shortfall, and said any additional surplus funding available in fiscal year 2022 would be used to implement new system requirements identified by the program’s customers  In November 2017, TSA officials identified several program and technical risks that could affect the program’s cost, schedule, and performance  These risks include an increase in new requirements and increased risk of system vulnerabilities and cyberattacks if the program does not identify a provider to perform software updates on open source code  TSA officials are working to mitigate these risks  Transportation Security Administration (TSA) TECHNOLOGY INFRASTRUCTURE MODERNIZATION (TIM) Under the program’s new technical approach, TSA plans to replace the TIM system’s existing commercial-off-the-shelf applications with open source applications—software that can be accessed, used, modified, and shared by anyone—and move to a new virtual environment  The program’s new agile development methodology develops, tests, and deploys capabilities using an iterative, rather than a sequential approach  Consistent with this strategy, TSA awarded task orders in 2016 and 2017 totaling $34 5 million to the program’s existing contractor for agile design and development services, and plans to competitively award a new contract by May 2018  In October 2017, GAO found that TSA had not fully implemented several leading practices to ensure successful agile adoption  GAO also found that TSA and DHS needed to conduct more effective oversight of the TIM program to reduce the risk of repeating past mistakes  DHS concurred with all 14 recommendations made by GAO to improve program execution and oversight, and identified actions DHS and TSA can take to address them  TSA reported that staffing challenges are a significant risk to the program’s success and identified gaps in key areas—such as systems engineering, testing, and agile development  Program officials told GAO these positions cannot be filled because of a hiring freeze within TSA, which the component has imposed to assess their current workforce and restructure, if necessary  Program officials told GAO they requested waivers from the hiring freeze and, as of January 2018, they had received approval to hire 4 additional staff  TSA officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  FAST RESPONSE CUTTER (FRC) UNITED STATES COAST GUARD (USCG) The USCG uses the FRC to conduct search and rescue, migrant and drug interdiction, and other law enforcement missions  The FRC carries one cutter boat on board and is able to conduct operations in moderate sea conditions  The FRC replaces the USCG’s Island Class patrol boat and provides improved fuel capacity, surveillance, and communications interoperability with other Department of Homeland Security (DHS) and Department of Defense assets  FRC found operationally effective and suitable, and all key performance parameters validated  Main diesel engine issues persist, which may require further retrofits  GAO last reported on this program in March and April 2017 (GAO-17-218, GAO-17- 346SP)  According to USCG officials, the FRC program is on track to meet its current cost and schedule goals  The USCG plans to acquire 58 FRCs and, as of September 2017, 25 had been delivered and 19 were on contract  To inform the budget process, the program updated its life-cycle cost estimate in June 2017, which is within its current acquisition program baseline (APB) cost thresholds  Previously, the program’s initial operational capability (IOC) date slipped after a bid protest related to the program’s initial contract award—now known as phase 1—and the need for structural modifications  USCG officials attributed the 5-year slip in the program’s full operational capability (FOC) date to a decrease in annual procurement quantities under the phase 1 contract  Specifically, in fiscal years 2010 and 2011, the quantities decreased from 6 FRCs per year to 4  In May 2014, the USCG determined that it would procure only 32 of the 58 FRCs through this contract and initiated efforts to conduct a full and open competition for the remaining 26 vessels—known as phase 2  In May 2016, the USCG awarded the phase 2 contract for the remaining 26 FRCs, which has a potential value of $1 42 billion  Under the phase 2 contract, the USCG can procure 4 to 6 FRCs per option period  The USCG ordered 6 FRCs at the time of the phase 2 award and, in June 2017, exercised an option for an additional 6 FRCs  The USCG has established that the annual procurement quantity will be dictated by funding levels, and funding shortfalls could cause further schedule delays  The affordability gap from fiscal years 2018 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not contain operations and maintenance (O&M) funding for USCG programs  USCG officials anticipate receiving $1 6 billion in O&M funding over this 5-year period  USCG officials stated that they expect to exercise an option for 4 FRCs in fiscal year 2018 and that the USCG plans to prioritize acquisition funding in fiscal years 2019 and 2020 to procure the final 10 hulls and complete procurement of all 58 FRCs  United States Coast Guard (USCG) FAST RESPONSE CUTTER (FRC) The USCG continues to work with the contractor—Bollinger Shipyards, LLC—to address issues covered by the warranty and acceptance clauses for each ship  For example, 18 engines—9 operational engines and 9 spare engines—have been replaced under the program’s warranty  According to USCG documentation, 65 percent of the current issues with the engines have been resolved through retrofits; however, additional problems with the engines have been identified since our April 2017 review  For example, issues with water pump shafts are currently being examined through a root cause analysis and will be redesigned and are scheduled to undergo retrofits starting in December 2018  We previously found that the FRC’s warranty resulted in improved cost and quality by requiring the shipbuilder to pay for the repair of defects  As of September 2017, USCG officials said the replacements and retrofits completed under the program’s warranty allowed the USCG to avoid an estimated $104 million in potential unplanned costs—of which $63 million is related to the engines  The FRC program does not have any critical staffing vacancies, but the USCG identified insufficient staffing for shore-side support groups as a potential risk that could affect the asset’s operations  These groups provide maintenance to the FRCs while they are in port  In order to mitigate this staffing issue, the USCG is using commercial contracts for maintenance to supplement the capacity of the USCG’s maintenance staff  USCG officials stated that the FRC program is fully funded, executable, and on track to reach FOC by March of 2027  They added that FRCs were recently delivered to locations in Mississippi, Alaska, and Hawaii  USCG officials stated that FRCs are integral to USCG operations, such as providing critical support during the recent hurricane season, and that the program office continues to work with the contractor and stakeholders to quickly and properly address issues with FRCs as they are identified  USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  