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



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



Report 2: DOD’s MILCON appropriations are used to fund the acquisition, construction, installation, and equipping of temporary or permanent public works, military installations, facilities, and real property needed to support U S  military forces in the United States and overseas  As with other DOD activities, no funds may be appropriated in any fiscal year or obligated or expended for MILCON activities unless such funds have been specifically authorized by law  Each year, the National Defense Authorization Act authorizes amounts to be appropriated in each of the 18 programmatic MILCON appropriations accounts  Individual or conference committee reports accompanying each fiscal year’s National Defense Authorization Act provide specific congressional direction on authorized funding levels designated for specific construction projects supported by the various MILCON accounts  Similarly, conference committee reports or explanatory statements accompanying each fiscal year’s appropriations acts establish appropriated funding levels for MILCON projects  The process through which the active component requests funding for construction projects is supported by DOD’s Form 1391 Military Construction Project Data (Form 1391)  The Form 1391 is to be used to support each project proposed for inclusion in the MILCON appropriations request submitted concurrently with all other DOD appropriations requests annually  The forms are to be used for both new projects as well as urgent unforeseen projects  The Form 1391 describes the scope, total project costs, and estimates of specific project elements  Costs associated with other project elements such as contingency and supervision, inspection, and design are also to be captured and included in the total requested amount  Finally, the Form 1391 is to include a description of the proposed construction and a requirements statement indicating what requirement the project provides  Project budget estimates are initially developed at the installation level and are provided to the next responsible level for review, validation, refinement, prioritization, and approval  Administrative support is to be provided when requested across the departments, but ultimately the installation is the originator and the primary responsible entity in developing the completed Form 1391  MILCON appropriations are generally available for obligation for 5 fiscal years, at which time the appropriation expires  For 5 years after they expire, appropriations are available for limited purposes, such as liquidating obligations made during the period of availability or adjusting contract costs  After these 5 years, any remaining unexpended amounts, whether obligated or unobligated, are canceled and returned to the U S  Treasury  Once funds are returned to the U S  Treasury, they are no longer available for any purposes  DOD obligates its appropriations throughout the period in which the appropriation is available  An “unobligated balance” is the difference between the total appropriation amount and total obligations made against the appropriated amounts  An “unexpended balance” is the total of obligated but unliquidated and unobligated amounts  According to DOD officials, available but unobligated amounts no longer needed may be either rescinded by Congress or reprogrammed to other MILCON projects that the active component identifies as needing additional funding  Reprogrammed amounts may be used to fund other projects where there are shortfalls; for projects authorized by Congress but not specifically funded through the appropriations process; for emergency projects, such as for facilities destroyed by fires  DOD’s flexibility to reprogram without congressional approval is limited by the amount to be reprogrammed to a particular project  DOD’s Financial Management Regulation requires prior congressional approval for a reprogramming that would result in an increase exceeding 25 percent of a project’s authorized base amount or $2 million, whichever is less  Prior approval is not required when established costs or project-related thresholds are not reached  According to DOD officials, reprogrammings requiring congressional approval are called “above-threshold reprogrammings” and those that do not are called “below-threshold reprogrammings ” DOD designates construction agents for the military departments and defense agencies with primary responsibility for developing and refining MILCON proposals and cost estimates, and to manage the design and construction of projects  Typically, the Army Corps of Engineers is the construction agent for Army MILCON-funded projects and the Naval Facilities Engineering Command is the construction agent for Navy and Marine Corps MILCON-funded projects  Either of those DOD entities can be the construction agent for the defense agencies and activities, such as for the Missile Defense Agency or Defense Education Activity, with the approval of the military department having jurisdiction of the real property facility  However, both the Army and the Navy may use each other’s construction agent if it is in the interest of efficiency and cost- effectiveness or when otherwise considered appropriate  The Air Force may use either the Army Corps of Engineers or Naval Facilities Engineering Command for its projects  Additionally, the Air Force Civil Engineer Center, although not a designated construction agent, reviews and approves requirements for Air Force MILCON cost estimates, and in some cases may design and construct Air Force projects where both the Air Force and the commander of the assigned construction agent agree that it is the most efficient, expeditious, and cost-effective means to complete the project  Within DOD there are two levels of military construction guidance: the Unified Facilities Criteria and component-level guidance  The Unified Facilities Criteria are overarching, DOD-wide technical manuals and standards used for planning, design, construction, restoration, and maintenance of DOD facility projects  The Unified Facilities Criteria was designed to standardize and streamline the process for developing, maintaining, and disseminating criteria in support of MILCON  The Unified Facilities Criteria contains guidance describing methods, procedures, and formats for the preparation of construction cost estimates and construction contract modification estimates, among other types of guidance  The Unified Facilities Criteria is to be used to the greatest extent possible by all the DOD regardless of funding source  In addition to the Unified Facilities Criteria, the military departments and agencies have also developed their own internal guidance on MILCON, providing further direction on conducting activities such as cost analysis and determining facility requirements  We developed the GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (Cost Guide) to assist federal agencies in developing reliable cost estimates and also as a tool for evaluating existing cost estimating procedures  To develop the Cost Guide, our cost experts assessed measures applied by cost estimating organizations throughout the federal government and industry and considered best practices for the development of reliable cost estimates  While the Cost Guide has a focus on developing cost estimates in the context of government acquisition programs, it outlines best practices that are generally applicable to cost estimation in a variety of circumstances  These best practices can be used to assess (1) the specific project cost estimates an agency develops to determine whether they meet the four characteristics—comprehensive, well-documented, accurate, and credible—for being reliable and (2) an agency’s cost estimating guidance and procedures to see how well they incorporate all the steps needed for producing a high-quality cost estimate  Figure 1 shows the four characteristics and associated best practices for each that define a reliable cost estimate and table 1 shows the 12 steps identified in the Cost Guide that, if followed correctly, should result in high-quality cost estimates that management can use for making informed decisions  During fiscal years 2005 through 2016, Congress appropriated about $66 billion in MILCON funds to the active component and, as of September 30, 2016, the active component had obligated all but about $5 1 billion and expended all but about $11 billion of those funds  Of the $5 1 billion that remains unobligated, about $4 6 billion was unexpired and available for new obligations (i e , from fiscal year 2013 through 2016 appropriations)  Table 2 shows the active component’s combined MILCON appropriations, obligations, and unexpended funds from fiscal year 2005 through fiscal year 2016  In general, during the early first few years of a MILCON appropriation available for 5 years, it is often likely that most of the funds will remain unobligated  For example, as shown in table 2 above, of the nearly $3 9 billion appropriated for military construction for the active component from the fiscal year 2016-2020 appropriation, only about $1 1 billion had been obligated as of September 30, 2016  This is not surprising given the time that it takes to award, obligate and disburse funds for projects  Ultimately, though, as an appropriation nears its expiration date, all or nearly all of the amounts have generally been obligated  In fact, as shown in table 2, for each MILCON appropriation received by the active component prior to fiscal year 2013 (fiscal years 2005 through 2012), less than 2 percent of each year’s appropriation was unexpended as of September 30, 2016  In appendix II, we provide additional analysis of the active component’s unexpended and unobligated balances, by appropriation year and by military department  Although ultimately, the active component obligates and expends most of its MILCON appropriations, the active component can experience a wide range of differences between initial cost estimates and final costs during the execution of individual MILCON projects, resulting in savings or shortfalls depending on the project  For example, we found that from fiscal year 2010 through fiscal year 2016, the active component achieved about $4 2 billion in MILCON project savings as a result, for example, of canceled projects, projects with lower than expected contractor bids, or the use of less expensive building materials  In appendix III, we provide additional analysis of the active component’s estimated initial costs and the contract award amounts that were funded by MILCON appropriations for fiscal year 2010 through fiscal year 2016  The active component reprogrammed about $1 6 billion in MILCON appropriations to fund shortfalls caused by emergency projects, projects that were authorized but did not receive specific appropriations, and projects needing additional funding in fiscal years 2010 through 2016  Of this amount, the Army reprogrammed about $789 million of about $14 billion in appropriated MILCON funds; the Navy, about $535 million of about $14 billion in appropriated MILCON funds; and the Air Force, about $295 million of about $7 billion in appropriated MILCON funds  Table 3 shows the number and amounts of above-threshold reprogrammings by the active component for fiscal years 2010 through 2016  As seen in table 3, for any given year there are typically hundreds of millions of dollars reprogrammed  There are generally multiple active or canceled projects that result in cost savings, which may be used to fund authorized but not specifically funded projects  Below are three examples where the active component funded MILCON projects with amounts reprogrammed from other projects: Repair Shop at Andersen Air Force Base, Guam: This is an Air Force project to construct a pacific air resiliency low observable/corrosion control/composite repair shop in Guam  It is an authorized project that did not receive specific funding during the appropriation process but was fully funded by reprogrammed cost savings from active construction projects  Congress authorized $34 4 million for the repair shop in fiscal year 2015; however, no funds were specifically appropriated for the project  According to Air Force officials, since this was their top unfunded military construction priority, they used $34 4 million in savings achieved from other projects to construct the repair shop  Table 4 lists the three projects whose MILCON funds were reprogrammed for the repair shop at Andersen Air Force Base in Guam  Training Facility at the Naval Air Station at Mayport, Florida: This is a Navy project to construct a littoral combat ship training facility in Florida  It is a specifically funded project requiring additional funds that received reprogrammed amounts from a canceled project  In fiscal year 2014, the initial cost as listed on the Form 1391 was estimated to be $20 5 million, but project costs increased by 41 percent to an estimated $28 9 million, according to a fiscal year 2016 reprogramming request to Congress  As detailed in the reprogramming request, the Navy attributed the increased cost to underestimated mission simulator and communication line requirements  To fund the increased costs, the Navy used $8 3 million in savings from a canceled project to complete the facility  Table 5 lists the canceled project that resulted in funds being reprogrammed for the training facility at Mayport  Barracks at Presidio of Monterey, California: This is an Army project to construct a trainee barracks in California  It is a specifically funded project in need of additional funds that received reprogrammed amounts from active and canceled construction projects  In fiscal year 2011, the initial cost for the project as listed on the Form 1391 was estimated to be $63 million, but project costs increased by 51 percent to $95 million, according to a fiscal year 2015 reprogramming request to Congress  As detailed in the reprogramming request, the Army attributed the increased costs to a 3-year delay in construction and the need to move the project to a small, steep-terrain site  The reprogramming request further noted that the delay in construction was due to the discovery at the proposed construction site of a seismic fault and a plant that is an endangered species  To fund the increased costs, the Army sought to reprogram funds from the savings achieved from the active and canceled projects  Table 6 lists the projects that generated the reprogrammed funds used for the barracks at Presidio  Our analyses of the cost estimates for three selected projects shows that the cost estimates were not reliable, and DOD’s cost estimating guidance does not fully incorporate all the steps needed for producing reliable estimates  We examined the cost estimates of three high-value military construction projects and noted that the initial cost estimates increased for all three projects, with cost estimates for two of the projects increasing by over 30 percent and the other, by