GAO

United States Government Accountability Office

A

Testimony

Before the Subcommittee on Oversight of Government 

Management, the Federal Workforce, and the District of 

Columbia, Committee on Homeland Security and 

Governmental Affairs, U.S. Senate

For Release on Delivery

Expected at 2:30 p.m. EST

Wednesday, March 15, 2006

GAO’S HIGH-RISK 

PROGRAM

Statement of David M. Walker

Comptroller General of the United States

GAO-06-497T
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 15, 2006

GAO’S HIGH-RISK PROGRAM 

Highlights of GAO-06-497T, a testimony 

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce, and the District of Columbia, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

GAO audits and evaluations

identify federal programs and 

operations that in some cases are 

high risk due to their greater 

vulnerabilities to fraud, waste, 

abuse, and mismanagement.

Increasingly, GAO also has 

identified high-risk areas that are in 

need of broad-based 

transformations to address major 

economy, efficiency, or 

effectiveness challenges. Since 

1990 with each new Congress, GAO

has reported on its high-risk list. 

GAO’s most recent update, in

January 2005, presented the 109th

Congress with the latest status of

existing and new high-risk areas 

warranting attention by both the 

Congress and the administration. 

Lasting solutions to high-risk 

problems offer the potential to save 

billions of dollars, dramatically

improve service to the American 

public, strengthen public 

confidence and trust in the

performance and accountability of 

our national government, and 

ensure the ability of government to 

deliver on its promises. 

What GAO Recommends

GAO has made hundreds of 

recommendations related to areas 

it has designated as high risk. 

Perseverance by the administration

in implementing GAO’s 

recommended solutions and 

continued oversight and action by

the Congress are essential.

Our January 2005 high-risk update summarized progress to date in 

addressing high-risk problems, corrective actions under way, and additional 

actions needed. As part of that update, the high-risk designation was 

removed for three areas and four new areas were added to the high-risk list. 

This administration has looked to our high-risk program on various 

initiatives such as the President’s Management Agenda. Also, federal 

departments and agencies have shown a continuing commitment to 

addressing the root causes associated with high-risk challenges. Since GAO’s

last update, OMB has worked with agencies in getting action plans, with 

specific goals and milestones, in place for individual high-risk areas. This

initiative offers potential for noteworthy progress, but implementing and 

sustaining the effort will be key to success. The Congress, too, continues to 

play an important role through its oversight and, where appropriate, 

legislative action targeted at the problems within high-risk areas. More than 

60 hearings involving high-risk areas have taken place since our last update.

Today, GAO is designating a new high-risk area: the National Flood 

Insurance Program. The program, due to the unprecedented magnitude and 

severity of floods resulting from hurricanes in 2005, has incurred recent 

losses. These losses—estimated at $23 billion, more than the total claims

paid in the history of the program—illustrate the risk associated with the 

federal government’s exposure for claims coverage in catastrophic loss 

years. 

This statement also addresses several ongoing high-risk issues: 

• DOD cannot ensure that the more than $200 billion it spends annually is 

used wisely and results in weapon systems and capabilities delivered to 

the warfighter as originally promised, or that its business practices, such 

as the fees paid to its contractors, promote good acquisition outcomes. 

• The Postal Service has made significant progress in addressing some 

challenges related to its transformation efforts and long-term outlook 

but continues to face significant challenges, such as declining First-Class 

Mail volumes and an unsustainable business model, that threaten its 

financial viability. 

• Although DHS has made some progress in the department’s 

transformation and implementation, it continues to face significant 

challenges in several key areas, such as strategic planning, information 

sharing, disaster management and partnering with others. 

• Terminations of large underfunded pension plans have created a $23 

billion deficit for PBGC's Single Employer Insurance Program and 

additional claims seem likely in the near future; legislation is pending to 

address various aspects of these problems.

www.gao.gov/cgi-bin/getrpt?GAO-06-497T.

To view the full product, click on the link 

above. For more information, contact 

George Stalcup at (202) 512-9490 or 

stalcupg@gao.gov. 
GAO’s High-Risk List

Source: GAO.

a

Legislation is likely to be necessary, as a supplement to actions by the executive branch, in order to 

effectively address this high-risk area.

High-Risk Areas

Year designated 

high risk

Addressing Challenges In Broad-based Transformations

• Strategic Human Capital Managementa 2001

• U.S. Postal Service Transformation Efforts and Long-Term Outlooka 2001

• Managing Federal Real Propertya 2003

• Protecting the Federal Government’s Information Systems and the 

Nation’s Critical Infrastructures

1997

• Implementing and Transforming the Department of Homeland 

Security

2003

• Establishing Appropriate and Effective Information-Sharing Mechanisms 

to Improve Homeland Security

2005

• DOD Approach to Business Transformationa 2005

• DOD Business Systems Modernization 1995

• DOD Personnel Security Clearance Program 2005

• DOD Support Infrastructure Management 1997

• DOD Financial Management 1995

• DOD Supply Chain Management 1990

• DOD Weapon Systems Acquisition 1990

Managing Federal Contracting More Effectively 

• DOD Contract Management 1992

• DOE Contract Management 1990

• NASA Contract Management 1990

• Management of Interagency Contracting 2005

Assessing the Efficiency and Effectiveness of Tax Law 

Administration

• Enforcement of Tax Lawsa 1990

• IRS Business Systems Modernization 1995

Modernizing and Safeguarding Insurance and Benefit Programs

• Modernizing Federal Disability Programsa 2003

• Pension Benefit Guaranty Corporation Single-Employer Insurance 

Programa

2003

• Medicare Programa 1990

• Medicaid Programa 2003

• HUD Single-Family Mortgage Insurance and Rental Housing Assistance 

Programs

1994

• National Flood Insurance Program 2006

Other

• FAA Air Traffic Control Modernization 1995
Page 1 GAO-06-497T 

Mr. Chairman, Senator Akaka, Members of the Subcommittee:

Thank you for the opportunity to discuss GAO’s work related to high-risk 

areas identified in our 2005 high-risk update. As you know, we are 

scheduled to provide our next full update in January 2007, at the beginning 

of the 110th Congress. Today, I will talk about continuing efforts to address 

problem areas that we have identified through our high-risk program, 

discuss several individual high-risk issues, as well as a range of emerging 

issues and longer range challenges facing our government. I am also today 

designating a new high-risk area, the National Flood Insurance Program.

I want to commend both of you and this Subcommittee in drawing needed 

attention to these important problems. Since our last update report in 

January 2005, the hearings you have held and follow-up you have done has 

been helpful, particularly for high-risk issues within the Department of 

Defense. 