H-65 CONVERSION/SUSTAINMENT PROGRAM (H-65) UNITED STATES COAST GUARD (USCG) The H-65 aircraft is a short-range helicopter that the USCG uses to fulfill its missions, including search and rescue, ports and waterways security, marine safety, and defense readiness  The H-65 acquisition program increased the fleet’s size by 7 aircraft, added armament capabilities, upgraded navigation systems, and replaced each of the helicopters’ engines  The program is currently focused on upgrades to radar sensors, the automatic flight control system (AFCS), and avionics  Operational assessment of avionics upgrade planned to start in February 2018  Program fully staffed, but schedule slips raise risks with future staffing requirements  GAO last reported on this program in April 2017 (GAO-17-346SP)  As of November 2017, the program remains in breach of its current acquisition program baseline (APB)  In November 2016, the USCG notified Department of Homeland Security (DHS) leadership that it would not complete all activities required—including developmental testing and an operational assessment—to achieve acquisition decision event (ADE) 2C for low-rate initial production of the avionics and AFCS upgrades by its current APB threshold date of March 2017  USCG officials primarily attributed these delays to an underestimation of the technical effort necessary to meet the requirements and have subsequently worked with the contractor to continue development of avionic upgrades  In January 2017, DHS leadership directed the program to update its APB, life-cycle cost estimate (LCCE) and test and evaluation master plan by May 2017  However, the USCG did not meet this deadline, in part, because it decided to add a service life extension program (SLEP) to the H-65 program  The SLEP is expected to extend the current 20,000 flight hour service life of each aircraft by another 10,000 flight hours by replacing obsolete aircraft components  USCG officials stated that this will allow the USCG to delay purchasing new aircraft to prioritize funding for the Offshore Patrol Cutter  USCG officials plan to obtain approval for the SLEP when the program submits its revised APB for DHS approval, which is expected by March 2018  The program is revising its LCCE, but provided an update in June 2017 to inform the budget process  This update exceeds its current APB thresholds because it includes an initial estimate for the SLEP  The USCG estimates that the SLEP will cost $54 million for the entire fleet  USCG officials attributed the increase in operations and maintenance (O&M) costs to the additional extension of the aircraft’s operational life  The program’s O&M costs previously increased due to the USCG’s decision to extend the aircraft’s operational life from 2030 to 2039  The affordability gap from fiscal years 2018 to 2022 may be overstated because— as we found in April 2015—DHS’s funding plan to Congress does not contain O&M funding for USCG programs  USCG officials anticipate receiving $1 6 billion in O&M funding over this 5-year period  United States Coast Guard (USCG) H-65 CONVERSION/SUSTAINMENT PROGRAM (H-65) The USCG awarded new contracts to Rockwell Collins—the original equipment manufacturer of the legacy AFCS and avionics—to address the challenges encountered with development of the new upgrades  Specifically, the program awarded new contracts to support continued development of the AFCS and avionics upgrades in July 2016 and March 2017, respectively  As of September 2017, the combined value of both contracts totaled more than $15 million  The USCG cancelled development of a dedicated surface search radar capability for the H-65 in 2014, but USCG officials said a commercial off-the-shelf weather radar with surface search capability will be installed as part of the avionics upgrade  USCG officials said there is some risk involved with extending the aircrafts’ service life beyond 20,000 flight hours since it has never been done by other agencies that operate the H-65  However, USCG officials stated that the aircraft manufacturer, Airbus, assisted the USCG’s chief aeronautical engineer in identifying specific parts needing replacement and is providing support  In July 2017, the USCG reported that the program was fully staffed, but that the schedule slips have introduced potential risks with future staffing requirements  The program is mitigating these risks by extending some military personnel and ensuring rotating personnel are replaced by new staff with the expertise needed to complete the program’s planned activities, such as testing  USCG officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  UNITED STATES COAST GUARD (USCG) The program is intended to assist the USCG in maintaining the capability to access the Arctic and Antarctic polar regions  The USCG requires its icebreaking fleet to conduct multiple missions, including defense readiness; marine environmental protection; ports, waterway, and coastal security; and search and rescue  The USCG plans to acquire three heavy icebreakers to recapitalize the only existing operational heavy icebreaker, which is nearing the end of its service life  Program initiated model testing of hull and propulsion systems, which will inform design decisions  Program office integrates USCG and Navy personnel, but funding responsibilities may cause challenges  GAO last reported on this program in September 2017 (GAO-17-698R)  In June 2014, Department of Homeland Security (DHS) leadership granted the program acquisition decision event (ADE) 1 approval  The Acting Under Secretary for Management also acknowledged the USCG’s need to accelerate the acquisition process to mitigate gaps in the heavy icebreaking capability because the service life of the USCG’s only heavy polar icebreaker, which had already been extended, could end as early as 2020  In January 2018, DHS leadership approved the program’s initial acquisition program baseline (APB) establishing cost, schedule, and performance goals  The USCG planned to achieve a combined ADE 2A and 2B by December 2017, which would authorize the initiation of development efforts  According to DHS officials, this milestone was delayed to February 2018 to allow for the completion of required acquisition documents to inform the decision, such as the program’s life-cycle cost estimate and APB  The USCG is partnering with the Navy to leverage shipbuilding expertise and engaging early with potential shipbuilders through industry studies to mitigate some risks associated with the program’s accelerated acquisition schedule  However, GAO previously found that the program faces challenges in implementing the accelerated schedule  For example, the first icebreaker—which is preliminarily estimated to cost about $750 million to design and construct—would need to be fully funded in fiscal year 2019 at the same time the USCG is expecting to prioritize funding for the Offshore Patrol Cutter  In fiscal year 2017, the Consolidated Appropriations Act or associated explanatory materials, reflected funding for the program, including $150 million for advance procurement of heavy polar icebreakers and $25 million to the USCG for programmatic costs, respectively  USCG officials stated that the Navy funding