about 7 percent  Specifically: Strategic Command Operations Building, Offutt Air Force Base, Nebraska  The project to construct a nuclear, space, and network command and control operations building for the command at Offutt Air Force Base, Nebraska, increased from an initial cost estimate in fiscal year 2012 of $564 million to $601 million in fiscal year 2014 (or a 7-percent increase)  According to a fiscal year 2014 reprogramming request to Congress, the Air Force attributed the increased cost to the fact that the project team did not appreciate the full scope, complexity, and risk of such an information technology- intensive project  These cost issues are similar to challenges we have reported on for other information technology-intensive MILCON projects  The Air Force is the project owner and the Army Corps of Engineers is the construction agent for this project  Command Headquarters and Cyberspace Operations Building, Fort Meade, Maryland  The project to construct a command headquarters and cyberspace operations building with sensitive compartmented information facility in Fort Meade, Maryland, increased from an initial cost estimate in fiscal year 2013 of $84 million to $110 million in fiscal year 2015 (or a 31-percent increase)  As detailed in the fiscal year 2015 reprogramming request, the Navy attributed the increased cost to higher than expected construction costs due to increased demand on the labor workforce in the Washington, D C /Baltimore area and underestimated electrical power requirements  The Navy is the project owner and the Army Corps of Engineers is the construction agent for this project  Elementary School Camp Foster, Japan  The project to replace an elementary school at Camp Foster, Japan increased from an initial cost estimate in fiscal year 2012 of $79 million to $107 million in fiscal year 2014 (or a 35-percent increase)  As detailed on the fiscal year 2014 reprogramming request, the Department of Defense Education Activity attributed the increased cost to the volatile construction climate in Japan caused by natural disasters; Japanese government policies, economic stimulus, and reform; and the planned developments for the 2020 Tokyo Olympic Games  Although this project is not owned by any of the military departments, it is being managed by the Army Corps of Engineers in its role as a DOD construction agent through which it plays an important role in the development of the construction cost estimate  The Department of Defense Education Activity is the project owner and the Army Corps of Engineers is the construction agent  To determine the reliability of the cost estimates for these three selected projects, we assessed the cost estimates against the best practices for developing a reliable estimate in our Cost Guide  As previously discussed, the Cost Guide defines the four characteristics— comprehensive, well documented, accurate, and credible—of a reliable cost estimate and the associated best practices related to each characteristic  In conducting these assessments, we examined both the Form 1391 estimate (i e , the estimate used to develop the budget) and the independent government estimate i e , (the estimate used to award the contract) for each project  Our analysis of the cost estimates for the three selected projects shows that the cost estimators did not follow all the best practices listed for each of the four characteristics  As a result, none of the characteristics were fully or substantially met  To be reliable, a cost estimate must substantially or fully meet each of the four characteristics  As the Cost Guide states, if any of the characteristics are not met, minimally met, or partially met, then the cost estimate does not fully reflect the characteristics of a high-quality estimate and cannot be considered reliable  Table 7 provides the results of our assessment of the cost estimates for each of the three selected projects  The Cost Guide also identifies 12 steps that, when incorporated into an agency’s cost estimating procedures and guidance, are more likely to result in reliable and valid cost estimates  However, our analysis of DOD’s department-wide cost estimating guidance—the Unified Facilities Criteria—found that the criteria did not include all of these 12 steps  The Unified Facilities Criteria incorporates some of the 12 steps to some degree, but not others, and as a result DOD is at a greater risk of developing estimates that are not reliable  Table 8 provides our assessment of the extent to which DOD’s Unified Facilities Criteria incorporates the 12 steps needed to develop a high-quality, reliable cost estimate  Each of the military departments is required to follow the Unified Facilities Criteria to the greatest extent possible when designing and constructing facilities  However, as shown by the table above, there are shortcomings in these criteria when compared with our Cost Guide  Despite these shortcomings, the military departments have gone beyond the Unified Facilities Criteria and developed their own guidance that more closely aligns with our Cost Guide  For example, for both the “determining the estimating structure” and “obtain the data” steps, we found that all three military departments had developed their own guidance that more closely aligned with the 12 steps than the Unified Criteria did  In addition, some military departments are also making improvements to their cost estimating processes, but these improvements have not been fully implemented yet  For example, the Air Force Civil Engineer Center is implementing a cost estimate improvement plan to include the training of nearly 700 airmen and has conducted a study that directly ties the 12 steps in the Cost Guide to the associated tasks to be completed by the Air Force cost estimator to meet each individual step  However, the actions contained in the cost improvement plan have not been fully implemented and still remain in the concept phase  Similarly, although the Army Corps of Engineers is investigating expanding the use the of cost and schedule risk analysis—which could align with the best practices in the Cost Guide—that the Army currently conducts for selected civil work construction projects to its high-cost military construction projects, the Army has not formally required the use of these tools  In appendix IV, we describe the guidance the military departments have developed beyond the Unified Facilities Criteria  The Cost Guide is designed to establish a consistent methodology that is based on best practices and that can be used across the federal government for developing, managing, and evaluating capital program cost estimates  Air Force and Army Corps of Engineers officials noted that there may be instances in which following all the 12 steps of the Cost Guide for every MILCON project would not be appropriate to the risk level of the project  For example, it may not be realistic or to the military departments’ benefit for the military departments to conduct a sensitivity and uncertainty analysis or develop an independent cost estimate for all the construction projects they initiate every year, especially for low-cost projects  We agree that it may not be suitable to fully apply all 12 of the cost estimating steps in the Cost Guide to all MILCON projects  However, incorporating the 12 steps into the Unified Facilities Criteria would establish consistency across DOD in the cost estimating process by ensuring that, for each MILCON project, each step in the Cost Guide would at least be considered  Furthermore, DOD could choose to establish thresholds—based on, for example, the dollar values of the projects—to guide the services in implementing the 12 steps for the most valuable projects  Skipping or not considering any step of the 12-step cost estimating process, especially for high-value projects such as those in our case studies, increases the risk that cost estimates may use improper assumptions, lack appropriate definition, or be otherwise unreliable  Without improving the Unified Facilities Criteria with respect to cost estimating processes, DOD and the services will not be positioned well to provide reliable cost estimates to DOD and congressional decision- makers  Each year DOD receives billions of dollars in MILCON appropriations to use for projects in the United States and overseas  The quality of project cost estimates are of great importance since those estimates are the basis for DOD’s requests for appropriations  While DOD’s policy is that MILCON cost estimates be prepared as accurately as possible in order to reflect the full cost of constructing DOD facilities, DOD’s Unified Facilities Criteria—the department’s primary construction criteria for developing cost estimates—does not fully incorporate all of the steps needed for producing reliable cost estimates  Until DOD incorporates the 12 steps of high-quality, reliable cost estimating into this department-wide construction criteria, DOD and congressional decision-makers may not have reliable estimates to inform their decisions regarding appropriations and the oversight of projects  We are making one recommendation to DOD: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and the Environment work with DOD’s construction agents, military departments, and other offices to improve DOD’s MILCON cost estimating guidance (i e , DOD’s Unified Facilities Criteria) by fully incorporating all the steps needed for developing high- quality reliable cost estimates  (Recommendation 1) We provided a draft of this report to DOD  In written comments, which are reprinted in their entirety in appendix VI, DOD partially concurred with our recommendation  DOD also provided technical comments that have been incorporated into the report as appropriate  DOD partially concurred with our recommendation to improve its cost estimating guidance by fully incorporating all 12 steps needed for developing high-quality, reliable estimates  DOD stated that it did not believe that it is suitable to fully apply all 12 steps to any construction project due to characteristics of the military construction program that DOD believes differ from those of major system or weapon acquisition programs  However, DOD also stated that it concurred with the intent and general applicability of the twelve steps to military construction and that DOD cost estimating guidance lacks specificity in several of these areas  DOD acknowledged that expanding its cost guidance to more fully incorporate these steps would benefit the military construction program, and that it is planning to address this by revising its cost guidance during Fiscal Year 2019  In our report, we recognize that it may not be appropriate to fully apply all 12 steps to each construction project  For example, it may not be realistic or to the military departments’ benefit to conduct a sensitivity and uncertainty analysis or develop an independent cost estimate for all the construction projects they initiate every year, especially for low-cost projects  Accordingly, we did not recommend that DOD fully apply all 12 steps to each construction project, but rather that it fully incorporate the 12 steps into the Unified Facilities Criteria so that, at least, each step is considered for each project  DOD could then choose to establish thresholds—based on, for example, the dollar values of the projects—to determine for which the 12 steps should be fully applied or other circumstances in which some steps might not be applicable  We believe DOD’s planned revisions will meet the general intent of our recommendation  We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense, the Secretaries of the Army, Navy, and Air Force  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff has any questions about this report, please contact me at (202) 512-4523 or leporeb@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix VI  To examine the active component’s military construction (MILCON) obligations and expended balances, we reviewed MILCON appropriations found in appropriations acts, including accompanying explanatory statements and conference committee reports from fiscal year 2005 through 2016  Further, we analyzed the obligation and disbursement data of the active component‘s MILCON accounts, appropriation status reports, bid savings reports, as well as annual reports from the U S  Department of the Treasury  We also collected and compared project data from each of the active component on projects that had been initiated and completed during fiscal year 2010 through fiscal year 2016  Specifically, we compared the initial estimate as shown on the Form 1391—the form DOD uses to submit requirements and justifications in support of its funding requests to Congress—with the contract award amount and analyzed any differences between the two  To examine the amount of MILCON reprogramming during fiscal years 2010 and 2016 by the active component, we reviewed DOD’s requests to Congress to reprogram MILCON funds from one project to another  We calculated the total number of times such requests were made and the dollar amounts for fiscal year 2010 through fiscal year 2016  We selected this time frame because the reprogramming requests were readily available from DOD  In addition, we judgmentally selected three projects from this same time frame and reviewed accompanying Forms 1391 and the reprogramming requests associated with the projects to illustrate instances in which savings from one MILCON project funded another project  We collected and analyzed data for fiscal years 2005 through 2016 on the active component MILCON appropriations, obligations, and disbursements and we collected reprogramming data for fiscal years 2010 through 2016  We assessed the reliability of the data by interviewing knowledgeable officials about the data and the steps that they had taken to verify the data’s accuracy  We determined that the data were sufficiently reliable for our objectives  To determine the extent to which DOD’s MILCON cost estimates are reliable and DOD’s guidance for producing estimates fully incorporates all of the steps needed for developing reliable estimates, we compared the process for developing three selected projects with the characteristics and best practices for developing a reliable estimate identified in GAO’s Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (the Cost Guide)  This guide is a compilation of cost estimating best practices drawn from across industry and federal government  We selected our projects from the universe of projects that we reasonably expected could have begun execution (i e , projects initiated during fiscal years 2012-2014); projects that were underway, but not substantially completed (i e , between 10- and 75- percent complete); and projects that constituted a significant financial investment (i e , projects with appropriations of $75 million or greater)  Ultimately, of 690 total projects we identified DOD-wide, 13 met these criteria and, from this sample, we selected the 3 projects included in this report: (1) the construction of a