As you know, this administration has looked to our high-risk program to 

help shape various governmentwide initiatives such as the President’s 

Management Agenda. Clay Johnson, OMB’s Deputy Director for 

Management, has directed agencies to develop action plans, complete with 

goals and milestones for reducing risk in areas GAO has designated as high 

risk. This is very encouraging, although a sustained effort will be needed.

The “high-risk” program was begun in 1990 under the direction of my 

immediate predecessor, the Honorable Charles A. Bowsher. Since 1993, we 

have issued reports providing updates on the program at the onset of each 

new Congress. This effort, which is actively supported by your 

subcommittee, as well as the full Senate Committee on Homeland Security 

and Governmental Affairs and the House Committee on Government 

Reform, has brought a much-needed focus to problems that are impeding 

effective government and costing the taxpayers billions of dollars each 

year. 

During my tenure as Comptroller General, our high-risk program has 

increasingly focused on those major programs and operations that are in 

need of urgent attention and transformation in order to ensure that our 

national government functions in the most economical, efficient, and 

effective manner possible. We also continue to focus on federal programs 

and operations when they are at high risk because of their greater 

vulnerabilities to fraud, waste, abuse, and mismanagement.
Page 2 GAO-06-497T 

As this subcommittee knows, we have made hundreds of recommendations 

to improve these high-risk operations. Moreover, our focus on high-risk 

problems contributed to the Congress enacting a series of governmentwide 

reforms to address critical human capital challenges, strengthen financial 

management, improve information technology practices, and instill a more 

results-oriented government. 

Overall, our high-risk program has served to identify and help resolve 

serious weaknesses in areas that involve substantial resources and provide 

critical services to the public. Since our program began, the government 

has taken high-risk problems more seriously and has made long-needed 

progress toward correcting them. In some cases, progress has been 

sufficient for us to remove the high-risk designation. 

For example, in our most recent update, Student Financial Aid Programs 

was one of the three areas for which we removed the high-risk designation. 

This area had been on the high-risk list since 1990, and provides an 

example of the importance and benefit of a strong management 

commitment and a sustained effort in addressing these often long-standing 

problems. In 1998, the Congress established the Department of Education’s 

(Education) Office of Federal Student Aid as the government’s first 

performance-based organization, thus giving it greater flexibility to better 

address long-standing management weaknesses with student aid programs. 

In 2001, Education created a team of senior managers dedicated to 

addressing key financial and management problems throughout the agency, 

and in 2002, the Secretary of Education made removal from GAO’s high-risk 

list a specific goal and listed it as a performance measure in Education’s 

strategic plan. Education continued to improve the financial management 

of student financial aid programs, taking additional steps to address our 

concerns about systems integration, reporting on defaulted loans, and 

human capital management, which led to the removal of the high-risk 

designation for this area last year.

In fact, 8 of the 16 areas removed from the list over the years were among 

the 14 programs and operations we included on our initial high-risk list in 

1990 at the outset of our program. These results demonstrate that sustained 

attention and commitment by the Congress and agencies to resolving 

serious, long-standing high-risk problems have paid off, as root causes of 

the government’s exposure for over half the areas on our original high-risk 

list have been successfully addressed.
Page 3 GAO-06-497T 

To determine which federal government programs and functions should be 

designated high risk, we used our guidance document, Determining 

Performance and Accountability Challenges and High Risks.1 In 

determining whether a government program or operation is high risk, we 

consider whether it involves national significance or a management 

function that is key to performance and accountability. We also consider 

whether the risk is 

• an inherent problem, such as may arise when the nature of a program 

creates susceptibility to fraud, waste, and abuse, or 

• a systemic problem, such as may arise when the programmatic; 

management support; or financial systems, policies, and procedures 

established by an agency to carry out a program are ineffective, creating 

a material weakness. 

Further, we consider qualitative factors, such as whether the risk

• involves public health or safety, service delivery, national security, 

national defense, economic growth, or privacy or citizens’ rights, or 

• could result in significantly impaired service; program failure; injury or 

loss of life; or significantly reduced economy, efficiency, or 

effectiveness. 

In addition, we also consider the exposure to loss in monetary or other 

quantitative terms. At a minimum, $1 billion must be at risk—major assets, 

revenue sources, and so on.

Before making a high-risk designation, we also consider the corrective 

measures an agency may have planned or under way to resolve a material 

control weakness and the status and effectiveness of these actions. When 

legislative and/or agency actions, including those in response to our 

recommendations, result in significant and sustainable progress toward 

resolving a high-risk problem, we remove the high-risk designation. Key 

determinants here include a demonstrated strong commitment to and top 

leadership support for addressing problems, the capacity to do so, a 

corrective action plan, and demonstrated progress in implementing 

1

GAO, Determining Performance and Accountability Challenges and High Risks, GAO-01-

159SP (Washington, D.C.: November 2000).
Page 4 GAO-06-497T 

corrective measures. These determinations are based on the independent 

and professional judgment of appropriate GAO personnel. Consistent with 

these criteria, we removed the high-risk designation for three areas and 

designated four new high-risk areas as part of our January 2005 update 

report.

Our objective for the high-risk list is to bring “light” to these areas as well as 

“heat” to prompt needed “actions.” 

Long-term Fiscal 

Challenge

The specific issues I will discuss today—indeed, the specific issues we 

discuss in the high-risk reports—all take place in the context of what is 

arguably our greatest risk: the long-term fiscal outlook. We are currently 

on an imprudent and unsustainable fiscal path. We are a debtor nation—

and we are borrowing from abroad at record rates. And on the domestic 

fiscal front the miracle of compounding works against us. This will only get 

worse on our current path. Importantly, if we act before a crisis forces us 

to act, we can, over time, turn compounding from an enemy to potential 

ally. 

GAO’s high-risk series is part of our effort to assist the Congress in dealing 

with one of its important obligations—to exercise prudence and due care in 

connection with taxpayer funds. Even if we were operating in a time of 

surplus, no government should waste its taxpayers’ money. Further, it is 

important for everyone to recognize that waste, fraud, abuse, and 

mismanagement are not victimless activities. Resources are not unlimited, 

and when they are diverted for inappropriate, illegal, inefficient, or 

ineffective purposes, both taxpayers and legitimate program beneficiaries 

are cheated. Both the administration and the Congress have an obligation 

to safeguard benefits for those who deserve them and avoid abuse of 

taxpayer funds by preventing diversions. Beyond preventing obvious 

abuse, the government also has an obligation to modernize its priorities, 

practices, and processes to meet the demands and needs of today’s 

changing world.

While we should have zero tolerance for fraud and abuse, we must also 

recognize that we will never in fact achieve zero fraud and abuse. 

Acknowledging this is not giving in; rather, it means we recognize that 

safeguarding taxpayer funds will be an ongoing effort. 