could cover most of the design costs but would not cover long lead items or construction costs for any of the ships  They further stated that uncertainties with the amount and source of future appropriations have made planning the icebreaker acquisition challenging  United States Coast Guard (USCG) DHS leadership approved four key performance parameters (KPP) related to the ship’s ability to independently break through ice, the ship’s operating duration, and communications  In May 2017, the USCG began model testing of potential hull designs and propulsion configurations  USCG officials explained that the hulls of icebreakers are unique from other ships because they must balance a hull design optimized for icebreaking, which are generally broad and blunt, against a hull design optimized for seakeeping, which are generally narrow and streamlined  USCG officials noted that the power demands and propulsion system for the ship are dependent on the hull design  USCG officials stated that maneuverability was identified as a challenge during model testing and explained that azimuthing propulsors—propellers that sit below the ship and can rotate 360 degrees—offered better maneuverability than traditional propulsion systems  USCG officials said these propulsors are widely used on commercial ships, but may need modification to meet the USCG’s requirements  USCG officials anticipate results from the model testing to be completed by March 2018 and plan to use these results to inform the final specifications for the ships  The USCG established an integrated heavy polar icebreaker program office with the Navy and in 2017, DHS, the USCG, and Navy entered into several agreements that outline oversight roles, among other things  For example, these agreements state that the program will follow DHS acquisition policies with DHS leadership serving as the acquisition decision authority for program milestones  However, the Navy will review and approve acquisition documents before the program seeks DHS approval  These agreements also state that the program’s contracting actions could be funded by either USCG or Navy appropriations, and the source of the appropriations will award the contract  The program plans to competitively award a contract, which would include options for the detail design and construction for all three ships to a single shipbuilder by June 2019  Program officials stated they plan to award the contract under full and open competition to obtain competitive prices and include the construction of the three ships as options to accommodate the program’s funding uncertainties  In February 2017, the USCG awarded contracts to five shipbuilders—valued at approximately $4 million each—for design studies which will inform program decisions  Program officials stated that under these design studies contracts, the shipbuilders developed several potential ship designs and preliminary costs, with a focus on alternative propulsion options and hull designs  In August 2017, USCG officials told GAO that the program’s staffing gap was not negatively impacting program efforts  USCG officials stated that the program office had completed requirements for ADE 2A and 2B, and is on track to release the request for proposals for the detail design and construction contract by March 2018  These officials added that, during 2017, the program office refined the program’s requirements, completed ice and open water model testing, and partnered with five industry teams to evaluate multiple design solutions  USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  LONG RANGE SURVEILLANCE AIRCRAFT (HC-130H/J) UNITED STATES COAST GUARD (USCG) The USCG uses HC-130H and HC-130J aircraft to conduct search and rescue missions, transport cargo and personnel, support law enforcement, and execute other operations  Both aircraft are quad-engine propeller-driven platforms  The HC-130J is a modernized version of the HC-130H, which has advanced engines, propellers, and equipment that provide enhanced speed, altitude, range, and surveillance capabilities  Performance testing of new mission system processor complete  Transfer of HC-130H aircraft to other agencies ongoing  GAO last reported on this program in April 2017 (GAO-17-346SP)  During 2017, the USCG continued a nearly 3-year effort to re-baseline the program— which includes revisions to the program’s life-cycle cost estimate (LCCE) and acquisition program baseline (APB)—to account for significant changes  Specifically, the USCG decided to pursue an all HC-130J fleet and, in fiscal year 2014, Congress directed the transfer of 7 HC-130H aircraft to the U S  Air Force  The USCG was in the process of upgrading these aircraft, but cancelled further HC-130H upgrades  In September 2017, Department of Homeland Security (DHS) leadership directed the USCG to submit the revised APB by January 2018  According to USCG officials, the re-baseline has been delayed, in part, because Congress also directed the USCG to conduct a multi-phased analysis of its mission needs  In November 2016, the USCG submitted the results of its analysis for fixed- wing aircraft, which confirmed the planned total quantity of 22 HC-130J aircraft and an annual flight-hour goal of 800 hours per aircraft  USCG officials said the results of the analysis will be reflected in the program’s revised LCCE and subsequent APB, but noted that challenges with the vendor hired to complete the LCCE revision have also contributed to delays  The program submitted cost information in June 2017 to inform the budget process, but it reflected no updates from the program’s November 2011 LCCE  USCG officials previously attributed the acquisition cost growth and schedule slip from the program’s initial APB to the increase in HC-130J quantities from 6 to 22  However, when the revised LCCE is complete, estimated costs may decrease since the HC-130J aircraft are less expensive to maintain  As of December 2017, USCG officials stated they had received 11 HC-130J aircraft and had awarded contracts for 3 more—some of which were not requested  USCG officials previously stated that the program needs to acquire 1-2 HC-130J aircraft per year to meet its full operational capability (FOC) date  However, it is unclear how the USCG will meet its FOC date because it only requested funding for 1 aircraft over the next 5 years  The affordability gap from fiscal years 2018 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not contain operations and maintenance (O&M) funding for USCG programs  USCG officials anticipate receiving approximately $1 4 billion in O&M funding over this 5- year period  United States Coast Guard (USCG) LONG RANGE SURVEILLANCE AIRCRAFT (HC-130H/J) In December 2013, Congress directed the transfer of 7 HC-130H aircraft to the U S  Air Force for modifications—which consists of upgrades and installing a fire retardant delivery system—and subsequent transfer to the U S  Forest Service  This direction factored into the USCG’s decision to pursue an all HC-130J fleet  As of December 2017, the Forest Service had not yet received any modified aircraft primarily because of issues with contractors  According to USCG officials, the original contract the Air Force awarded to install