replacement elementary school at Camp Foster, Japan; (2) the construction of a Strategic Command operations building at Offutt Air Force Base, Nebraska; and (3) the construction of a Marine Corps command headquarters and cyberspace operations building in Fort Meade, Maryland  In conducting the assessments for these three selected projects, we examined the processes used to develop both the Form 1391 estimate (i e the form DOD uses to submit project-level requirements and justifications in support of its MILCON funding requests to Congress ) and the independent government estimate (i e , the estimate used to award the contract) to determine whether the project cost estimates had the characteristics of a high-quality and reliable cost estimate, as defined in the Cost Guide  These projects are not intended to be a projectable sample, but to illustrate how cost estimates are assessed against best practices  Although the Camp Foster project is not owned by any of the active component, the construction and planning of the project is being led by the Army Corps of Engineers in its capacity as a DOD construction agent and, as such, we decided to include it in our review  Additionally, we reviewed DOD’s Unified Facilities Criteria and the active component’s respective guidance related to MILCON cost estimating and compared them with the steps needed for developing reliable estimates identified in the Cost Guide  We also interviewed military project cost estimators and active component construction agents to discuss the requirements and guidance they follow in preparing, documenting, and reviewing project cost estimates  Table 9 details the documents we reviewed for our cost estimating assessments  We conducted this performance audit from January 2016 to March 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 this appendix we provide the supporting details on the active component’s unobligated and unexpended balances of military construction (MILCON) appropriations for fiscal years 2005 through 2016  We include details on unobligated and unexpended balances by appropriation year and include individual tables for each military department of the active component  Overall, the active component had high obligation and expenditure rates associated with MILCON appropriations that have expired or been canceled  The Army, the Air Force, and the Navy consistently expended over 90 percent of amounts appropriated in fiscal years 2005 through 2011  This appendix also provides supporting details on the active component’s execution of MILCON appropriations for fiscal years 2010 through 2016  Using Department of Defense (DOD) data, we identified two groups of MILCON projects: congressionally directed and other  “Congressionally directed” projects are those MILCON projects specifically identified in an appropriation act, explanatory statement, and/or committee reports accompanying the appropriation act for a specific fiscal year  “Other” projects refer to congressionally directed MILCON projects identified in an appropriation act, explanatory statement, and/or conference committee reports in a previous fiscal year  Overall, the active component obligated about 89 percent of its fiscal years 2010 through 2012 appropriations for congressionally directed projects whose appropriations expired on September 30, 2017  Tables 10 through 12 present detailed information on unexpended and unobligated balances for each military department of the active component’s MILCON appropriation for fiscal years 2005 through 2016, as reported by DOD as of September 30, 2016  Table 10 shows that for fiscal years 2005 through 2012, the Army expended almost all of its MILCON appropriations  Specifically, with the exception of fiscal year 2012, the Army expended at least 90 percent of its appropriations received each fiscal year for 2005 through 2011  Unexpended rates for amounts appropriated for fiscal years 2014 through 2016 vary and unobligated amounts for these years remain available for new obligations  Table 11 shows that, for fiscal years 2005 through 2013, the Air Force expended almost all of its MILCON appropriations  Specifically, the Air Force expended at least 95 percent of its appropriations received each year for fiscal years 2005 through 2011 and also in fiscal year 2013  Unexpended rates for amounts appropriated for fiscal years 2014 through 2016 vary and unobligated amounts for these years remain available for new obligations  Table 12 shows that for fiscal years 2005 through 2012, the Navy expended almost all of its MILCON appropriations  Specifically, the Navy expended at least 90 percent of its appropriations received each fiscal year for 2005 through 2011  Unexpended rates for amounts appropriated for fiscal years 2014 through 2016 vary and unobligated amounts for these years remain available for new obligations  Tables 13 through 15 provide detailed information on budget execution for each active duty military department’s MILCON appropriation for “congressionally directed” and “other” MILCON projects for fiscal years 2010 through 2016, as reported by DOD as of September 30, 2016  Table13 shows the obligations made by the Army for MILCON appropriations for fiscal years 2010 through 2016  We analyzed the obligations made during these appropriations’ period of availability for congressionally directed and other MILCON projects  For fiscal year 2010, using data in the table, we found that about 97 2 percent of obligations were for congressionally directed projects and 2 8 percent were for other projects, as discussed above  In fiscal year 2011, about 94 percent of obligations were for congressionally directed projects and 4 2 percent were for other projects; and in fiscal year 2012, about 86 5 percent of obligations were for congressionally directed projects and 7 2 percent were for other projects  Table 14 shows the obligations made by the Air Force for MILCON appropriations for fiscal years 2010 through 2016  We analyzed the obligations made during these appropriations’ period of availability for congressionally directed and other MILCON projects  For fiscal year 2010, using the data listed in the table, we found that 90 5 percent of obligations were for congressionally directed projects and 7 3 percent were for other projects, as discussed above  In fiscal year 2011, about 84 3 percent of obligations were for congressionally directed projects and 12 9 percent were for other projects; and in fiscal year 2012, about 87 5 percent of obligations were for congressionally directed projects and 9 0 percent were for other projects  Table 15 shows the obligations made by the Navy for MILCON appropriations for fiscal years 2010 through 2016  We analyzed the obligations made during these appropriations’ period of availability for congressionally directed and other MILCON projects  For fiscal year 2010, using data in the table, we found that 84 7 percent of obligations were for congressionally directed projects and 15 0 percent were for other projects, as discussed above  In fiscal year 2011, about 87 7 percent of obligations were for congressionally directed projects and 11 8 percent were for other projects; and in fiscal year 2012, about 85 5 percent of obligations were for congressionally directed projects and 13 4 percent for other projects  This appendix provides information on our analysis of DOD’s estimated initial costs and contract award amounts of projects that had been initiated and completed during fiscal year 2010 through fiscal year 2016 by the active component  An official from the Office of the Assistant Secretary of Defense for Energy, Installations, and Environment told us that, to determine whether initial cost estimates were over- or underestimated, a comparison between initial Form 1391 estimates and contract award amounts would be a valid approach since contract award amounts are, in general, estimates of the same requirements identified on a Form 1391  The official also noted that supervision, inspection, overhead, and contingency costs included on a Form 1391 are not included in contract award amounts, which could create differences between the Form 1391 cost estimates and contract award prices  Because of this, we excluded the supervision, inspection, overhead, and contingency costs from the Form 1391 estimates in the table below to eliminate those differences  Form 1391 cost estimates may also vary from contract award amounts for reasons such as changes in project size or scope, changes in project characteristics, unexpectedly high or low contractor bids, or differences in expected building material costs, among other things  A negative percent change from the Form 1391 estimate to the contract award amount indicates the estimated project cost was overestimated and a positive percent change indicates the project was underestimated  We did not determine the precise reasons for any differences between estimated costs and contract award amounts  Table 16 lists information on 414 completed projects funded with military construction (MILCON) appropriations during fiscal year 2010 through fiscal year 2016 sorted by largest percentage overestimated to largest percentage underestimated  The military departments of the active component have gone beyond the Unified Facilities Criteria and developed their own guidance for military construction (MILCON) that more closely aligns with the 12 steps needed for developing high-quality, reliable estimates  Table 17 describes the guidance developed by the military departments to align with those steps  In addition to the contact named above, Maria Storts, Assistant Director; Bonita Anderson; Shawn Arbogast; Ronald Bergman; Brian Bothwell; Robert Brown; Farrah Graham; Mae Jones; Jennifer Leotta; Amie Lesser; Felicia Lopez; Carol Petersen; Vikki Porter; Steve Pruitt; and Karen Richey made key contributions to this report 
Report 2: " It added that its reliance on an ad hoc approach "scrutinizing the limited number of specific industries during a year, while worthwhile, leaves unexamined many deserving industries for updating and may create over time a set of illogical size standards " The SBA announced that it would begin its analysis of its size standards by assuming that "$6 5 million [later increased to $7 5 million] is an appropriate size standard for those industries with receipts size standards and 500 employees for those industries with employee size standards " It would then analyze the following industry characteristics: "average firm size; average asset size (a proxy for startup costs); competition, as measured by the market share of the four largest firms in the industry; and, the distribution of market share by firm size—that is, are firms in the industry generally very small firms, or dominated by very large firms " Then, before making its final determination on the size standard, it would "examine the participation of small businesses in federal contracting and SBA's guaranteed loan program at the current size standard level  Depending on the level of small business participation, additional consideration may be given to the level of the current size standard and the analysis of industry factors " In April 2009, the SBA announced that was simplifying the administration and use of its size standards by reducing the number of receipts based size standards from 31 to 8 when establishing a new size standard or reviewing an existing size standard: For many years, SBA has been concerned about the complexity of determining small business status caused by a large number of varying receipts based size standards (see 69 FR 13130 (March 4, 2004) and 57 FR 62515 (December 31, 1992))  At the start of current comprehensive size standards review, there were 31 different levels of receipts based size standards  They ranged from $0 75 million to $35 5 million, and many of them applied to one or only a few industries  The SBA believes that to have so many different size standards with small variations among them is unnecessary and difficult to justify analytically  To simplify managing and using size standards, SBA proposes that there be fewer size standard levels  This will produce more common size standards for businesses operating in related industries  This will also result in greater consistency among the size standards for industries that have similar economic characteristics  Under the current comprehensive size standards review, SBA is proposing to establish eight "fixed-level" receipts based size standards: $5 0 million, $7 0 million, $10 0 million, $14 0 million, $19 0 million, $25 5 million, $30 0 million, and $35 5 million  These levels are established by taking into consideration the minimum, maximum and the most commonly used current receipts based size standards  These eight receipts based size standards were increased to $5 5 million, $7 5 million, $11 0 million, $15 0 million, $20 5 million, $27 5 million, $32 5 million, and $38 5 million in 2014 to account for inflation  The SBA also announced that it would use eight employee based size standards when establishing a new size standard or reviewing an existing size standard (no more than 50, 100, 150, 200, 250, 500, 750, and 1,000 employees) instead of seven (no more than 50, 100, 150, 500, 750, 1,000, and 1,500 employees); and continue to use one asset based size standard, one megawatt hours size standard (based on electrical output over the preceding fiscal year), and one size standard based on a combination of the number of employees and barrel per day refining capacity  The SBA also announced that "to simplify size standards further" it "may propose a common size standard for closely related industries " The SBA argued although the size standard analysis may support a separate size standard for each industry, SBA believes that establishing different size standards for closely related industries may not always be appropriate  For example, in cases where many of the same businesses operate in the same multiple industries, a common size standard for those industries might better reflect the Federal marketplace  This might also make size standards among related industries more consistent than separate size standards for each of those industries  Because SBA size standards remain in force until after they are reviewed, the number of size standards did not immediately drop from 41 to 19 in 2009  Instead, the number of size standards began to decline gradually as new size standard final rules were issued  In addition, from 2010 through 2016, the SBA decided, in most instances, not to lower size standards (which would have made it more difficult for businesses to qualify) even if the data supported lowering them because unemployment at that time was relatively high and doing so would "run counter to numerous Congressional and Administration's initiatives and programs to create jobs and boost economic growth " As a result of this policy decision, several size standards that would have otherwise been eliminated remained in place  Also, in 2016, the SBA added a new employee based size standard (no more than 1,250 employees) and reinstated the use of another (no more than 1,500 employees) when establishing a new, or revising an existing, size standard  The SBA's decisions in 2009 to reduce the number of receipts based size standards and to propose a common size standard for closely related industries were opposed by some industry groups  They argued that these policies could lead to the SBA to classify an industry "for the sake of convenience" into a size standard that the agency's own economic analysis indicates should be in a different (easier to qualify) size standard  Congress adopted legislation in 2013 ( P L  112-239 , National Defense Authorization Act for Fiscal Year 2013) that included provisions directing the SBA not to limit the number of size standards and to assign the appropriate size standard to each NAICS industrial classification  The SBA currently has 27 SBA industry size standards in effect (16 receipts based size standards, 9 employee based sized standards, 1 asset based size standard, and 1 size standard based on a combination of the number of employees and barrel per day refining capacity)  That number is expected to increase given the SBA's directive not to limit the number of size standards  As mentioned previously, P L  111-240 requires the SBA to conduct a detailed review of not less than one-third of the SBA's industry size standards during the 18-month period beginning on the date of enactment (September 27, 2010) and during every 18-month period thereafter  The act directs the SBA to "make appropriate adjustments to the size standards" to reflect market conditions, and to report to the House Committee on Small Business and the Senate Committee on Small Business and Entrepreneurship and make publicly available "not later than 30 days" after the completion of each review information regarding the factors evaluated as part of each review, the criteria used for any revised size standard, and why the SBA did, or did not, adjust each size standard that was reviewed  The act also requires the SBA to ensure that each industry size standard is reviewed at least once every five years  On July 7, 2011, the SBA announced that its "comprehensive review of all small business size standards" would begin with the following six industries: Educational Services (final rule was issued on September 24, 2012); Health Care and Social Assistance Services (final rule was issued on September 24, 2012); Real Estate Rental and Leasing (final rule was issued on September 24, 2012); Administrative and Support, Waste Management and Remediation Services (final rule was issued on December 6, 2012); Information (final rule was issued on December 6, 2012); and Utilities (final rule was issued on December 23, 2013)  The SBA subsequently completed size standard reviews for all industries in January 2016 (listed by when the final rule was issued): Professional, Scientific and Technical Services (final rule was issued on February 24, 2012); Transportation and Warehousing (final rule was issued on February 24, 2012); Agriculture, Forestry, Fishing and Hunting (final rule was issued on June 20, 2013); Arts, Entertainment, and Recreation (final rule was issued on June 20, 2013); Finance and Insurance (final rule was issued on June 20, 2013); Management of Companies (final rule was issued on June 20, 2013); Support Activities for Mining (final rule was issued on June 20, 2013); Construction (final rule was issued on December 23, 2013); Wholesale Trade (final rule was issued on January 25, 2016); Industries with Employee Based Size Standards not Part of Manufacturing, Wholesale Trade, or Retail Trade (final rule was issued on January 26, 2016); and Manufacturing (final rule was issued on January 26, 2016)  A summary of the final rules issued for each industry is provided in Table A-1   During the first five-year review cycle, the SBA increased 621 size standards, decreased 3 (to exclude potentially dominant firms from being considered small), and retained 388 at their pre-existing levels  Of the 388 retained size standards, 214 were retained based on the results of the SBA's economic analysis and 174 were retained based on the SBA's policy of generally not lowering any size standard, even though the results of the economic analysis supported lowering them, due to national economic conditions  The SBA has started its second five-year review of its size standards and anticipates issuing its first final rules in the second five-year review cycle in 2019, using new size standard methodology announced in April 2018 (discussed in the next section)  The SBA also announced in April 2018 that its policy of generally not lowering size standards when the analysis indicates that a lower standard is justified would no longer be in force, at least initially, during the second five-year review cycle: the decision to raise, lower, or retain a size standard will primarily be driven by analytical results, with due considerations of public comments, impacts of changes on the affected businesses, and other factors SBA considers important  All of these decisions will be detailed in individual rulemakings  It will take several years to complete the five-year review of all size standards … during which the state of the economy may change  It is, therefore, not possible to state now … what impact, if any, the future economic environment would have on the SBA's policy decision regarding size standards  As mentioned earlier, the SBA, relying on statutory language, defines a small business as a concern that is organized for profit; has a place of business in the United States; operates primarily within the United States or makes a significant contribution to the economy through payment of taxes or use of American products, materials, or labor; is independently owned and operated; and is not dominant in its field on a national basis  The business may be a sole proprietorship, partnership, corporation, or any other legal form  The SBA uses two measures to determine if a business is small: industry specific size standards or a combination of the business's net worth and net income  For example, the SBA's Small Business Investment Company (SBIC) program allows businesses to qualify as small if they meet the SBA's size standard for the industry in which the applicant is primarily engaged, or an alternative net worth and net income based size standard which has been established for the SBIC program  The SBIC's alternative size standard is currently set as a maximum net worth of not more than $19 5 million and average after-tax net income for the preceding two years of not more than $6 5 million  All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard  The SBA decided to apply the net worth and net income measures to the SBIC program "because investment companies evaluate businesses using these measures to decide whether or not to make an investment in them " Businesses participating in the SBA's 504/Certified Development Company (504/CDC) loan guaranty program are to be deemed small if they did not have a tangible net worth in excess of $8 5 million and did not have an average net income in excess of $3 million after taxes for the preceding two years  As discussed below, P L  111-240 increased these threshold amounts on an interim basis to not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes for the two full fiscal years before the date of the application  All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard  Also, before May 5, 2009, businesses participating in the SBA's 7(a) loan guaranty program, including its express programs, were deemed small if they met the SBA's size standards for firms in the industries described in NAICS  Using authority provided under P L  111-5 , the American Recovery and Reinvestment Act of 2009, the SBA temporarily applied the 504/CDC program's size standards as an alternative for 7(a) loans approved from May 5, 2009, through September 30, 2010  Firms applying for a 7(a) loan during that time period qualified as small using either the SBA's industry size standards or the 504/CDC program's size standard  The provision's intent was to enhance the ability of small businesses to access the capital necessary to create and retain jobs during the economic recovery  P L  111-240 made the use of alternative size standards for the 7(a) program permanent  The act directs the SBA to establish an alternative size standard for both the 7(a) and 504/CDC programs that uses maximum tangible net worth and average net income as an alternative to the use of industry standards  The act also establishes, until the date on which the alternative size standard is established, an interim alternative size standard for the 7(a) and 504/CDC programs of not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the application  The SBA Administrator has the authority to establish and modify size standards for particular industries  Overall, about 97% of all employer firms qualify as small under the SBA's size standards  These firms account for about 30% of industry receipts  The SBA generally "prefers to use average annual receipts as a size measure because it measures the value of output of a business and can be easily verified by business tax returns and financial records " However, historically, the SBA has used the number of employees to determine if manufacturing and mining companies are small  Before a proposed change to the size standards can take effect, the SBA's Office of Size Standards (OSS) undertakes an analysis of the change's likely impact on the affected industry, focusing on the industry's overall degree of competition and the competitiveness of the firms within the industry  The analysis includes an assessment of the following four economic factors: "average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms " The SBA also considers the ability of small businesses to compete for federal contracting opportunities and, when necessary, several secondary factors "as they are relevant to the industries and the interests of small businesses, including technological change, competition among industries, industry growth trends, and impacts of size standard revisions on small businesses " The specifics of SBA's size standards methodology have evolved over the years with the availability of new industry and federal procurement data and staff research  For example, the SBA previously presumed less than $7 0 million (increased to less than $7 5 million in 2014 to account for inflation) as an appropriate "anchor" size standard for the services, retail trade, construction, and other industries with receipts based size standards; 500 or fewer employees as an appropriate anchor size standard for the manufacturing, mining and other industries with employee based size standards; and 100 or fewer employees as an appropriate anchor size standard for the wholesale trade industries  These three anchor size standards were used as benchmarks or starting points for the SBA's economic analysis  To the extent an industry displayed "differing industry characteristics," a size standard higher, or in some cases lower, than an anchor size standard was used  In April 2018, the SBA replaced the "anchor" approach with a "percentile" approach, primarily because the anchors were no longer representative of the size standards being used (just 24% of industries with receipt-based size standards and 22% of those with employee based size standards have the anchor size standards) and the anchor approach entails "grouping industries from different NAICS sectors thereby making it inconsistent with section 3(a)(7) of the [Small Business] Act," which limits the SBA's ability to create common size standards by grouping industries below the 4-digit NAICS level  Specifically, when assessing the appropriateness of the current size standards, the SBA now evaluates the structure of each industry in terms of four economic characteristics or factors, namely average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms using the Gini coefficient  For each size standard type     SBA ranks industries both in terms each of the four industry factors and in terms of the existing size standard and computes the 20 th percentile and 80 th percentile values for both  SBA then evaluates each industry by comparing its value for each industry factor to the 20 th percentile and 80 th percentile values for the corresponding factor for industries under a particular type of size standard  If the characteristics of an industry under review within a particular size standard type are similar to the average characteristics of industries within the same size standard type in the 20 th percentile, SBA will consider adopting as an appropriate size standard for that industry the 20 th percentile value of size standards for those industries  For each size standard type, if the industry's characteristics are similar to the average characteristics of industries in the 80 th percentile, SBA will assign a size standard that corresponds to the 80 th percentile in the size standard rankings of industries  A separate size standard is established for each factor based on the amount of differences between the factor value for an industry under a particular size standard type and 20 th percentile and 80 th percentile values for the corresponding factor for all industries in the same type  Specifically, the actual level of the new size standard for each industry factor is derived by a linear interpolation using the 20 th percentile and 80 th percentile values of that factor and corresponding percentiles of size standards  Each calculated size standard will be bounded between the minimum and maximum size standards levels [see Table 2 ]     the calculated value for a receipts based size standard for each industry factor is rounded to the nearest $500,000 and the calculated value for an employee based size standard is rounded to the nearest 50 employees for Manufacturing and industries in other sectors (except Wholesale and Retail Trade) and to the nearest 25 employees for employee based size standards for Wholesale Trade and Retail Trade  The SBA anticipates that its shift from using the anchor approach to the percentile approach will have minimal impact, both in terms of the direction and magnitude of changes, to its industry size standards  Any changes to size standards must follow the rulemaking procedures of the Administrative Procedure Act  A proposed rule changing a size standard is first published in the Federal Register , allowing for public comment  It must include documentation establishing that a significant problem exists that requires a revision of the size standard, plus an economic analysis of the change  Comments from the public, plus any other new information, are reviewed and evaluated before a final rule is promulgated establishing a new size standard  The SBA currently uses employment size to determine eligibility for 505 of 1,036 industries (48 6%), including all 360 manufacturing industries, 24 mining industries, and 71 