We should also have zero tolerance for waste—but here we must recognize 

that “waste” is a much more difficult concept than “fraud” or “abuse.” The 
Page 5 GAO-06-497T 

term can be used for things we all would agree are waste—for example, 

paying too much for supplies or unnecessary redundancy or duplication of 

administrative functions. The term is also, however, sometimes used in the 

debate about government activities and priorities. One citizen may see a 

given program or initiative as wasteful while another sees it as an 

important governmental activity. This debate should be part of the 

reexamination of programs and activities. I would suggest that it is 

wasteful to allocate limited revenues based on wants versus needs versus a 

more threat-based, risk-based, or other targeted approach.

In previous testimonies, I have discussed oversight and stewardship of 

taxpayer funds on three levels: 

• vulnerability to fraud, waste, and abuse;

• improving the economy, efficiency, and effectiveness of programs; and

• a fundamental reassessment of government programs and activities—

whether designed as spending programs or tax preferences.

All three levels are important. While the high-risk series is heavily targeted 

to the first two of these, it provides information and insight into the third. 

New High-Risk Area: 

National Flood 

Insurance Program

We will continue to use the high-risk designation to draw attention to the 

challenges associated with the economy, efficiency, and effectiveness of 

government programs and operations in need of broad-based 

transformation. Our list of issues continues to evolve over time. Our 

objective is to reflect important problem areas identified in our work, with 

a goal of identifying the root causes of vulnerabilities and actions needed 

on the part of the agencies involved and, if appropriate, the Congress. In 

this vein, I would like to call your attention to the National Flood Insurance 

Program (NFIP).

• It is highly unlikely that the NFIP will generate sufficient revenues to 

repay funds borrowed from the Treasury to cover claims for the 

unprecedented magnitude and severity of flood losses resulting from 

hurricanes in 2005, as well as any exposure for future claims coverage in 

catastrophic loss years.

• Over the last 15 years we have reported on a variety of issues that affect 

the program, including concerns related to the sufficiency of the 
Page 6 GAO-06-497T 

program’s financial resources, compliance with mandatory purchase 

requirements, the costly impact of repetitive loss properties, and most 

recently our concerns about FEMA’s billion dollar flood map 

modernization efforts and management and oversight of the NFIP. 

• FEMA has taken some steps to address these concerns, for example, by 

working to reduce the number of subsidized properties and repetitive 

loss properties insured by the NFIP, increase participation in the 

program, implement requirements of the Flood Insurance Reform Act of 

20042

 and improve its management and oversight of the program, and 

more strategically plan to update the nation’s flood maps, the foundation 

of the NFIP. Nonetheless, the agency faces long-standing and complex 

challenges that make it likely that these issues will continue. 

For these reasons, we are today designating a new high-risk area: the 

National Flood Insurance Program (NFIP).

The unprecedented magnitude and severity of flood losses resulting from 

hurricanes in 2005 illustrated the extent to which the federal government 

has exposure for flood claims coverage in catastrophic loss years and the 

decision for this designation. The nation’s flood losses in 2005 created 

unprecedented challenges for the Federal Emergency Management Agency 

(FEMA) as the Department of Homeland Security (DHS) organization 

responsible for managing the NFIP. As shown in figure 1, FEMA estimates 

that Hurricanes Katrina, Rita, and Wilma are likely to generate claims and 

associated payments of about $23 billion--far surpassing the total of about 

$15 billion in claims paid in the entire history of the NFIP up to those 

events.

2

Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004, Pub. L. No. 108-264, 

118 Stat. 712 (2004). 
Page 7 GAO-06-497T 

Figure 1: NFIP Claims Payments from 1968 to August 2005 and Estimated Payments 

for Hurricanes Katrina, Rita, and Wilma

About 90 percent of all natural disasters in the United States involve 

flooding. However, flooding is generally excluded from homeowner 

policies that typically cover damage from other losses, such as wind, fire, 

and theft. Because of the catastrophic nature of flooding and the inability 

to adequately predict flood risks, private insurance companies have largely 

been unwilling to underwrite and bear the risk of flood insurance. The 

NFIP, established in 1968, provides property owners with some insurance 

coverage for flood damage. From its inception in 1968 until August 2005, 

the NFIP paid about $15 billion in insurance claims, primarily from 

policyholder premiums that otherwise would have been paid through 

taxpayer-funded disaster relief or borne by home and business owners 

themselves. 

During the 1990s, we reported concerns regarding the NFIP, particularly 

problems related to the sufficiency of the program’s financial resources to 

meet future expected losses and compliance with mandatory purchase 

requirements. Our work has continued to focus on these issues since fiscal 

0

5

10

15

20

25

30

35

40

Claims payments

Dollars in billions

Amount of NFIP payments to claimants estimated for Hurricanes Katrina, Rita, and Wilma in 2005

Amount of NFIP payments to claimants from 1968 to August 2005

Source: GAO analysis of FEMA data.
Page 8 GAO-06-497T 

year 2000, along with issues identified by our work regarding the 

challenges FEMA faces in implementing its $1.5 billion flood map 

modernization efforts and plans to address repetitive loss properties and 

enhance its management and oversight of the program. 

To limit the federal government’s exposure for claims coverage in 

catastrophic loss years, FEMA must continue to provide programs to help 

states, communities, and individuals plan and implement mitigation 

strategies to reduce damage to homes, schools, public buildings, and 

critical facilities from future floods and other hazards for example, by 

encouraging them to (1) adopt and enforce more stringent building codes 

for construction in areas at risk of flooding and stricter development 

regulations and zoning ordinances that steer development away from areas 

at risk of flooding and (2) use public funds to acquire damaged homes or 

businesses in flood-prone areas, demolish or relocate the structures, and 

use properties for open space, wetlands, or recreational uses. FEMA must 

also take effective action to address long-standing program issues and meet 

several major challenges facing the NFIP that we have identified in our 

prior work regarding the inherent solvency of the program, FEMA’s 

management and oversight of the program, and modernizing the nation’s 

flood maps to provide an accurate basis for the NFIP in the future. 

The program’s financial resources are insufficient to meet future expected 

losses, in part because policy subsidies and repetitive loss properties have 

contributed to continuing losses to the program. Specifically, the program 

is not actuarially sound because of the number of policies in force that are 

subsidized—about 29 percent at the time of our 2003 testimony on this 

issue.3

 As a result of these subsidies, some policyholders with dwellings 

that were built before flood plain management regulations were 

established in their communities pay premiums that represent about 35 to 

40 percent of the true risk premium. In January 2006, FEMA estimated a 

shortfall in annual premium income because of policy subsidies at $750 

million. Moreover, at the time of our 2004 testimony,4

 there were about 

49,000 repetitive loss properties—those with two or more losses of $1,000 

or more in a 10-year period—representing about 1 percent of the 4.4 million 

buildings insured under the program. From 1978 until March 2004, these 

3

GAO, Flood Insurance: Challenges Facing the National Flood Insurance Program, GAO03-606T (Washington, D.C.: Apr. 1, 2003).