the fire retardant delivery system in May 2016 was terminated 7 months later due to an unqualified vendor and a new contract has not yet been awarded  In the meantime, the Forest Service is using 2 of the 7 HC-130Hs  USCG officials said these aircraft are not modified, but outfitted with a less effective firefighting device  As of November 2017, the USCG plans to operate 14 of its HC-130H aircraft until the end of their service lives or until they can be replaced with new HC-130J aircraft  However, as previously discussed, the USCG has not requested funding for the additional HC-130J aircraft to support this plan  In October 2017, USCG officials reported that they were in the process of hiring staff to address the program’s staffing gap  USCG officials provided technical comments on a draft of this assessment, which GAO incorporated, as appropriate  MEDIUM RANGE SURVEILLANCE AIRCRAFT (HC-144A/ C-27J) UNITED STATES COAST GUARD (USCG) The USCG uses HC-144A and C-27J aircraft to conduct all types of missions, including search and rescue and disaster response  All 32 aircraft—18 HC-144A aircraft and 14 C-27J aircraft—are twin-engine propeller driven platforms  The interior of both aircraft are able to be re-configured to accommodate cargo, personnel or medical transports  Developmental testing of new mission system processor is ongoing  Program continues to face challenges related to purchasing spare parts and accessing technical data  GAO last reported on this program in April 2017 and March 2015 (GAO-17-346SP, GAO-15-325)  USCG officials said the program is on track to meet the cost and schedule goals in its current acquisition program baseline (APB), which Department of Homeland Security (DHS) leadership approved in August 2016 to reflect the restructuring of the HC-144A acquisition program  The USCG initially planned to procure a total of 36 HC-144A aircraft, but reduced that number to the 18 it had already procured after Congress directed the transfer of 14 C-27J aircraft from the U S  Air Force to the USCG in fiscal year 2014  The program’s APB divides the program into two phases: phase 1 includes acceptance of the 18 HC-144A aircraft and upgrades to the aircraft’s mission and flight management systems, and phase 2 includes acceptance of and modifications to the C-27J aircraft to meet the USCG’s mission needs  In October 2017, USCG officials told GAO that the program had initiated phase 1 efforts to upgrade the first HC-144A aircraft  The USCG plans to complete upgrades on all HC-144As by the end of fiscal year 2021  For phase 2, the USCG has accepted all 14 C-27Js from the U S  Air Force and plans to complete the modification of all C-27Js by March 2025 to achieve full operational capability (FOC)  To inform the budget process, the program updated its life-cycle cost estimate (LCCE) in June 2017, which is within its current APB cost thresholds  This estimate includes C-27J modification costs, such as installation of a new sensor package and new mission system processor  The program’s LCCE for the 36 HC-144A aircraft previously increased to $28 7 billion in 2012 when the USCG accounted for 5 years of additional costs, among other things  The current LCCE represents a considerable decrease, but also reflects a reduction in the number of aircraft and planned flight hours  The affordability gap from fiscal years 2018 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not contain operations and maintenance (O&M) funding for USCG programs  USCG officials anticipate receiving nearly $1 7 billion in total funding over this 5-year period to cover nearly $1 8 billion in total costs  United States Coast Guard (USCG) MEDIUM RANGE SURVEILLANCE AIRCRAFT (HC-144A/C-27J) The USCG still faces challenges in transitioning the C-27J into the USCG fleet  In March 2015, GAO found that the successful and cost-effective fielding of the C-27J aircraft is contingent on the USCG’s ability to address risk areas including, purchasing spare parts and accessing technical data, among other issues  According to USCG officials, the program continues to face challenges purchasing spare parts and accessing technical data  The program is reliant on the aircraft original equipment manufacturer for about 35 percent of spare C-27J parts  For other parts, USCG officials said that the USCG continues to look for ways to provide the same or similar parts for the aircraft at a faster rate and the USCG plans to award contracts to two additional manufacturers in calendar year 2018  USCG officials stated that retrieving technical data for the C-27J aircraft remains a challenge, but the USCG is working with the Department of Defense to obtain rights to data currently owned by the original equipment manufacturer  Once the USCG receives appropriate rights to C-27J technical data, the USCG officials said they can begin modification of the aircraft  The USCG also plans to purchase the same surface search radar used on the HC-144A or the HC-130J for the C-27J, which will give the USCG some commonality in maintenance, logistics, and training for this aspect of the aircraft  In October 2017, USCG officials told GAO that the program’s staffing is adequate and the gap has not negatively affected the program  USCG officials stated that the program remains on track to meet the cost, schedule, and performance goals outlined in its current APB and that they monitor APB key parameters in accordance with DHS guidance  These officials added that market research continues to increase supply chain sources and to identify products for new mission systems  USCG officials also provided technical comments, which GAO incorporated as appropriate  NATIONAL SECURITY CUTTER (NSC) UNITED STATES COAST GUARD (USCG) The USCG uses the NSC to conduct search and rescue, migrant and drug interdiction, environmental protection, and other missions  The NSC replaces and provides improved capabilities over the USCG’s High Endurance Cutters  The NSC carries helicopters and cutter boats, provides an extended on-scene presence at forward deployed locations, and operates worldwide  Follow-on operational testing began in October 2017, but cybersecurity testing delayed  The USCG is conducting a study to determine root cause of propulsion system issues  GAO last reported on this program in March and April 2017 (GAO-17-218, GAO-17- 346SP)  In November 2017, Department of Homeland Security (DHS) leadership approved a revised acquisition program baseline (APB), which accounted for the addition of a ninth NSC to the program of record  The USCG originally planned to acquire only eight NSCs; however, in the Consolidated Appropriations Act of 2016, Congress directed that not less than $640 million be immediately available and allotted to contract for the production of a ninth NSC  In December 2016, the USCG awarded a contract to produce the ninth NSC and, as of November 2017, six NSCs had been delivered and three were under construction  The USCG anticipates delivery of the ninth NSC in September 2020, which coincides with the program’s prior APB threshold date for full operational capability (FOC)  However, the revised APB extends this date by 1 year to account for any risks in delivering the additional ship  The