wholesale trade industries  As of October 1, 2017, 98 manufacturing industries have an upper limit of 500 employees (27 2%); 91 have an upper limit of 750 employees (25 2%); 89 have an upper limit of 1,000 employees (24 7%); 56 have an upper limit of 1,250 employees (15 6%); and 26 have an upper limit of 1,500 employees (7 2%)  3 of the 24 mining industries have an upper limit of 250 employees (12 5%), 7 have an upper limit of 500 employees (29 2%), 7 have an upper limit of 750 employees (29 2%), 2 have an upper limit of 1,000 employees (8 3%), 3 have an upper limit of 1,250 employees (12 5%), and 2 have an upper limit of 1,500 employees (8 3%)  25 of the 71 wholesale trades industries have an upper limit of 100 employees (35 2%), 16 have an upper limit of 150 employees (22 5%), 21 have an upper limit of 200 employees (29 6%), and 9 have an upper limit of 250 employees (12 7%)  The SBA currently has nine employee based industry size standards in effect (no more than 100, 150, 200, 250, 500, 750, 1,000, 1,250, and 1,500 employees)  The SBA uses average annual receipts over the three (soon to be five) most recently completed fiscal years to determine program eligibility for most other industries (526 of 1,036 industries, or 50 8%)  The SBA also uses average asset size as reported in the firm's four quarterly financial statements for the preceding year to determine eligibility for five finance industries, and a combination of number of employees and barrel per day refining capacity for petroleum refineries  The SBA currently has 16 receipts based industry size standards in effect  In some instances, there is considerable variation in the size standards used within each industrial sector  For example, the SBA uses 11 different size standards to determine eligibility for 66 industries in the retail trade sector  In general, most administrative and support service industries have an upper limit of either $15 0 million or $20 5 million in average annual sales or receipts; most agricultural industries have an upper limit of $0 75 million in average annual sales or receipts; most construction of buildings and civil engineering construction industries have an upper limit of $36 5 million in average annual sales or receipts, and most construction specialty trade contractors have an upper limit of $15 0 million in average annual sales or receipts; most educational services industries have an upper limit of either $7 5 million or $11 0 million in average annual sales or receipts; most health care industries have an upper limit of either $7 5 million or $15 0 million in average annual sales or receipts; most social assistance industries have an upper limit of $11 0 million in average annual sales or receipts; there is considerable variation within the professional, scientific, and technical service industries, ranging from an upper limit of $7 5 million in average annual sales or receipts to $38 5 million; there is considerable variation within the transportation and warehousing industrial sector, ranging from an upper limit of $7 5 million in average annual sales or receipts to $38 5 million for 43 industries and from an upper limit of 500 employees to 1,500 employees for 15 industries); and most finance and insurance industries have an upper limit of $38 5 million in average annual sales or receipts  The SBA also applies a $550 million average asset limit (as reported in the firm's four quarterly financial statements for the preceding year) to determine eligibility in five finance industries: commercial banks, saving institutions, credit unions, other depository credit intermediation, and credit card issuing  Many federal statutes provide special considerations for small businesses  For example, small businesses are provided preferences through set-asides and sole source awards in federal contracting and pay lower fees to apply for patents and trademarks  In most instances, businesses are required to meet the SBA's size standards to be considered a small business  However, in some cases, the underlying statute defines the eligibility criteria for defining a small business  In other cases, the statute authorizes the implementing agency to make those determinations  Under current law, a federal agency that decides that it would like to exercise its authority to establish its own size standard through the federal rulemaking process is required to, among other things, (1) undertake an initial regulatory flexibility analysis to determine the potential impact of the proposed rule on small businesses, (2) transmit a copy of the initial regulatory flexibility analysis to the SBA's Chief Counsel for Advocacy for comment, and (3) publish the agency's response to any comments filed by the SBA's Chief Counsel for Advocacy in response to the proposed rule and a detailed statement of any change made to the proposed rule in the final rule as a result of those comments  In addition, the federal agency must provide public notice of the proposed rule and an opportunity for the public to comment on the proposed rule, typically through the publication of an advanced notice of proposed rulemaking in the Federal Register and notification of interested small businesses and related organizations  Also, prior to issuing the final rule, the federal agency must have the approval of the SBA's Administrator  Under current practice, the SBA's Administrator, through the SBA's Office of Size Standards, consults with the SBA's Office of Advocacy prior to making a final decision concerning such requests  The Office of Advocacy is an independent office within the SBA  During the 112 th Congress, H R  585 , the Small Business Size Standard Flexibility Act of 2011, was reported by the House Committee on Small Business on November 16, 2011, by a vote of 13 to 8  The bill would have retained the SBA's Administrator's authority to approve or disapprove size standards for programs under the Small Business Act of 1953 (as amended) and the Small Business Investment Act of 1958 (as amended)  The Office of Chief Counsel for Advocacy would have assumed the SBA Administrator's authority to approve or disapprove size standards for purposes of any other act  Similar legislative provisions have been introduced during the 113 th Congress ( H R  2542 , the Regulatory Flexibility Improvements Act of 2013, and included in H R  4 , the Jobs for America Act), 114 th Congress ( H R  527 , the Small Business Regulatory Flexibility Improvements Act of 2015, and its Senate companion bill, S  1536 ), and 115 th Congress ( H R  33 , the Small Business Regulatory Flexibility Improvements Act of 2017, and its Senate companion bill, S  584 , and included in H R  5 , the Regulatory Accountability Act of 2017)  Advocates of splitting the SBA Administrator's small business size standards' authority between the Office of Chief Counsel for Advocacy and the SBA's Administrator have argued that Should an agency wish to draft a regulation that adopts a size standard different from the one already adopted by the Administrator in regulations implementing the Small Business Act, the agency must obtain approval of the Administrator  However, that requires the Administrator to have a complete understanding of the regulatory regime of that other act—knowledge usually outside the expertise of the SBA  However, the Office of the Chief Counsel for Advocacy, an independent office within the SBA, represents the interests of small businesses in rulemaking proceedings (as part of its responsibility to monitor agency compliance with the Regulatory Flexibility Act, 5 U S C  601-12, (RFA)) does have such expertise  Therefore, it is logical to transfer the limited function on determining size standards of small businesses for purposes other than the Small Business Act and Small Business Investment Act of 1958 to the Office of the Chief Counsel for Advocacy…  the Administrator is not the proper official to determine size standards for purposes of other agencies' regulatory activities  The Administrator is not fluent with the vast array of federal regulatory programs, is not in constant communication with small entities that might be affected by another federal agency's regulatory regime, and does not have the analytical expertise to assess the regulatory impact of a particular size standard on small entities  Furthermore, the Administrator's standards are: very inclusive, not developed to comport with other agencies' regulatory regimes, and lack sufficient granularity to examine the impact of a proposed rule on a spectrum of small businesses  Opponents have argued that When an agency is seeking to use a size standard other than those approved by the SBA, the agency may consult with the Office of Advocacy  Such consultation is sensible, as the Office of Advocacy has significant knowledge of the regulatory environment outside of the canon of SBA law  However, the SBA's Office of Size Standards, with its historical involvement, expertise, and staff resources in this area, remains the appropriate entity to approve such size standards…  While the legislation permits the SBA to continue to approve size standards for its enabling statutes, it removes SBA's authority to do so for other statutes  The result would be to create a duplicate size standard authority in both the SBA and the Office of Advocacy  Both the SBA and the Office of Advocacy would have personnel who would analyze and evaluate size standards  Through the bifurcation of these responsibilities, taxpayers would effectively be forgoing the economies of scale that are currently enjoyed by the operation of a single Office of Size Standards in the SBA…  Having two such entities that have the same mission is not a transfer of function, but an inefficient and duplicative reorganization … Instead of having one central office, there will now be two—further muddling small businesses' relationship with the federal government  Two bills were introduced during the 114 th Congress ( H R  3714 , the Small Agriculture Producer Size Standards Improvements Act of 2015, and H R  4341 , the Defending America's Small Contractors Act of 2016) to authorize the SBA to establish size standards for agricultural enterprises not later than 18 months after the date of enactment  The size standard for agricultural enterprises was, at that time, set in statute as having annual receipts not in excess of $750,000  H R  4341 , among other provisions, would have also limited an industry category to a greater extent than provided under the North American Industry Classification codes for small business procurement purposes if further segmentation of the industry category is warranted  H R  4341 was introduced on January 7, 2016, and ordered to be reported with amendment by the House Committee on Small Business on January 13, 2016  H R  3714 was introduced on October 8, 2015, considered by the House under suspension of the rules on April 19, 2016, and agreed to by voice vote  P L  114-328 , the National Defense Authorization Act for Fiscal Year 2017, includes a provision which authorizes the SBA to establish different size standards for agricultural enterprises using existing methods and appeal processes  Also, as mentioned previously, P L  115-324 , the Small Business Runway Extension Act of 2018, directs federal agencies proposing a size standard (and, based on report language accompanying the act, presumably the SBA as well) to use the average annual gross receipts from at least the previous five years, instead of the previous three years, when seeking SBA approval to establish a size standard based on annual gross receipts  The SBA has not announced if it will continue to use the average annual gross receipts over three years to determine receipts-based size standards or if it will use the average annual gross receipts from the previous five years  Historically, the SBA has relied on economic analysis of market conditions within each industry to define eligibility for small business assistance  On several occasions in its history, the SBA attempted to revise its small business size standards in a comprehensive manner  However, because (1) the Small Business Act provides leeway in how the SBA is to define small business; (2) there is no consensus on the economic factors that should be used in defining small business; (3) federal agencies have generally opposed size standards that might adversely affect their pool of available small business contractors; and (4) the SBA's initial size standards provided program eligibility to nearly all businesses, the SBA's efforts to undertake a comprehensive reassessment of its size standards met with resistance  Firms that might lose eligibility objected  Federal agencies also objected  As a result, in each instance, the SBA's comprehensive revisions were not fully implemented  The SBA's congressionally mandated requirement to conduct a detailed review of at least one-third of the SBA's industry size standards every 18 months was imposed by P L  111-240 , the Small Business Jobs Act of 2010, to prevent small business size standards from becoming outdated  More frequent reviews of the size standards were expected to increase their accuracy and, generally speaking, result in (1) increased numbers of small businesses found to be eligible for SBA assistance and (2) an increase in the number and amount of federal contracts awarded to small businesses (primarily by preventing large businesses from being misclassified as small and by increasing the number of small businesses eligible to compete for federal contracts)  As expected, the SBA's economic analyses during the recent five-year review cycle often supported an increase in the size standards for many industries  However, the SBA's economic analyses also occasionally supported a decrease in the size standards for some industries  Despite the SBA's decision to, in most circumstances, make no changes when their economic analyses indicated that a decrease was warranted, it could be argued that the increased frequency of the reviews has generally prevented the SBA's size standards from becoming outdated  This, in turn, has, at least to a certain extent, improved the accuracy of the size standards (as measured by the extent to which the size standard is in alignment with the SBA's economic analyses)  In a related matter, the SBA continues to adjust its receipts based size standards for inflation at least once every five years, or more frequently if inflationary circumstances warrant, to prevent firms from losing their small business eligibility solely due to the effects of inflation  The most recent adjustment for inflation took place on July 14, 2014  Prior to that, the last adjustment for inflation took place in 2008  The SBA also continues to review size standards within specific industries whenever it determines that market conditions within that industry have changed  Congress has several options related to the SBA's ongoing review of its size standards  For example, as part of its oversight of the SBA, Congress can wait for the agency to issue its