4

GAO, National Flood Insurance Program: Actions to Address Repetitive Loss Properties, 

GAO-04-401T (Washington, D.C.: Mar. 11, 2004).
Page 9 GAO-06-497T 

repetitive loss properties represented about $4.6 billion in claims 

payments. 

The extent of participation in the program may also contribute to its 

financial insolvency. Specifically, the level of noncompliance with current 

mandatory purchase requirements by affected property owners is unknown 

and voluntary participation in the program is limited. Some in Congress 

have expressed interest in assessing the feasibility of expanding mandatory 

purchase requirements beyond current special high-risk flood hazard areas. 

It is essential that FEMA provide effective management and oversight of 

NFIP operations because the agency largely relies on others to address 

these issues. FEMA’s role for the NFIP is principally one of establishing 

policies and standards that others generally implement on a day-to-day 

basis and providing financial and management oversight of those who carry 

out those day-to-day responsibilities. For example, in our October 2005 

report,5 we said that FEMA faces a challenge in providing effective 

oversight of the 95 insurance companies and thousands of insurance agents 

and claims adjusters who are primarily responsible for the day-to-day 

process of selling and servicing flood insurance policies. 

The unprecedented impact of Hurricane Katrina on hundreds of thousands 

of homeowners in the Gulf Coast has also highlighted the importance of 

FEMA’s efforts to develop accurate, digital flood maps in implementing its 

$1.5 billion Flood Map Modernization program. Accurate, up-to-date flood 

maps are needed for builders and developers to make good decisions on 

where to build and to ensure that property owners have information on the 

flood risks they face in rebuilding entire communities devastated by the 

hurricanes. However, our work6

 and the work of the DHS Inspector 

General7 has shown, among other things, that FEMA faces a major 

challenge in working with its contractor and state and local partners of 

varying technical capabilities and resources to produce accurate digital 

5

GAO, Federal Emergency Management Agency: Improvements Needed to Enhance 

Oversight and Management of the National Flood Insurance Program, GAO-06-119 

(Washington, D.C.: Oct. 18, 2005).

6

GAO, Flood Map Modernization: Program Strategy Shows Promise, but Challenges 

Remain, GAO-04-417 (Washington, D.C.: Mar. 31, 2004).

7

Department of Homeland Security, Office of Inspector General, Office of Information 

Technology, Challenges in FEMA’s Flood Map Modernization Program, OIG-05-44 

(Washington, D.C.: September 2005).
Page 10 GAO-06-497T 

flood maps. In developing those maps, we recommended that FEMA 

develop and implement data standards that will enable FEMA, its 

contractor, and its state and local partners to identify and use consistent 

data collection and analysis methods for developing maps for communities 

with similar flood risk. Some stakeholders have questioned the adequacy of 

FEMA’s estimates of the cost and schedule for completing its map 

modernization efforts. 

FEMA has taken some steps to address these concerns. Regarding its 

efforts to improve the solvency of the program, FEMA reported that the 

number of subsidized properties insured by the NFIP dropped from about 

70 percent in 1978 to about 30 percent in 1999; however, this trend appears 

to have slowed in that since 1999 FEMA reports that the number of 

subsidized properties has only decreased by about 6 percent. Similarly, 

FEMA has made efforts to reduce the number of repetitive loss properties. 

However, FEMA has not yet implemented a pilot program authorized by the 

Flood Insurance Reform Act of 2004 specifically targeting the most 

severely repetitive loss properties, and, in any case, this program will only 

address a small number of these properties. Specifically, about 6,000 

repetitive loss properties that have accounted for about $792 million in 

losses since 1978 could be considered for mitigation efforts funded through 

the pilot program.

FEMA also has efforts under way to increase participation in the NFIP by 

marketing flood insurance policies. However, as noted in a recent 

evaluation of mandatory compliance conducted for FEMA,8

 FEMA does not 

have a central role in implementing the mandatory purchase requirement. 

The evaluation recommended that FEMA should explore opportunities to 

exercise a leadership role in promoting compliance and in assisting the 

federal entities for lending regulation to meet their obligations related to 

the mandatory purchase of flood insurance. 

Regarding FEMA’s management and oversight of the program, the agency is 

implementing the Flood Insurance Reform Act (FIRA) of 2004. However, 

8

American Institutes for Research, The National Flood Insurance Program’s Mandatory 

Purchase Requirement: Policies, Processes, and Stakeholders (Washington, D.C.: March 

2005).
Page 11 GAO-06-497T 

as we noted in our report,9 FEMA’s use of a sampling strategy for quality 

control purposes uses an approach that is not statistically valid, and thus 

does note provide management with the information needed to assess the 

overall performance of the private insurance companies who sell flood 

insurance. FEMA needs this information, including the overall accuracy of 

the underwriting of NFIP policies and the adjustment of claims, to have 

reasonable assurance that program objectives are being achieved. FEMA 

program officials did not agree with our recommendation stating that the 

agency’s method of selecting samples for operational reviews was more 

appropriate than the random probability sample we recommended. 

Regarding map modernization efforts, FEMA issued the Multi-Year Flood 

Hazard Identification Plan10 that describes FEMA’s strategy for updating 

flood maps used for NFIP purposes and addresses several of our 

recommendations. The current version of the plan (version 1.5, issued June 

2005) updates FEMA’s anticipated schedule and funding for flood map 

updates through fiscal year 2009. While the plan establishes levels of risk 

for determining the level of data definition and reliability used for flood 

maps, it does not define criteria (high population, high density, or high 

anticipated growth) or how the agency will apply them in assigning risk 

categories for flood maps to determine the level of data definition and 

reliability needed for future mapping projects. Echoing these concerns, the 

DHS Inspector General in reviewing the plan also concluded, among other 

things, that the plan should be revised to improve the sequencing and 

funding for mapping efforts in high-risk areas.11 Finally, some have 

questioned the adequacy of FEMA’s estimates of the cost and schedule for 

completing its map modernization efforts. For example, the FEMA Office 

of Inspector General reported on this issue in September 2000 noting that 

implementation would cost $750 million between 2001 and 2007. When we 

reported on the plan in March 2004, FEMA’s estimated cost had increased 

to $1 billion for a 5-year program from 2003-2008. By September 2005, when 

the DHS Office of Inspector General reviewed the status of the program, 

the estimated budget was $1.5 billion for a 6 year program extending to 

9

GAO, Federal Emergency Management Agency: Improvements Needed to Enhance 

Oversight and Management of the National Flood Insurance Program, GAO-06-119 

(Washington, D.C.: Oct. 18, 2005).