program’s FOC date previously slipped 4 years, which USCG officials attributed to funding shortfalls, among other things  The ninth NSC contributed to a $453 million and $123 million increase in the program’s APB cost thresholds for acquisition and operations and maintenance (O&M), respectively  However, the program’s revised life-cycle cost estimate (LCCE) is still lower than its initial estimate for eight ships, which USCG officials attribute to more accurate estimates  The revised LCCE also included costs for several design changes the USCG has had to implement on equipment with known issues  As of September 2017, 12 equipment systems required design changes, which totaled an estimated cost of over $260 million  This work includes structural enhancement work on the first two NSCs and the replacement of the gantry crane, which aids in the deployment of cutter boats  The affordability gap from fiscal years 2018 to 2022 may be overstated because— as we found in April 2015—DHS’s funding plan to Congress does not contain O&M funding for USCG programs  USCG officials anticipate receiving approximately $2 1 billion in O&M funding over this 5-year period to cover the NSC’s estimated $1 8 billion in O&M costs, but stated it will refine its annual budget request based on the program’s needs each year  The USCG also identified carryover funding to cover the projected acquisition funding shortfall in fiscal year 2018  United States Coast Guard (USCG) NATIONAL SECURITY CUTTER (NSC) The NSC program does not have any critical staffing vacancies  However, in July 2017, the program reported that the greatest staffing challenge is a potential extension to the program’s end date if the USCG acquires more than 9 NSCs  If this occurs, the program office must reassess future staffing requirements to ensure adequate program oversight continues until the last NSC completes post-delivery activities  In addition, the USCG has made changes to its staffing model for operating the NSCs  The USCG initially planned to implement a crew rotational concept in which crews would rotate while NSCs were underway to achieve a goal of 230 days away from the cutter’s homeport  In February 2018, USCG officials told GAO they abandoned the crew rotational concept because the concept did not provide the USCG with the expected return on investment  Instead, USCG officials said a new plan has been implemented that does not rotate crew and is anticipated to increase the days away from home port from the current capability of 185 days to 200 days  USCG officials stated that NSCs had a record year of narcotics seizures in 2017  In addition to the test activities identified in this assessment, USCG officials stated that the first follow-on OT&E event was completed in December 2017 and the first cybersecurity test event is scheduled for February 2018  They also noted that the shipbuilder continues to show improving cost performance and is completing construction within budget  USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  OFFSHORE PATROL CUTTER (OPC) UNITED STATES COAST GUARD (USCG) The USCG plans to use the OPC to conduct patrols for homeland security, law enforcement, and search and rescue operations  The OPC is being designed for long-distance transit, extended on-scene presence, and operations with deployable aircraft and small boats  It is intended to replace the USCG’s aging Medium Endurance Cutters (MEC) and bridge the operational capabilities provided by the Fast Response Cutters and National Security Cutters (NSC)  Program plans to refine the ship’s design, as needed, based on early operational assessment results  Program’s acquisition strategy incorporated some best practices  GAO last reported on this program in April and June 2017 (GAO-17-346SP, GAO-17-654T)  According to USCG officials, the OPC program is on track to meet its cost and schedule goals  In September 2014, Department of Homeland Security (DHS) leadership approved the program’s current acquisition program baseline (APB), which accounts for schedule slips resulting from delays in awarding the program’s initial contracts and a subsequent bid protest  The USCG expects to start construction of the first OPC in fiscal year 2019 and procure a total of 25 ships  The USCG plans to initially fund one OPC per year and eventually two OPCs per year until all 25 OPCs are delivered  USCG officials have stated that additional OPC delays will decrease the USCG’s operational capacity because the MECs will likely require increased downtime for maintenance and other issues, reducing their availability  In January 2016, DHS leadership directed the USCG to revise the OPC life-cycle cost estimate (LCCE) and submit it for approval within 6 months of awarding the detailed design and construction contract for the ships—which the USCG subsequently awarded in September 2016  In June 2017, the program submitted an updated LCCE to inform the budget process that—while not approved by DHS leadership—accounts for the contract award and the program’s schedule slips  As of December 2017, the program’s revised LCCE still had not been approved  It is unclear whether it will address other issues, such as an increase in the estimated weight of each ship  The OPC’s initial LCCE was based in large part on the estimated weight of each ship  However, in November 2017, USCG officials said the ship is expected to weigh up to 35 percent more than originally estimated  Nevertheless, USCG officials expect to procure all 25 OPCs for the program’s APB objective cost of $10 5 billion because the contractor identified cost efficiencies to compensate for the increased weight  GAO previously raised questions about the OPC’s affordability and its effect on other USCG acquisition programs, such as the Heavy Polar Icebreaker  Specifically, GAO noted that the OPC procurement will consume about two-thirds of the USCG’s planned acquisition budget between fiscal years 2018 and 2032 based on recent funding history  The program’s affordability gap from fiscal years 2020 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not report operations and maintenance (O&M) funding for USCG programs  USCG officials anticipate receiving $103 million in O&M funding over this 5-year period  United States Coast Guard (USCG) OFFSHORE PATROL CUTTER (OPC) The USCG is in the process of completing the design of the OPC before starting construction, which is in-line with GAO shipbuilding best practices  In addition, USCG officials stated that the program is using state-of-the-market technology that has been proven on other ships as opposed to state-of-the-art technology, which lowers the risk of the program  The USCG used a two-phased down-select strategy to select a contractor to deliver the OPC  For phase 1, the USCG conducted a full and open competition and selected three contractors to perform preliminary design work  For phase 2, the USCG selected one of the phase 1 contractors—Eastern Shipbuilding—to develop a detailed design of the OPC and construct no more than the first 11 ships  The contract—worth approximately $110 million—includes separate options for each ship  The options for ships 10 and 11 were unpriced and included in the solicitation as an incentive