proposed rule before providing input or establish a dialogue with the agency, either at the staff level or with Members involved directly, prior to the issuance of its proposed rule  Historically, Congress has tended to wait for the SBA to issue proposed rules concerning its size standards before providing input, essentially deferring to the agency's expertise in the technical and methodological issues involved in determining where to draw the line between small and large firms  Congress has then tended to respond to the SBA's proposed rules concerning its size standards after taking into consideration current economic conditions and input received from the SBA and affected industries  Waiting for the SBA to issue its proposed rule concerning its size standards before providing congressional input has both advantages and disadvantages  It provides the advantage of insulating the proposed rule from charges that it is influenced by political factors  It also has the advantage of respecting the separation of powers and responsibilities of the executive and legislative branches  However, it has the disadvantage of heightening the prospects for miscommunication, false expectations, and wasted effort, as evidenced by past proposed rules concerning the SBA's size standards that were either rejected outright, or withdrawn, after facing congressional opposition  Another policy option that has not received much congressional attention in recent years, but which Congress may choose to address, is the targeting of the SBA's resources  When the SBA reviews its size standards, it focuses on the competitive nature of the industry under review, with the goal of removing eligibility of firms that are considered large, or dominant, in that industry  There has been relatively little discussion of the costs and benefits of undertaking those reviews with the goal of targeting SBA resources to small businesses in industries that are struggling to remain competitive  GAO recommended this approach in 1978 and Roger Rosenberger, then SBA's associate administrator for policy, planning, and budgeting, testified at a congressional hearing in 1979 that it was debatable whether the SBA should provide any assistance to any of the businesses within industries where "smaller firms are flourishing " Revising the SBA's size standards using this more targeted approach would likely reduce the number of firms eligible for assistance  It would also present the possibility of increasing available benefits to eligible small firms in those industries deemed "mixed" or "concentrated" by the SBA without necessarily increasing overall program costs  Perhaps because previous proposals that would result in a reduction in the number of firms eligible for assistance have met with resistance, this alternative approach to determining program eligibility has not received serious consideration in recent years  Nonetheless, it remains an option available to Congress should it decide to change current policy 

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

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



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

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


Report 2: " It added that its reliance on an ad hoc approach "scrutinizing the limited number of specific industries during a year, while worthwhile, leaves unexamined many deserving industries for updating and may create over time a set of illogical size standards " The SBA announced that it would begin its analysis of its size standards by assuming that "$6 5 million [later increased to $7 5 million] is an appropriate size standard for those industries with receipts size standards and 500 employees for those industries with employee size standards " It would then analyze the following industry characteristics: "average firm size; average asset size (a proxy for startup costs); competition, as measured by the market share of the four largest firms in the industry; and, the distribution of market share by firm size—that is, are firms in the industry generally very small firms, or dominated by very large firms " Then, before making its final determination on the size standard, it would "examine the participation of small businesses in federal contracting and SBA's guaranteed loan program at the current size standard level  Depending on the level of small business participation, additional consideration may be given to the level of the current size standard and the analysis of industry factors " In April 2009, the SBA announced that was simplifying the administration and use of its size standards by reducing the number of receipts based size standards from 31 to 8 when establishing a new size standard or reviewing an existing size standard: For many years, SBA has been concerned about the complexity of determining small business status caused by a large number of varying receipts based size standards (see 69 FR 13130 (March 4, 2004) and 57 FR 62515 (December 31, 1992))  At the start of current comprehensive size standards review, there were 31 different levels of receipts based size standards  They ranged from $0 75 million to $35 5 million, and many of them applied to one or only a few industries  The SBA believes that to have so many different size standards with small variations among them is unnecessary and difficult to justify analytically  To simplify managing and using size standards, SBA proposes that there be fewer size standard levels  This will produce more common size standards for businesses operating in related industries  This will also result in greater consistency among the size standards for industries that have similar economic characteristics  Under the current comprehensive size standards review, SBA is proposing to establish eight "fixed-level" receipts based size standards: $5 0 million, $7 0 million, $10 0 million, $14 0 million, $19 0 million, $25 5 million, $30 0 million, and $35 5 million  These levels are established by taking into consideration the minimum, maximum and the most commonly used current receipts based size standards  These eight receipts based size standards were increased to $5 5 million, $7 5 million, $11 0 million, $15 0 million, $20 5 million, $27 5 million, $32 5 million, and $38 5 million in 2014 to account for inflation  The SBA also announced that it would use eight employee based size standards when establishing a new size standard or reviewing an existing size standard (no more than 50, 100, 150, 200, 250, 500, 750, and 1,000 employees) instead of seven (no more than 50, 100, 150, 500, 750, 1,000, and 1,500 employees); and continue to use one asset based size standard, one megawatt hours size standard (based on electrical output over the preceding fiscal year), and one size standard based on a combination of the number of employees and barrel per day refining capacity  The SBA also announced that "to simplify size standards further" it "may propose a common size standard for closely related industries " The SBA argued although the size standard analysis may support a separate size standard for each industry, SBA believes that establishing different size standards for closely related industries may not always be appropriate  For example, in cases where many of the same businesses operate in the same multiple industries, a common size standard for those industries might better reflect the Federal marketplace  This might also make size standards among related industries more consistent than separate size standards for each of those industries  Because SBA size standards remain in force until after they are reviewed, the number of size standards did not immediately drop from 41 to 19 in 2009  Instead, the number of size standards began to decline gradually as new size standard final rules were issued  In addition, from 2010 through 2016, the SBA decided, in most instances, not to lower size standards (which would have made it more difficult for businesses to qualify) even if the data supported lowering them because unemployment at that time was relatively high and doing so would "run counter to numerous Congressional and Administration's initiatives and programs to create jobs and boost economic growth " As a result of this policy decision, several size standards that would have otherwise been eliminated remained in place  Also, in 2016, the SBA added a new employee based size standard (no more than 1,250 employees) and reinstated the use of another (no more than 1,500 employees) when establishing a new, or revising an existing, size standard  The SBA's decisions in 2009 to reduce the number of receipts based size standards and to propose a common size standard for closely related industries were opposed by some industry groups  They argued that these policies could lead to the SBA to classify an industry "for the sake of convenience" into a size standard that the agency's own economic analysis indicates should be in a different (easier to qualify) size standard  Congress adopted legislation in 2013 ( P L  112-239 , National Defense Authorization Act for Fiscal Year 2013) that included provisions directing the SBA not to limit the number of size standards and to assign the appropriate size standard to each NAICS industrial classification  The SBA currently has 27 SBA industry size standards in effect (16 receipts based size standards, 9 employee based sized standards, 1 asset based size standard, and 1 size standard based on a combination of the number of employees and barrel per day refining capacity)  That number is expected to increase given the SBA's directive not to limit the number of size standards  As mentioned previously, P L  111-240 requires the SBA to conduct a detailed review of not less than one-third of the SBA's industry size standards during the 18-month period beginning on the date of enactment (September 27, 2010) and during every 18-month period thereafter  The act directs the SBA to "make appropriate adjustments to the size standards" to reflect market conditions, and to report to the House Committee on Small Business and the Senate Committee on Small Business and Entrepreneurship and make publicly available "not later than 30 days" after the completion of each review information regarding the factors evaluated as part of each review, the criteria used for any revised size standard, and why the SBA did, or did not, adjust each size standard that was reviewed  The act also requires the SBA to ensure that each industry size standard is reviewed at least once every five years  On July 7, 2011, the SBA announced that its "comprehensive review of all small business size standards" would begin with the following six industries: Educational Services (final rule was issued on September 24, 2012); Health Care and Social Assistance Services (final rule was issued on September 24, 2012); Real Estate Rental and Leasing (final rule was issued on September 24, 2012); Administrative and Support, Waste Management and Remediation Services (final rule was issued on December 6, 2012); Information (final rule was issued on December 6, 2012); and Utilities (final rule was issued on December 23, 2013)  The SBA subsequently completed size standard reviews for all industries in January 2016 (listed by when the final rule was issued): Professional, Scientific and Technical Services (final rule was issued on February 24, 2012); Transportation and Warehousing (final rule was issued on February 24, 2012); Agriculture, Forestry, Fishing and Hunting (final rule was issued on June 20, 2013); Arts, Entertainment, and Recreation (final rule was issued on June 20, 2013); Finance and Insurance (final rule was issued on June 20, 2013); Management of Companies (final rule was issued on June 20, 2013); Support Activities for Mining (final rule was issued on June 20, 2013); Construction (final rule was issued on December 23, 2013); Wholesale Trade (final rule was issued on January 25, 2016); Industries with Employee Based Size Standards not Part of Manufacturing, Wholesale Trade, or Retail Trade (final rule was issued on January 26, 2016); and Manufacturing (final rule was issued on January 26, 2016)  A summary of the final rules issued for each industry is provided in Table A-1   During the first five-year review cycle, the SBA increased 621 size standards, decreased 3 (to exclude potentially dominant firms from being considered small), and retained 388 at their pre-existing levels  Of the 388 retained size standards, 214 were retained based on the results of the SBA's economic analysis and 174 were retained based on the SBA's policy of generally not lowering any size standard, even though the results of the economic analysis supported lowering them, due to national economic conditions  The SBA has started its second five-year review of its size standards and anticipates issuing its first final rules in the second five-year review cycle in 2019, using new size standard methodology announced in April 2018 (discussed in the next section)  The SBA also announced in April 2018 that its policy of generally not lowering size standards when the analysis indicates that a lower standard is justified would no longer be in force, at least initially, during the second five-year review cycle: the decision to raise, lower, or retain a size standard will primarily be driven by analytical results, with due considerations of public comments, impacts of changes on the affected businesses, and other factors SBA considers important  All of these decisions will be detailed in individual rulemakings  It will take several years to complete the five-year review of all size standards … during which the state of the economy may change  It is, therefore, not possible to state now … what impact, if any, the future economic environment would have on the SBA's policy decision regarding size standards  As mentioned earlier, the SBA, relying on statutory language, defines a small business as a concern that is organized for profit; has a place of business in the United States; operates primarily within the United States or makes a significant contribution to the economy through payment of taxes or use of American products, materials, or labor; is independently owned and operated; and is not dominant in its field on a national basis  The business may be a sole proprietorship, partnership, corporation, or any other legal form  The SBA uses two measures to determine if a business is small: industry specific size standards or a combination of the business's net worth and net income  For example, the SBA's Small Business Investment Company (SBIC) program allows businesses to qualify as small if they meet the SBA's size standard for the industry in which the applicant is primarily engaged, or an alternative net worth and net income based size standard which has been established for the SBIC program  The SBIC's alternative size standard is currently set as a maximum net worth of not more than $19 5 million and average after-tax net income for the preceding two years of not more than $6 5 million  