10Federal Emergency Management Agency, Multi-Year Flood Hazard Identification Plan, 

Draft FY04-FY08, Version 1.0 (Washington, D.C.: November 2004). 

11Department of Homeland Security, Office of Inspector General, Office of Information 

Technology, Challenges in FEMA’s Flood Map Modernization Program.
Page 12 GAO-06-497T 

2009. In testifying on the issue in July 2005, a representative of the 

Association of State Flood Plain Managers cited an analysis conducted by 

the Association in August 2005 which estimated that FEMA’s map 

modernization program could cost as much as $2-3 billion. 

The increasing frequency, severity, and economic impact of flood events on 

the nation place increasing pressure on FEMA and DHS to address these 

concerns and enhance the program’s ability to provide an insurance 

alternative to disaster assistance and reduce future flood damage through 

floodplain management. Under my authority, we are currently reviewing 

the NFIP in light of the unprecedented demands and unique challenges the 

hurricanes of 2005 placed upon FEMA and Gulf Coast communities. As part 

of this effort, we are also reassessing many of the longstanding issues and 

concerns we and others have raised regarding the key aspects of the 

program I have discussed here today. In conducting our review, we have, 

and plan to continue to, coordinate our efforts with this subcommittee and 

other key Congressional stakeholders to ensure that you are informed and 

continue to have the opportunity to provide input to our ongoing efforts. 

The complex and, in many cases, long-standing nature of the management 

challenges associated with the NFIP and the flood map modernization 

program (upon which the NFIP relies for producing accurate and readily 

accessible flood maps) will continue to increase the federal government’s 

exposure to potentially billions of dollars of NFIP claims for coverage in 

future catastrophic loss years. This suggests the need for greater and 

sustained national focus and management attention by both FEMA and 

DHS. Just as flood insurance reform legislation in 199412 and 2004 

mandated changes to improve the effectiveness of, and participation in the 

program, the Congress, too, will continue to play an important role through 

legislative actions needed to assist FEMA and DHS in addressing these 

challenges. Our objective in making this new high-risk designation today is 

to draw that needed attention and, in turn, action.

12National Flood Insurance Reform Act of 1994, Pub. L. No. 103-325, §§ 501-584, 108 Stat. 

2160, 2255-87 (1994).
Page 13 GAO-06-497T 

Status of Other 

Selected High-Risk 

Areas

For other areas on our 2005 high-risk list, efforts to address problems 

continue on several fronts, but major challenges remain. I want to touch on 

several current high-risk issues today.

DOD High-Risk Areas 

Persist

Given its size and mission, the Department of Defense (DOD) is one of the 

largest and most complex organizations to manage in the world. DOD 

spends billions of dollars each year to sustain key business operations that 

support our forces, including information systems and processes related to 

acquisition and contract management, financial management, supply chain 

management, business system modernization, and support infrastructure 

management. Recent and ongoing military operations in Iraq and 

Afghanistan and new homeland defense missions have led to newer and 

higher demands on our forces in a time of growing fiscal challenges for our 

nation. For years, GAO has reported on inefficiencies, such as the lack of 

sustained leadership, the lack of a strategic and integrated business 

transformation plan, and inadequate incentives. Moreover, the lack of 

adequate transparency and appropriate accountability across DOD’s major 

business areas results in billions of dollars of wasted resources annually. To 

its credit, DOD has embarked on a series of efforts to reform its business 

operations, including modernizing underlying information technology 

(business) systems. However, serious challenges and inefficiencies remain. 

In fact, eight individual items on GAO’s high-risk list and several 

government wide high-risk areas apply to DOD. At the highest levels, DOD’s 

civilian and military leaders appear committed to reform; however, the 

department faces significant challenges in achieving its transformation 

goals. In addition, this overall transformation effort will take many years of 

sustained attention by leaders at all levels in order to succeed. 

Management of DOD’s 

Weapon Systems 

Acquisitions and Contractor 

Oversight

One area in particular that I would like to highlight today pertains to DOD’s 

management of its major weapon systems acquisitions and its contractors. 

As the largest buyer in the federal government and as the agency entrusted 

with the nation’s defense, DOD has an obligation to ensure that its funds 

are spent wisely and result in weapons systems and capabilities being 

delivered to the warfighter when needed. Over the last 5 years, DOD has 

doubled its planned investments in new weapon systems from about $700 

billion in 2001 to nearly $1.4 trillion in 2006. Overall, DOD now spends more 

than $200 billion annually on goods and services. While DOD eventually 

fields the best weapon systems in the world, we have consistently reported 
Page 14 GAO-06-497T 

that the programs take significantly longer and cost significantly more 

money and deliver fewer quantities and capabilities than the business cases 

that supported the acquisitions originally promised. Similarly, we have 

reported that DOD is unable to assure that it is using sound business 

practices to acquire the goods and services needed to meet the warfighter’s 

needs. DOD’s policies may incorporate best practices, but its actual 

decisions and actions are not consistent therewith. Unfortunately, DOD 

has a track record of over promising and under delivering in connection 

with key acquisition and other business outcomes.

We have identified DOD’s weapon systems and contract management as 

high-risk areas for more than a decade. While each has some unique issues 

that can be addressed on a case-by-case basis, there are other elements that 

need to be addressed from a broader acquisition context. In this regard, we 

testified earlier this month that the business case and business 

arrangements were key to the success of the Army’s Future Combat System 

(FCS).13 The FCS is a networked family of weapons and other systems in 

the forefront of efforts by the Army to become a lighter, more agile, and 

more capable combat force. In total, projected investment costs for the 

FCS are estimated to be about $200 billion. While we found a number of 

compelling aspects of the FCS program, the elements of a sound business 

case for such an acquisition program—firm requirements, mature 

technologies, a knowledge-based acquisition strategy, a realistic cost 

estimate, and sufficient funding—are not yet present. Similarly, we noted 

that just as important, DOD needed to ensure the FCS’s business 

arrangements, primarily in the nature of the development contract and in 

the lead system integrator approach, preserved the government’s ability to 

make informed business decisions in the future.

We looked at one element of a sound business arrangement—the award 

and incentives fees provided to the contractors to promote excellence in 

performance—in a report issued in December 2005.14 In that report, we 

noted that DOD programs routinely engage in award-fee practices that do 

not hold contractors accountable for achieving desired outcomes and 

undermine efforts to motivate contractor performance, such as 

13GAO, Defense Acquisitions: Business Case and Business Arrangements Key for Future 

Combat System’s Success, GAO-06-478T (Washington, D.C.: Mar. 1, 2006).