to convert the contract type from fixed price incentive to firm fixed price  These options will be included in a repricing proposal submitted by the contractor for ships 6-9 after delivery of the first ship  USCG officials have stated the USCG will decide whether to exercise the option for ships 10 and 11 based on the contractor’s re-pricing proposal for ships 6-9  The USCG plans to re-compete the contract for the remaining 14-16 ships  The OPC program continued to increase its required staffing level and the USCG reported that adjustments to staffing will continue as the program matures  The program faces shortages including engineers, a logistics manager, and a technical director, but USCG officials said they are hiring staff to address these gaps  USCG officials stated that the OPC program is fully funded, executable, and on track to award construction for the first OPC in September 2018  These officials said design efforts are on track and the contractor is meeting the milestones to deliver the first OPC in 2021  USCG officials noted that they are continuing to increase staff at the contractor’s facility to prepare for the start of construction for the first OPC  USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES (USCIS) The Transformation program was established in 2006 to transition USCIS from a fragmented, paper-based filing environment to a consolidated, paperless environment for processing immigration and citizenship applications  The program developed a new system architecture and delivers capability through releases that correspond to new product lines within four lines of business: Citizenship, Immigrant, Non-Immigrant, and Humanitarian  Revision of key performance parameters and test and evaluation master plan in progress  Program is reorganizing to leverage expertise within USCIS and revise its approach  GAO last reported on this program in April 2017 and July 2016 (GAO-17-346SP, GAO-16- 467)  The program remains in breach of its current acquisition program baseline (APB)  In September 2016, the Transformation program experienced a schedule breach when it failed to complete deployment of all the product lines associated with the Citizenship line of business  The deployment was delayed because of challenges processing new product lines on the new system architecture and other technical issues with the case management system  Prior to the breach, the program deployed six product lines, which supported approximately 24 percent of the total workload processed by USCIS in fiscal year 2016  Department of Homeland Security (DHS) leadership previously re- baselined the program in April 2015 after USCIS determined that it could not use any of the architecture delivered under its initial strategy, despite having invested more than $475 million in its development  In December 2016, DHS leadership directed USCIS to stop planning and development for new product lines, develop a breach remediation plan, and update its acquisition documentation  In February 2017, DHS leadership approved the program’s remediation plan and the program has since made progress in implementing this plan  However, DHS leadership elected to continue with the program’s pause in new development following program reviews in March 2017, July 2017, and October 2017  USCIS officials said they are revising the program’s acquisition documents—including its APB and life-cycle cost estimate (LCCE)—and plan to re-baseline by March 2018  The program updated the total costs in its LCCE to inform the budget process, but these costs do not reflect the program’s re-baselining plans  As a result, the status of the program against its cost and schedule goals is unclear  However, the program is more than 3 years past its original full operational capability (FOC) date  The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance funding for individual programs  USCIS uses revenue from premium processing fees to fund the Transformation program and routinely collects more fees than the program’s estimated costs  USCIS officials told GAO that the program office underwent a reorganization in January 2017 to help address the program’s recent challenges  This effort included dismantling the program office and repositioning Transformation under the USCIS Office of Information Technology so the program could leverage expertise in areas such as engineering within USCIS  USCIS officials reported that the program no longer plans to deliver capability by product lines because this strategy focused too narrowly on the automation of forms associated with the lines of business  Going forward, USCIS officials said the program plans to develop capabilities that will address broader objectives, such as reducing the time it takes to process applications and decisions  The program previously made significant changes after it experienced a 5-month delay with its first release, which was deployed in May 2012  DHS attributed this delay to weak contractor performance and pursuing an unnecessarily complex system, among other things  To address these issues, the Office of Management and Budget, DHS, and USCIS determined the program should implement a new acquisition strategy, which allowed for an agile software development methodology and increased competition for development work  This strategy was reflected in the program’s April 2015 re-baseline  USCIS officials told GAO that they plan to address the Transformation program’s staffing gap now that the reorganization is complete  USCIS officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate  To help determine the extent to which the Department of Homeland Security (DHS) has taken actions to enhance its policies and processes to better reflect key portfolio management practices, we assessed the department’s requirements, acquisition management, and resource allocation policies using key practices we established in September 2012  These key practices are based on our past work, in which we examined the practices that private sector entities use to achieve a balanced mix of new projects and found that successful commercial companies use a disciplined and integrated approach to prioritize needs and allocate resources  As a result, these organizations can avoid pursuing more projects than their resources can support and better optimize the return on their investments  This approach, known as portfolio management, requires companies to view each of their investments as contributing to a collective whole, rather than as independent and unrelated  The objectives of this audit were designed to provide congressional committees insight into the Department of Homeland Security’s (DHS) major acquisition programs  We assessed the extent to which (1) DHS’s major acquisition programs are on track to meet their schedule and cost goals and (2) DHS has taken actions to enhance its policies and processes to better reflect key portfolio management practices  To answer these questions, we reviewed 28 of DHS’s 79 major acquisition programs  We reviewed all 16 of DHS’s Level 1 acquisition programs— those with life-cycle cost estimates (LCCE) of $1 billion or more—that had at least one project, increment, or segment in the Obtain phase—the stage in