All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard  The SBA decided to apply the net worth and net income measures to the SBIC program "because investment companies evaluate businesses using these measures to decide whether or not to make an investment in them " Businesses participating in the SBA's 504/Certified Development Company (504/CDC) loan guaranty program are to be deemed small if they did not have a tangible net worth in excess of $8 5 million and did not have an average net income in excess of $3 million after taxes for the preceding two years  As discussed below, P L  111-240 increased these threshold amounts on an interim basis to not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes for the two full fiscal years before the date of the application  All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard  Also, before May 5, 2009, businesses participating in the SBA's 7(a) loan guaranty program, including its express programs, were deemed small if they met the SBA's size standards for firms in the industries described in NAICS  Using authority provided under P L  111-5 , the American Recovery and Reinvestment Act of 2009, the SBA temporarily applied the 504/CDC program's size standards as an alternative for 7(a) loans approved from May 5, 2009, through September 30, 2010  Firms applying for a 7(a) loan during that time period qualified as small using either the SBA's industry size standards or the 504/CDC program's size standard  The provision's intent was to enhance the ability of small businesses to access the capital necessary to create and retain jobs during the economic recovery  P L  111-240 made the use of alternative size standards for the 7(a) program permanent  The act directs the SBA to establish an alternative size standard for both the 7(a) and 504/CDC programs that uses maximum tangible net worth and average net income as an alternative to the use of industry standards  The act also establishes, until the date on which the alternative size standard is established, an interim alternative size standard for the 7(a) and 504/CDC programs of not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the application  The SBA Administrator has the authority to establish and modify size standards for particular industries  Overall, about 97% of all employer firms qualify as small under the SBA's size standards  These firms account for about 30% of industry receipts  The SBA generally "prefers to use average annual receipts as a size measure because it measures the value of output of a business and can be easily verified by business tax returns and financial records " However, historically, the SBA has used the number of employees to determine if manufacturing and mining companies are small  Before a proposed change to the size standards can take effect, the SBA's Office of Size Standards (OSS) undertakes an analysis of the change's likely impact on the affected industry, focusing on the industry's overall degree of competition and the competitiveness of the firms within the industry  The analysis includes an assessment of the following four economic factors: "average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms " The SBA also considers the ability of small businesses to compete for federal contracting opportunities and, when necessary, several secondary factors "as they are relevant to the industries and the interests of small businesses, including technological change, competition among industries, industry growth trends, and impacts of size standard revisions on small businesses " The specifics of SBA's size standards methodology have evolved over the years with the availability of new industry and federal procurement data and staff research  For example, the SBA previously presumed less than $7 0 million (increased to less than $7 5 million in 2014 to account for inflation) as an appropriate "anchor" size standard for the services, retail trade, construction, and other industries with receipts based size standards; 500 or fewer employees as an appropriate anchor size standard for the manufacturing, mining and other industries with employee based size standards; and 100 or fewer employees as an appropriate anchor size standard for the wholesale trade industries  These three anchor size standards were used as benchmarks or starting points for the SBA's economic analysis  To the extent an industry displayed "differing industry characteristics," a size standard higher, or in some cases lower, than an anchor size standard was used  In April 2018, the SBA replaced the "anchor" approach with a "percentile" approach, primarily because the anchors were no longer representative of the size standards being used (just 24% of industries with receipt-based size standards and 22% of those with employee based size standards have the anchor size standards) and the anchor approach entails "grouping industries from different NAICS sectors thereby making it inconsistent with section 3(a)(7) of the [Small Business] Act," which limits the SBA's ability to create common size standards by grouping industries below the 4-digit NAICS level  Specifically, when assessing the appropriateness of the current size standards, the SBA now evaluates the structure of each industry in terms of four economic characteristics or factors, namely average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms using the Gini coefficient  For each size standard type     SBA ranks industries both in terms each of the four industry factors and in terms of the existing size standard and computes the 20 th percentile and 80 th percentile values for both  SBA then evaluates each industry by comparing its value for each industry factor to the 20 th percentile and 80 th percentile values for the corresponding factor for industries under a particular type of size standard  If the characteristics of an industry under review within a particular size standard type are similar to the average characteristics of industries within the same size standard type in the 20 th percentile, SBA will consider adopting as an appropriate size standard for that industry the 20 th percentile value of size standards for those industries  For each size standard type, if the industry's characteristics are similar to the average characteristics of industries in the 80 th percentile, SBA will assign a size standard that corresponds to the 80 th percentile in the size standard rankings of industries  A separate size standard is established for each factor based on the amount of differences between the factor value for an industry under a particular size standard type and 20 th percentile and 80 th percentile values for the corresponding factor for all industries in the same type  Specifically, the actual level of the new size standard for each industry factor is derived by a linear interpolation using the 20 th percentile and 80 th percentile values of that factor and corresponding percentiles of size standards  Each calculated size standard will be bounded between the minimum and maximum size standards levels [see Table 2 ]     the calculated value for a receipts based size standard for each industry factor is rounded to the nearest $500,000 and the calculated value for an employee based size standard is rounded to the nearest 50 employees for Manufacturing and industries in other sectors (except Wholesale and Retail Trade) and to the nearest 25 employees for employee based size standards for Wholesale Trade and Retail Trade  The SBA anticipates that its shift from using the anchor approach to the percentile approach will have minimal impact, both in terms of the direction and magnitude of changes, to its industry size standards  Any changes to size standards must follow the rulemaking procedures of the Administrative Procedure Act  A proposed rule changing a size standard is first published in the Federal Register , allowing for public comment  It must include documentation establishing that a significant problem exists that requires a revision of the size standard, plus an economic analysis of the change  Comments from the public, plus any other new information, are reviewed and evaluated before a final rule is promulgated establishing a new size standard  The SBA currently uses employment size to determine eligibility for 505 of 1,036 industries (48 6%), including all 360 manufacturing industries, 24 mining industries, and 71 wholesale trade industries  As of October 1, 2017, 98 manufacturing industries have an upper limit of 500 employees (27 2%); 91 have an upper limit of 750 employees (25 2%); 89 have an upper limit of 1,000 employees (24 7%); 56 have an upper limit of 1,250 employees (15 6%); and 26 have an upper limit of 1,500 employees (7 2%)  3 of the 24 mining industries have an upper limit of 250 employees (12 5%), 7 have an upper limit of 500 employees (29 2%), 7 have an upper limit of 750 employees (29 2%), 2 have an upper limit of 1,000 employees (8 3%), 3 have an upper limit of 1,250 employees (12 5%), and 2 have an upper limit of 1,500 employees (8 3%)  25 of the 71 wholesale trades industries have an upper limit of 100 employees (35 2%), 16 have an upper limit of 150 employees (22 5%), 21 have an upper limit of 200 employees (29 6%), and 9 have an upper limit of 250 employees (12 7%)  The SBA currently has nine employee based industry size standards in effect (no more than 100, 150, 200, 250, 500, 750, 1,000, 1,250, and 1,500 employees)  The SBA uses average annual receipts over the three (soon to be five) most recently completed fiscal years to determine program eligibility for most other industries (526 of 1,036 industries, or 50 8%)  The SBA also uses average asset size as reported in the firm's four quarterly financial statements for the preceding year to determine eligibility for five finance industries, and a combination of number of employees and barrel per day refining capacity for petroleum refineries  The SBA currently has 16 receipts based industry size standards in effect  In some instances, there is considerable variation in the size standards used within each industrial sector  For example, the SBA uses 11 different size standards to determine eligibility for 66 industries in the retail trade sector  In general, most administrative and support service industries have an upper limit of either $15 0 million or $20 5 million in average annual sales or receipts; most agricultural industries have an upper limit of $0 75 million in average annual sales or receipts; most construction of buildings and civil engineering construction industries have an upper limit of $36 5 million in average annual sales or receipts, and most construction specialty trade contractors have an upper limit of $15 0 million in average annual sales or receipts; most educational services industries have an upper limit of either $7 5 million or $11 0 million in average annual sales or receipts; most health care industries have an upper limit of either $7 5 million or $15 0 million in average annual sales or receipts; most social assistance industries have an upper limit of $11 0 million in average annual sales or receipts; there is considerable variation within the professional, scientific, and technical service industries, ranging from an upper limit of $7 5 million in average annual sales or receipts to $38 5 million; there is considerable variation within the transportation and warehousing industrial sector, ranging from an upper limit of $7 5 million in average annual sales or receipts to $38 5 million for 43 industries and from an upper limit of 500 employees to 1,500 employees for 15 industries); and most finance and insurance industries have an upper limit of $38 5 million in average annual sales or receipts  The SBA also applies a $550 million average asset limit (as reported in the firm's four quarterly financial statements for the preceding year) to determine eligibility in five finance industries: commercial banks, saving institutions, credit unions, other depository credit intermediation, and credit card issuing  Many federal statutes provide special considerations for small businesses  For example, small businesses are provided preferences through set-asides and sole source awards in federal contracting and pay lower fees to apply for patents and trademarks  In most instances, businesses are required to meet the SBA's size standards to be considered a small business  However, in some cases, the underlying statute defines the eligibility criteria for defining a small business  In other cases, the statute authorizes the implementing agency to make those determinations  Under current law, a federal agency that decides that it would like to exercise its authority to establish its own size standard through the federal rulemaking process is required to, among other things, (1) undertake an initial regulatory flexibility analysis to determine the potential impact of the proposed rule on small businesses, (2) transmit a copy of the initial regulatory flexibility analysis to the SBA's Chief Counsel for Advocacy for comment, and (3) publish the agency's response to any comments filed by the SBA's Chief Counsel for Advocacy in response to the proposed rule and a detailed statement of any change made to the proposed rule in the final rule as a result of those comments  In addition, the federal agency must provide public notice of the proposed rule and an opportunity for the public to comment on the proposed rule, typically through the publication of an advanced notice of proposed rulemaking in the Federal Register and notification of interested small businesses and related organizations  Also, prior to issuing the final rule, the federal agency must have the approval of the SBA's Administrator  Under current practice, the SBA's Administrator, through the SBA's Office of Size Standards, consults with the SBA's Office of Advocacy prior to making a final decision concerning such requests  The Office of Advocacy is an independent office within the SBA  During the 112 th Congress, H R  585 , the Small Business Size Standard Flexibility Act of 2011, was reported by the House Committee on Small Business on November 16, 2011, by a vote of 13 to 8  The bill would have retained the SBA's Administrator's authority to approve or disapprove size standards for programs under the Small Business Act of 1953 (as amended) and the Small Business Investment Act of 1958 (as amended)  The Office of Chief Counsel for Advocacy would have assumed the SBA Administrator's authority to approve or disapprove size standards for purposes of any other act  Similar legislative provisions have been introduced during the 113 th Congress ( H R  2542 , the Regulatory Flexibility Improvements Act of 2013, and included in H R  4 , the Jobs for America Act), 114 th Congress ( H R  527 , the Small Business Regulatory Flexibility Improvements Act of 2015, and its Senate companion bill, S  1536 ), and 115 th Congress ( H R  33 , the Small Business Regulatory Flexibility Improvements Act of 2017, and its Senate companion bill, S  584 , and