14GAO, Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees 

Regardless of Acquisition Outcomes, GAO-06-66 (Washington, D.C.: Dec. 19, 2005).
Page 15 GAO-06-497T 

• evaluating contractors on award-fee criteria that are not directly related 

to key acquisition outcomes (e.g., meeting cost and schedule goals and 

delivering desired capabilities to the warfighter); 

• paying contractors a significant portion of the available fee for what 

award-fee plans describe as “acceptable, average, expected, good, or 

satisfactory” performance; and 

• giving contractors at least a second opportunity to earn initially 

unearned or deferred fees. 

As a result, DOD paid out an estimated $8 billion in award fees on contracts 

in GAO’s study population, regardless of whether acquisition outcomes fell 

short of, met, or exceeded DOD’s expectations. 

We have identified numerous other examples in which DOD failed to 

execute its contracts properly, creating unnecessary risks and paying 

higher prices than justified. For example, in March 2005, we reported that 

deficiencies in DOD’s oversight of service contractors placed DOD at risk 

of paying the contractors more than the value of the services they 

performed.15 In other reports, we identified numerous issues in DOD’s use 

of interagency contracting vehicles that contributed to poor acquisition 

outcomes.16

These issues, along with those we have identified in DOD’s acquisition and 

business management processes, present a compelling case for change.17

By implementing the recommendations we have made on individual issues, 

DOD can improve specific processes and activities. At the same time, by 

working more broadly to improve its acquisition practices, DOD can set the 

right conditions for becoming a smarter buyer, getting better acquisition 

outcomes, and making more efficient use of its resources in what is sure to 

be a more fiscally constrained environment. Then, assessments such as the 

15GAO, Contract Management: Opportunities to Improve Surveillance on Department of 

Defense Service Contracts, GAO-05-274 (Washington, D.C.: Mar.17, 2005).

16GAO, Interagency Contracting: Problems with DOD’s and Interior’s Orders to Support 

Military Operations, GAO-05-201 (Washington, D.C.: Apr. 29, 2005), and Interagency 

Contracting: Franchise Funds Provide Convenience, but Value to DOD is Not 

Demonstrated, GAO-05-456 (Washington, D.C.: July 29, 2005).

17GAO, DOD Acquisition Outcomes: A Case for Change, GAO-06-257T (Washington, D.C.: 

Nov.15, 2005).
Page 16 GAO-06-497T 

Quadrennial Defense Review can be valuable. Unless changes are made, 

however, DOD will continue on a course where wants, needs, and 

affordability are mismatched, with predictably unsatisfactory results.

U.S. Postal Service 

Transformation Efforts and 

Long-term Outlook

In 2001, we placed the Postal Service’s (the Service) transformation and 

long-term outlook on our high-risk list because it faced formidable 

financial, operational, and human capital challenges that threatened its 

long-term viability. We called for prompt, aggressive action by the Service 

in addressing these challenges and for a structural transformation that 

would modernize the Service’s outdated business model. Since then, the 

Service has made significant progress in addressing some of the challenges 

we identified, such as cutting costs, improving productivity, downsizing its 

workforce, and improving its financial reporting. Much of the Service’s 

recent financial success, however, was due to legislation passed in 2003 

that reduced the Service’s annual pension benefit payments, thus enabling 

the Service to achieve record net incomes, repay over $11 billion of 

outstanding debt, and delay rate increases until January 2006. Despite the 

temporary relief provided by the legislation, the Service continues to face 

many challenges that will increase pressure for rate increases both in the 

short term and over time. These challenges include

• generating sufficient revenues as First-Class Mail volume declines and 

the mail mix changes to volume growth in primarily lower contribution 

mail; 

• controlling costs and improving productivity as growth in expenses 

continues to outpace revenues; compensation and benefit costs rise; 

workhour reductions become more difficult to realize and the number 

of delivery points continues to increase;

• addressing other financial issues, such as growing unfunded retiree 

health obligations, required multi-billion dollar escrow payments, and 

military service pension obligations;

• managing workforce changes related to retirements and network 

consolidations;

• providing reliable data to assess performance; 

• maintaining high-quality universal services; and
Page 17 GAO-06-497T 

• addressing external uncertainties, such as pending postal reform 

legislation, four vacancies on the Postal Service’s Board of Governors, 

and potential security risks from biohazard and other threats.

Recently, the Service issued an updated Strategic Transformation Plan 

(Plan) that details its goals and strategies for the next 5 years. We support 

the intent of the Plan, including the Service’s recent efforts to begin 

optimizing its operating network. However, as we recently reported, the 

success of the Service’s optimization efforts will require enhanced 

transparency of its decision-making criteria, effective coordination with all 

key stakeholders, and a process for evaluating and measuring performance. 

Furthermore, we continue to believe that the Plan’s incremental steps 

alone cannot remedy the major challenges facing the Service. Despite its 

efforts, the Service’s underlying business model depends on growing mail 

volume to mitigate rate increases and cover its universal service costs. This 

model is unsustainable because it lacks the necessary incentives and 

flexibilities to achieve sufficient cost savings needed to offset growing 

personnel costs, declining mail volumes, and the continued expansion of 

the Service’s delivery network. We continue to believe that comprehensive 

postal reform is urgently needed to modernize the Service’s business 

model. 

Recognizing that the future of postal services remains at risk, the House 

and Senate have each passed postal reform bills that now are pending 

conference deliberations. Both bills would give the Service additional 

flexibility in pricing and allow it to retain earnings, create incentives to 

reduce costs and increase efficiency, reduce the administrative burden of 

the rate-making process, enhance transparency and accountability, 

eliminate the escrow fund, transfer military service pension costs back to 

the Department of the Treasury (the Treasury), and begin prefunding 

retiree health benefits. The legislation aims to encourage cost cutting that 

could restrain future rate increases and also improves the fairness and 

balance of cost burdens for current and future ratepayers by beginning to 

prefund retiree health benefits. It is important that this legislation be 

enacted as soon as possible to begin the Service’s overdue transition to a 

modernized business model. Although the legislation may result in shortterm rate increases, these increases are likely to be more modest and 

predictable than the significant and frequent rate increases that would be 

needed if no action is taken to eliminate the escrow requirement, transfer 

military service pension costs back to the Treasury, and begin prefunding 

growing retiree health benefit obligations.
Page 18 GAO-06-497T 

Implementing and 

Transforming DHS

We designated DHS’s transformation as a high-risk area in 2003 because 

DHS had to transform 22 agencies into one department, DHS inherited a 

number of operational and management challenges from its component 

legacy components, and failure to effectively address its management 

challenges and program risks could have serious consequences for our 

national security. Overall, DHS has made some progress, but continues to 

face serious challenges in several key areas, such as strategic planning, 

management, programmatic areas, and forming effective partnerships to 

achieve desired outcomes.