the acquisition life cycle when programs develop, test, and evaluate systems—at the initiation of our audit  Additionally, we reviewed 12 other major acquisition programs—including 8 Level 1 programs that either had not yet entered or were beyond the Obtain phase, and 4 Level 2 programs that have LCCEs between $300 million and less than $1 billion—that we identified were at risk of not meeting their cost estimates, schedules, or capability requirements based on our past work and discussions with DHS officials  Specifically, we met with representatives from DHS’s Office of Program Accountability and Risk Management (PARM)—DHS’s main body for acquisition oversight—as a part of our scoping effort to determine which programs (if any) were facing difficulties in meeting their cost estimates, schedules, or capability requirements  The 28 selected programs were sponsored by eight different components, and they are identified in table 7, along with our rationale for selecting them  To determine the extent to which DHS’s major acquisition programs are on track to meet their schedule and cost goals, we collected key acquisition documentation for each of the 28 programs, such as all LCCEs and acquisition program baselines (APB) approved at the department level since DHS’s current acquisition management policy went into effect in November 2008  DHS policy establishes that all major acquisition programs should have a department-approved APB, which establishes a program’s critical cost, schedule, and performance parameters, before they initiate efforts to obtain new capabilities  Twenty four of the 28 programs had one or more department-approved LCCEs and APBs between November 2008 and December 31, 2017  We used these APBs to establish the initial and current cost and schedule goals for the programs  We then developed a data collection instrument to help validate the information from the APBs and collect similar information from programs without department-approved APBs  Specifically, for each program, we pre-populated a data collection instrument to the extent possible with the schedule and cost information we had collected from the APBs and our 2017 assessment (if applicable) to identify schedule and cost goal changes, if any, since (a) the program’s initial baseline was approved and (b) January 2017—the data cut-off date of the report we issued in April 2017  We shared our data collection instruments with officials from the program offices to confirm or correct our initial analysis and to collect additional information to enhance the timeliness and comprehensiveness of our data sets  We then met with program officials to identify causes and effects associated with any identified schedule and cost goal changes  Subsequently, we drafted preliminary assessments for each of the 28 programs, shared them with program and component officials, and gave these officials an opportunity to submit comments to help us correct any inaccuracies, which we accounted for as appropriate (such as when new information was available)  Additionally, in July 2017, we collected copies of the detailed data on affordability that programs submitted to inform the fiscal year 2019 resource allocation process  We also collected copies of any annual LCCE updates programs submitted in fiscal year 2017  For each of the 24 programs with a department-approved APB, we compared (a) the most recent cost data we collected (i e , a department-approved LCCE, the detailed LCCE information submitted during the resource allocation process, a fiscal year 2017 annual LCCE update, or an update provided by the program office) to (b) DHS’s funding plan presented in the Future Years Homeland Security Program (FYHSP) report to Congress for fiscal years 2018–2022, which presents 5-year funding plans for DHS’s major acquisition programs, to assess the extent to which a program was projected to have an acquisition funding gap in fiscal year 2018  Through this process, we determined that our data elements were sufficiently reliable for the purpose of this engagement  The FYHSP reports information by the department’s new common appropriation structure, which created standard appropriation fund types including (1) procurement, construction, and improvements and (2) operations and support  We refer to these types of funding as (1) acquisition and (2) operations and maintenance throughout this report  which are listed in appendix II—and identified any significant shortfalls  Specifically, we assessed the joint requirements directives and instruction manual; DHS’s Acquisition Management Directive 102-01, Acquisition Management Instruction 102-01-001, and other related guidance; and DHS’s resource allocation directive, instruction, and handbook  First, we assessed each group of policies against the key practices using the following ratings: Met—the documents fully reflected the key practice  Partially met—the documents reflected some, but not all parts of the key practice  Not met—the documents did not reflect the key practice  We shared our preliminary analysis for each group of policies with the DHS officials responsible for implementing them—specifically, the Joint Requirements Council (JRC), PARM, and the Office of Program Analysis and Evaluation (PA&E)—to discuss our findings, identify relevant sections of the documents we had not yet accounted for, and solicit their thoughts on those key practices that were not reflected in the policies  Second, we used the scores for each group of policies to develop a department-wide rating for each key practice  When applicable, we weighted the department-wide rating based on the intent of the key practice  For example, the department-wide rating for the key practice related to resource allocation across the portfolio was based more heavily on the rating for the resource allocation policies, rather than the ratings for the requirements or acquisition management policies  Third, we rolled-up the ratings for all the key practices in a particular area—as identified in appendix II—to establish a department-wide overall rating for each key practice area  We concluded that a key practice area was met if all ratings for the individual key practices in that area were met; partially met if the ratings for the individual key practices in that area were all partially met or a mix of met and not met; or not met if the ratings for the individual key practices in that area were all not met  In addition, we reviewed documentation that resulted from DHS’s requirements, acquisition management, and resource allocation processes since January 2016 to get a sense of how the department has implemented its current policies  For example, we reviewed JRC- validated requirements documents; acquisition decision memorandums; Acquisition Program Health Assessment reports; and documentation related to the development of DHS’s fiscal year 2018 budget request and the fiscal year 2018–2022 FYHSP report, including resource allocation guidance, presentations to DHS leadership, and preliminary decisions  We also interviewed officials from the JRC, PARM, PA&E, and the Deputy’s Management Action Group to identify any current and planned initiatives to improve management of the department’s