included in H R  5 , the Regulatory Accountability Act of 2017)  Advocates of splitting the SBA Administrator's small business size standards' authority between the Office of Chief Counsel for Advocacy and the SBA's Administrator have argued that Should an agency wish to draft a regulation that adopts a size standard different from the one already adopted by the Administrator in regulations implementing the Small Business Act, the agency must obtain approval of the Administrator  However, that requires the Administrator to have a complete understanding of the regulatory regime of that other act—knowledge usually outside the expertise of the SBA  However, the Office of the Chief Counsel for Advocacy, an independent office within the SBA, represents the interests of small businesses in rulemaking proceedings (as part of its responsibility to monitor agency compliance with the Regulatory Flexibility Act, 5 U S C  601-12, (RFA)) does have such expertise  Therefore, it is logical to transfer the limited function on determining size standards of small businesses for purposes other than the Small Business Act and Small Business Investment Act of 1958 to the Office of the Chief Counsel for Advocacy…  the Administrator is not the proper official to determine size standards for purposes of other agencies' regulatory activities  The Administrator is not fluent with the vast array of federal regulatory programs, is not in constant communication with small entities that might be affected by another federal agency's regulatory regime, and does not have the analytical expertise to assess the regulatory impact of a particular size standard on small entities  Furthermore, the Administrator's standards are: very inclusive, not developed to comport with other agencies' regulatory regimes, and lack sufficient granularity to examine the impact of a proposed rule on a spectrum of small businesses  Opponents have argued that When an agency is seeking to use a size standard other than those approved by the SBA, the agency may consult with the Office of Advocacy  Such consultation is sensible, as the Office of Advocacy has significant knowledge of the regulatory environment outside of the canon of SBA law  However, the SBA's Office of Size Standards, with its historical involvement, expertise, and staff resources in this area, remains the appropriate entity to approve such size standards…  While the legislation permits the SBA to continue to approve size standards for its enabling statutes, it removes SBA's authority to do so for other statutes  The result would be to create a duplicate size standard authority in both the SBA and the Office of Advocacy  Both the SBA and the Office of Advocacy would have personnel who would analyze and evaluate size standards  Through the bifurcation of these responsibilities, taxpayers would effectively be forgoing the economies of scale that are currently enjoyed by the operation of a single Office of Size Standards in the SBA…  Having two such entities that have the same mission is not a transfer of function, but an inefficient and duplicative reorganization … Instead of having one central office, there will now be two—further muddling small businesses' relationship with the federal government  Two bills were introduced during the 114 th Congress ( H R  3714 , the Small Agriculture Producer Size Standards Improvements Act of 2015, and H R  4341 , the Defending America's Small Contractors Act of 2016) to authorize the SBA to establish size standards for agricultural enterprises not later than 18 months after the date of enactment  The size standard for agricultural enterprises was, at that time, set in statute as having annual receipts not in excess of $750,000  H R  4341 , among other provisions, would have also limited an industry category to a greater extent than provided under the North American Industry Classification codes for small business procurement purposes if further segmentation of the industry category is warranted  H R  4341 was introduced on January 7, 2016, and ordered to be reported with amendment by the House Committee on Small Business on January 13, 2016  H R  3714 was introduced on October 8, 2015, considered by the House under suspension of the rules on April 19, 2016, and agreed to by voice vote  P L  114-328 , the National Defense Authorization Act for Fiscal Year 2017, includes a provision which authorizes the SBA to establish different size standards for agricultural enterprises using existing methods and appeal processes  Also, as mentioned previously, P L  115-324 , the Small Business Runway Extension Act of 2018, directs federal agencies proposing a size standard (and, based on report language accompanying the act, presumably the SBA as well) to use the average annual gross receipts from at least the previous five years, instead of the previous three years, when seeking SBA approval to establish a size standard based on annual gross receipts  The SBA has not announced if it will continue to use the average annual gross receipts over three years to determine receipts-based size standards or if it will use the average annual gross receipts from the previous five years  Historically, the SBA has relied on economic analysis of market conditions within each industry to define eligibility for small business assistance  On several occasions in its history, the SBA attempted to revise its small business size standards in a comprehensive manner  However, because (1) the Small Business Act provides leeway in how the SBA is to define small business; (2) there is no consensus on the economic factors that should be used in defining small business; (3) federal agencies have generally opposed size standards that might adversely affect their pool of available small business contractors; and (4) the SBA's initial size standards provided program eligibility to nearly all businesses, the SBA's efforts to undertake a comprehensive reassessment of its size standards met with resistance  Firms that might lose eligibility objected  Federal agencies also objected  As a result, in each instance, the SBA's comprehensive revisions were not fully implemented  The SBA's congressionally mandated requirement to conduct a detailed review of at least one-third of the SBA's industry size standards every 18 months was imposed by P L  111-240 , the Small Business Jobs Act of 2010, to prevent small business size standards from becoming outdated  More frequent reviews of the size standards were expected to increase their accuracy and, generally speaking, result in (1) increased numbers of small businesses found to be eligible for SBA assistance and (2) an increase in the number and amount of federal contracts awarded to small businesses (primarily by preventing large businesses from being misclassified as small and by increasing the number of small businesses eligible to compete for federal contracts)  As expected, the SBA's economic analyses during the recent five-year review cycle often supported an increase in the size standards for many industries  However, the SBA's economic analyses also occasionally supported a decrease in the size standards for some industries  Despite the SBA's decision to, in most circumstances, make no changes when their economic analyses indicated that a decrease was warranted, it could be argued that the increased frequency of the reviews has generally prevented the SBA's size standards from becoming outdated  This, in turn, has, at least to a certain extent, improved the accuracy of the size standards (as measured by the extent to which the size standard is in alignment with the SBA's economic analyses)  In a related matter, the SBA continues to adjust its receipts based size standards for inflation at least once every five years, or more frequently if inflationary circumstances warrant, to prevent firms from losing their small business eligibility solely due to the effects of inflation  The most recent adjustment for inflation took place on July 14, 2014  Prior to that, the last adjustment for inflation took place in 2008  The SBA also continues to review size standards within specific industries whenever it determines that market conditions within that industry have changed  Congress has several options related to the SBA's ongoing review of its size standards  For example, as part of its oversight of the SBA, Congress can wait for the agency to issue its proposed rule before providing input or establish a dialogue with the agency, either at the staff level or with Members involved directly, prior to the issuance of its proposed rule  Historically, Congress has tended to wait for the SBA to issue proposed rules concerning its size standards before providing input, essentially deferring to the agency's expertise in the technical and methodological issues involved in determining where to draw the line between small and large firms  Congress has then tended to respond to the SBA's proposed rules concerning its size standards after taking into consideration current economic conditions and input received from the SBA and affected industries  Waiting for the SBA to issue its proposed rule concerning its size standards before providing congressional input has both advantages and disadvantages  It provides the advantage of insulating the proposed rule from charges that it is influenced by political factors  It also has the advantage of respecting the separation of powers and responsibilities of the executive and legislative branches  However, it has the disadvantage of heightening the prospects for miscommunication, false expectations, and wasted effort, as evidenced by past proposed rules concerning the SBA's size standards that were either rejected outright, or withdrawn, after facing congressional opposition  Another policy option that has not received much congressional attention in recent years, but which Congress may choose to address, is the targeting of the SBA's resources  When the SBA reviews its size standards, it focuses on the competitive nature of the industry under review, with the goal of removing eligibility of firms that are considered large, or dominant, in that industry  There has been relatively little discussion of the costs and benefits of undertaking those reviews with the goal of targeting SBA resources to small businesses in industries that are struggling to remain competitive  GAO recommended this approach in 1978 and Roger Rosenberger, then SBA's associate administrator for policy, planning, and budgeting, testified at a congressional hearing in 1979 that it was debatable whether the SBA should provide any assistance to any of the businesses within industries where "smaller firms are flourishing " Revising the SBA's size standards using this more targeted approach would likely reduce the number of firms eligible for assistance  It would also present the possibility of increasing available benefits to eligible small firms in those industries deemed "mixed" or "concentrated" by the SBA without necessarily increasing overall program costs  Perhaps because previous proposals that would result in a reduction in the number of firms eligible for assistance have met with resistance, this alternative approach to determining program eligibility has not received serious consideration in recent years  Nonetheless, it remains an option available to Congress should it decide to change current policy 

ground_truth: Between fiscal years 2005 and 2016, Congress annually appropriated between $2.5 to $9.6 billion in MILCON funding for the active component of the U.S. military to use for projects worldwide. Reliable project construction cost estimates are of great importance, since those estimates drive these appropriations. House Report 114-537 accompanying a proposed bill authorizing national defense activities for fiscal year 2017 included a provision for GAO to report on DOD's MILCON cost estimating. This report examines the extent to which (1) the active component obligated and expended the MILCON appropriations received during fiscal years 2005-2016, (2) the active component reprogrammed MILCON appropriations during fiscal years 2010 through 2016, and (3) DOD's MILCON cost estimates are reliable for selected projects and DOD's guidance for developing estimates fully incorporates the steps needed for developing reliable estimates. GAO analyzed the active components' MILCON execution data and reviewed DOD's guidance for cost estimating and compared it with the best practices identified in GAO's Cost Estimating and Assessment Guide . During fiscal years 2005 through 2016, Congress appropriated about $66 billion in military construction funds (MILCON) to the active duty Army, Navy, and Air Force (referred to as the active component) for projects. As of September 30, 2016, the active component had obligated all but about $5.1 billion and expended all but about $11 billion of those funds. Of the $5.1 billion remaining unobligated, about $4.6 billion was still available to be obligated because MILCON appropriations are generally available for new obligations for 5 years. According to Department of Defense (DOD) officials, available but unobligated amounts no longer needed may be either taken back by Congress or reprogrammed to other MILCON projects that the active component identifies as needing additional funding. During fiscal years 2010 through 2016, the active component reprogrammed about $1.6 billion in MILCON appropriations to fund emergency projects, projects that were authorized but did not receive specific appropriations, and projects needing additional funding. Of this amount, the Army reprogrammed about $789 million; the Navy, about $535 million; and the Air Force, about $295 million. DOD's guidance does not fully incorporate the steps needed for developing reliable estimates and the estimates for three projects that GAO reviewed were not reliable. Specifically, two of the three high-value projects GAO examined experienced a more than 30-percent increase from the initial cost estimates submitted to Congress. GAO determined that DOD cost estimators did not follow all the best practices associated with the four characteristics—comprehensive, well-documented, accurate, and credible—of a reliable estimate for these projects. GAO's Cost Estimating and Assessment Guide identifies 12 steps that, if used, are more likely to result in reliable and valid cost estimates. However, as shown below, DOD's construction guidance—the Unified Facilities Criteria—does not include all of these steps. Until DOD incorporates these steps, DOD and congressional decision-makers may not have reliable estimates to inform their decisions regarding appropriations and the oversight of projects. GAO recommends that DOD ensure that its cost estimating guidance fully incorporate the steps needed for developing reliable cost estimates. DOD partially concurred with GAO's recommendation and stated that it will issue revised cost guidance in fiscal year 2019 that more fully incorporates those steps that would benefit the military construction program.