• DHS’s strategic plan does not detail the associated resources necessary 

to carry out its mission and achieve its strategic goals and to 

demonstrate the viability of the strategies and approaches presented for 

achieving its long-term goals. In addition, stakeholder involvement in 

the planning processes of DHS programs requiring stakeholder 

coordination to implement has been limited. Also, DHS has called for 

risk-based approaches to prioritize its resource investments for critical 

infrastructure. However, while some components of DHS have taken 

initial steps to apply elements of risk management to operations and 

decision making, DHS has not completed a comprehensive national 

threat and risk assessment for the department. Any risk-based approach 

must involve efforts from and commitment by DHS, the administration, 

and the Congress. Moreover, DHS continues to face challenges in 

sustained leadership.

• Further, key areas of management pose challenges for DHS leadership, 

including financial management, information technology, and human 

capital and acquisitions. For example, DHS continues to face significant 

financial reporting problems, as evidenced by the disclaimer opinion on 

its consolidated financial statements in fiscal years 2005 and 2004 and 

continuing financial reporting deficiencies at Immigration and Customs 

Enforcement and the Coast Guard. DHS has made progress in 

implementing key federal information security requirements, yet it 

continues to face challenges in fulfilling the requirements mandated by 

the Federal Information Security Management Act. The district court 

has partially enjoined DHS’s implementation of its human capital 

management system, and the lack of clear accountability hampers DHS’s 

efforts to integrate the acquisition functions of its numerous 

organizations into an effective whole

• Key challenges remain in DHS programmatic areas. A number of 

challenges that had been experienced by the Immigration and 
Page 19 GAO-06-497T 

Naturalization Service have continued in the new organizations now 

responsible for immigration enforcement functions. Several factors limit 

Customs and Border Protection’s ability to successfully target 

containers to determine if they are high risk, including staffing 

imbalances. Although DHS has crafted a strategic plan to show how USVISIT is aligned with DHS’s mission goals and operations, the plan has 

yet to be approved, causing its integration with other departmentwide 

border security initiatives to remain unclear. In addition, delays by the 

Transportation Security Administration continue in deploying 

technologies at checkpoints to screen for explosives on the body. 

• Finally, in the area of partnering, the response to Hurricane Katrina 

demonstrated that DHS also faces challenges when coordinating efforts 

across the federal government. During incidents of national 

significance, including Hurricane Katrina, the overall coordination of 

federal incident management activities is executed through the 

Secretary of Homeland Security. Other federal departments and 

agencies are to cooperate with the secretary in the secretary’s domestic 

incident management role. Our initial field work on the response to 

Hurricane Katrina indicates that a lack of clarity in roles and 

responsibility resulted in disjointed efforts of many federal agencies 

involved in the response, a myriad of approaches and processes for 

requesting and providing assistance, and confusion about who should be 

advised of requests and what resources would be provided within 

specific time frames.

PBGC Single-Employer 

Insurance Program

We first designated the Pension Benefit Guaranty Corporation (PBGC)’s 

single-employer insurance program—a program that insures benefits for 

34.2 million workers and retirees in about 28,800 defined benefit pension 

plans— for the high risk list in July 2003 because of concerns about its 

long-term financial viability. The program remains high risk as the 

program’s financial condition has worsened from a $9.7 billion surplus in 

2000 to nearly a $22.8 billion accumulated deficit as of the end of fiscal year 

2005. Recent years have produced several terminations of large 

underfunded plans and the strong likelihood of additional terminations in 

the near future. While cyclical economic conditions have contributed to the 

program’s financial troubles, it remains threatened by the results of 

globalization and deregulation or competitive restructuring of industries 

that have led to the bankruptcy of sponsors with large underfunded plans 

and a regulatory framework that has permitted sponsors to defer plan 

contributions. For example, total underfunding among insured single-
Page 20 GAO-06-497T 

employer plans has exceeded $450 billion over the last two fiscal years; 

$108 billion of the underfunding is attributable to plans sponsored by 

companies whose credit quality is below investment grade. 

Both the House and Senate recently passed comprehensive pension reform 

bills, each with different features that must be resolved in conference. The 

bills address many areas of concern that we previously highlighted, 

including the appropriate interest rates for liability valuation, more 

credible funding standards, increased premiums, addressing the funding of 

shutdown benefits, improving the timeliness of disclosures to participants, 

and clarifying the uncertain legal environment for hybrid pension plans. A 

consequence of even carefully crafted and well balanced reform is that 

some additional sponsors could choose to terminate their plans in a 

defined benefit system that has already seen declines in participation. 

However, such reform remains an important first step to maintaining a 

financially stable pension system that protects the retirement benefits of 

workers and retirees by providing employers reasonable funding flexibility 

in return for enhanced transparency and accountability for meeting the 

promises they make to their employees.

In many ways, the problems facing PBGC’s single-employer program 

highlight the broader challenges confronting 21st century American 

retirement security. These challenges, including the long term financial 

weakness of Social Security and Medicare, the decline of the private 

defined benefit pension system, and our poor personal saving rate (which 

was negative in 2005), are severe and structural in nature. Unaddressed, 

these problems will not only erode the retirement safety net that was 

painstakingly built over several generations but threaten our nation’s future 

economic security and thus the basic living standards of the American 

people.

Emerging Issues In addition to specific areas that we have designated as high risk, there are 

other important broad-based challenges facing our government that are 

serious and merit continuing close attention. One of these involves the use 

of risk management, a strategy for helping policymakers make investment 

and other decisions by assessing risks, evaluating alternatives, and taking 

actions under conditions of uncertainty. Risk management has applications 

for deliberate acts of terror as well as natural disasters, such as hurricanes 

and earthquakes. We have recently advocated using a risk management 

framework for making investment decisions to develop capabilities and the 

expertise to use them to respond to catastrophic disasters, such as 
Page 21 GAO-06-497T 

Hurricane Katrina.18 Such a strategy has been endorsed by the Congress 

and the President as a way to strengthen the nation against possible 

terrorist attacks. In this regard, DHS has been charged with establishing a 

risk management framework across the federal government to protect the 

nation’s critical infrastructure and key resources. DHS’s work is done in a 

setting where substantial gaps in security remain, but resources for closing 

these gaps are limited. Within this context, in January of last year, we 

noted that DHS had not completed risk assessments to set priorities on 

where scarce resources were most needed. Our December 2005 report 

examined the risk management efforts of DHS and found that while a great 

amount of effort has been expended, there is a long way to go in 

implementing risk management in a way that helps inform decisions on 

programs and resource allocation.19 The most progress has been made in 

assessing risks of individual assets, such as port facilities and oil refineries. 

However, translating this information into comparisons and priorities 

across assets and infrastructure sectors remains a major challenge. DHS is 

unable to provide adequate assurance to the Congress or the country that 

the federal government is in a position to effectively manage risk in 

national security efforts. 