portfolio of major acquisition programs  We then compared our assessment of DHS’s current policies, practices, and planned initiatives to our previous findings and the Standards for Internal Control in the Federal Government  We conducted this performance audit from March 2017 through May 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  In addition to the contact listed above, Rick Cederholm (Assistant Director), Aryn Ehlow (Analyst-in-Charge), Pete Anderson, Lorraine Ettaro, Helena Johnson, TyAnn Lee, Alexis Olson, Sylvia Schatz, Roxanna Sun, and Lindsay Taylor made key contributions to this report  Other contributors included Mathew Bader, Carissa Bryant, Andrew Burton, Erin Butkowski, Lisa Canini, Jenny Chow, John Crawford, Lindsey Cross, Laurier R  Fish, Betsy Gregory-Hosler, Claire Li, Sarah Martin, Marycella Mierez, Erin O’Brien, Katherine Pfeiffer, John Rastler, Ashley Rawson, Andrew Redd, Jill Schofield, Charlie Shivers III, and Jeanne Sung  DHS Program Costs: Reporting Program-Level Operations and Support Costs to Congress Would Improve Oversight  GAO-18-344  Washington, D C : April 25, 2018  Homeland Security Acquisitions: Identifying All Non-Major Acquisitions Would Advance Ongoing Efforts to Improve Management  GAO-17-396  Washington, D C : April 13, 2017  Homeland Security Acquisitions: Earlier Requirements Definition and Clear Documentation of Key Decisions Could Facilitate Ongoing Progress  GAO-17-346SP  Washington, D C : April 6, 2017  Coast Guard Cutters: Depot Maintenance Is Affecting Operational Availability and Cost Estimates Should Reflect Actual Expenditures  GAO-17-218  Washington, D C : March 2, 2017  Homeland Security Acquisitions: Joint Requirements Council’s Initial Approach Is Generally Sound and It Is Developing a Process to Inform Investment Priorities  GAO-17-171  Washington, D C : October 24, 2016  Homeland Security Acquisitions: DHS Has Strengthened Management, but Execution and Affordability Concerns Endure  GAO-16-338SP  Washington, D C : March 31, 2016  National Security Cutter: Enhanced Oversight Needed to Ensure Problems Discovered during Testing and Operations Are Addressed  GAO-16-148  Washington, D C : January 12, 2016  TSA Acquisitions: Further Actions Needed to Improve Efficiency of Screening Technology Test and Evaluation  GAO-16-117  Washington, D C : December 17, 2015  Homeland Security Acquisitions: Major Program Assessments Reveal Actions Needed to Improve Accountability  GAO-15-171SP  Washington, D C : April 22, 2015  Coast Guard Aircraft: Transfer of Fixed-Wing C-27J Aircraft Is Complex and Further Fleet Purchases Should Coincide with Study Results  GAO-15-325  Washington, D C : March 26, 2015  Homeland Security Acquisitions: DHS Should Better Define Oversight Roles and Improve Program Reporting to Congress  GAO-15-292  Washington, D C : March 12, 2015  Coast Guard Acquisitions: Better Information on Performance and Funding Needed to Address Shortfalls  GAO-14-450  Washington, D C : June 5, 2014  Homeland Security Acquisitions: DHS Could Better Manage Its Portfolio to Address Funding Gaps and Improve Communications with Congress  GAO-14-332  Washington, D C : April 17, 2014  Homeland Security: DHS Requires More Disciplined Investment Management to Help Meet Mission Needs  GAO-12-833  Washington, D C : September 18, 2012  Department of Homeland Security: Assessments of Selected Complex Acquisitions  GAO-10-588SP  Washington, D C : June 30, 2010  Department of Homeland Security: Billions Invested in Major Programs Lack Appropriate Oversight  GAO-09-29  Washington, D C : November 18, 2008 

ground_truth: Each year, the DHS invests billions of dollars in a diverse portfolio of major acquisition programs to help execute its many critical missions. DHS's acquisition activities are on GAO's High Risk List, in part, because of management and funding issues. The Explanatory Statement accompanying the DHS Appropriations Act, 2015 included a provision for GAO to review DHS's major acquisitions. This report, GAO's fourth annual review, assesses the extent to which: (1) DHS's major acquisition programs are on track to meet their schedule and cost goals, and (2) DHS has taken actions to enhance its policies and processes to better reflect key practices for effectively managing a portfolio of investments. GAO reviewed 28 acquisition programs, including DHS's largest programs that were in the process of obtaining new capabilities as of April 2017, and programs GAO or DHS identified as at risk of poor outcomes. GAO assessed cost and schedule progress against baselines, assessed DHS's policies and processes against GAO's key portfolio management practices, and met with relevant DHS officials. During 2017, 10 of the Department of Homeland Security (DHS) programs GAO assessed that had approved schedule and cost goals were on track to meet those goals. GAO reviewed 28 programs in total, 4 of which were new programs that GAO did not assess because they did not establish cost and schedule goals before the end of calendar year 2017 as planned. The table shows the status of the 24 programs GAO assessed. Reasons for schedule delays or cost increases included technical challenges, changes in requirements, and external factors. Recent enhancements to DHS's acquisition management, resource allocation, and requirements policies largely reflect key portfolio management practices (see table). However, DHS is in the early stages of implementing these policies. GAO identified two areas where DHS could strengthen its portfolio management policies and implementation efforts: DHS's policies do not reflect the key practice to reassess a program that breaches—or exceeds—its cost, schedule, or performance goals in the context of the portfolio to ensure it is still relevant or affordable. Acquisition management officials said that, in practice, they do so based on a certification of funds memorandum—a tool GAO has found to be effective for DHS leadership to assess program affordability—submitted by the component when one of its programs re-baselines in response to a breach. Documenting this practice in policy would help ensure DHS makes strategic investment decisions within its limited budget. DHS is not leveraging information gathered from reviews once programs complete implementation to manage its portfolio of active acquisition programs. DHS's acquisition policy requires programs to conduct post-implementation reviews after initial capabilities are deployed, which is in line with GAO's key practices. Acquisition management officials said they do not consider the results of these reviews in managing DHS's portfolio because the reviews are typically conducted after oversight for a program shifts to the components. Leveraging these results across DHS could enable DHS to address potential issues that may contribute to poor outcomes, such as schedule slips and cost growth, for other programs in its acquisition portfolio. GAO recommends DHS update its acquisition policy to require certification of fund memorandums when programs re-baseline as a result of a breach and assess programs' post-implementation reviews to improve performance across the acquisition portfolio. DHS concurred with GAO's recommendations.