DHS has much more to do to more effectively manage risk as part of its 

homeland security responsibilities within current and expected resource 

levels. In the short term, progress depends heavily on continuing to 

improve policies and procedures for assessing risks, evaluating 

alternatives, and integrating these efforts into the annual cycle of program 

and budget review. An area that DHS believes needs further attention is 

working with intelligence communities to develop improved analysis and 

data on the relative probability of various threat scenarios. Efforts to 

strengthen data, methodology, and policy would help inform decisions on 

setting relative priorities and on making spending decisions. In the longer 

term, progress will rest heavily on how well DHS coordinates the homeland 

security risk management effort. Currently, various risk assessment 

approaches are being used, and in many ways, these approaches are 

neither consistent nor comparable. DHS has been challenged in 

establishing uniform policies, approaches, guidelines, and methodologies 

18GAO, Hurricane Katrina: GAO’s Preliminary Observations Regarding Preparedness, 

Response, and Recovery, GAO-06-442T (Washington D.C.: March 2006). 

19GAO, Risk Management: Further Refinements Needed to Assess Risks and Prioritize 

Protective Measures at Ports and Other Critical Infrastructure, GAO-06-91 (Washington 

D.C.: Dec. 15, 2005).
Page 22 GAO-06-497T 

for infrastructure protection and risk management activities within and 

across sectors. In addition, integrating disparate systems, such as risk 

management with program and budget management, remains a long-term 

challenge. Shifting organizations toward this nexus of using risk-based data 

as part of annual management review cycles will take time, attention, and 

leadership. The Secretary of DHS has said that operations and budgets of 

its agencies will be reviewed through the prism of risk, but doing this is 

made difficult by the level of guidance and coordination that has been 

provided so far. 

DOD introduced its version of a risk management framework in 2001 to 

enable the department’s senior leadership to better balance near-term 

demands against preparations for the future. However, in November 2005, 

we similarly found that additional steps are needed before this framework 

is fully implemented and DOD can demonstrate real and sustainable 

progress in using a risk-based and results-oriented approach to 

strategically allocate resources across the spectrum of its investment 

priorities within current and expected resource levels.20 We reported that 

while DOD has established four risk areas—force management, 

operational, future challenges, and institutional—as well as certain 

performance goals and measures, DOD’s risk management framework’s 

measures (1) do not clearly demonstrate results, (2) do not provide a wellrounded depiction of performance across the department, and (3) are not 

being systemically monitored across all quadrants. In addition, the 

framework’s performance goals and measures are not clearly linked to 

DOD’s current strategic plan and strategic goals. 

Without better measures, clear linkages, and greater transparency, DOD 

will be unable to fully measure progress in achieving strategic goals or 

demonstrate to the Congress and others how it considered risks and made 

trade-off decisions, balancing needs and costs for weapon system 

programs and other investment priorities. DOD faces four key challenges 

that affect its ability to fully implement the risk management framework, or 

a similar risk-based and results-oriented management approach: 

(1) overcoming cultural resistance to the transformational change 

represented by such an approach in a department as massive, complex, and 

decentralized as DOD; (2) maintaining sustained leadership and clear 

accountability for this cultural transformation; (3) providing 

20GAO, Defense Management: Additional Actions Needed to Enhance DOD’s Risk-Based 

Approach for Making Resource Decisions, GAO-06-13 (Washington, D.C.: Nov. 15, 2005).
Page 23 GAO-06-497T 

implementation goals and timelines to gauge progress in transforming the 

culture; and (4) integrating the risk management framework with decision 

support processes and related reform initiatives into a coherent, unified 

management approach for the department. DOD recently stated in its 

Quadrennial Defense Review (QDR) Report, issued last month, that it is 

now taking advantage of lessons learned from the initial implementation 

phase to refine and develop a more robust framework to enable decision 

making. Unfortunately, our preliminary review of the QDR suggests that 

little progress has been made in choosing between wants, needs, 

affordability, and sustainability in connection with major Defense programs 

and acquisitions. Furthermore, more emphasis needs to be placed on the 

Department’s overall business transformation efforts. We will continue to 

monitor DOD’s efforts in these areas. 

We will also continue to monitor other management challenges identified 

through our work. While not high risk at this time, these areas warrant 

continued attention. For example, at the U.S. Census Bureau (Bureau), a 

number of operational and managerial challenges loom large as the Bureau 

approaches its biggest enumeration challenge yet, the 2010 Census. The 

Bureau will undertake an important census test and make critical 2010 

Census operational and design decisions in the coming months—and we 

will continue to closely monitor the Bureau’s program to assist the 

Congress in its oversight and the Bureau in its decision making.

Both the Executive 

Branch and the 

Congress Have 

Important Roles

Continued focus by both the executive branch and the Congress is needed 

in implementing our recommended solutions for addressing these high-risk 

areas. 

Top administration officials have expressed their commitment to 

maintaining momentum in seeing that high-risk areas receive adequate 

attention and oversight. In fact, the current administration has looked to 

our high-risk program in shaping such major governmentwide initiatives as 

the President’s Management Agenda (PMA), which has at its base many of 

the areas we had previously designated as high risk. For example, in 2001, 

the PMA identified human capital management, an area which we 

designated as a governmentwide high-risk issue earlier that year, as a top 

priority. Following our January 2003 update, in which we designated 

management of federal real property a governmentwide high-risk area, the 

administration added a Federal Asset Management Initiative to the PMA 

and the President signed an executive order aimed at addressing longstanding federal real property management issues.
Page 24 GAO-06-497T 

More recently, the Office of Management and Budget (OMB) has led an 

initiative to prompt agencies to develop detailed action plans for each area 

on our high-risk list. These plans are to identify specific goals and 

milestones to address and reduce the risks identified by us within each 

high-risk area. Further, OMB has encouraged agencies to consult with us 

regarding the problems our past work has identified, and the many 

recommendations for corrective actions they have made. For example, in 

cooperation with OMB, DOD has developed a plan to show progress 

toward the long-term goal of resolving problems and removing supply 

chain management from our list of high-risk areas within the department. 

DOD issued the first iteration of the plan in July 2005 and, since then, has 

regularly updated it. Based on our review of the plan, we believe it is a 

good first step toward improving supply chain management in support of 

the warfighter although the department faces challenges and risks in 

successfully implementing its proposed changes across the department and 

measuring progress. Since our October 2005 testimony before you, we 

have held monthly meetings with DOD and OMB officials to receive 

updates on the plan and gain a greater understanding of the initiatives DOD 

proposes to implement. Progress to date on other individual plans has 

varied, but this initiative offers the potential for helping to foster progress 

on long-needed improvements. Such concerted efforts by agencies and 

ongoing attention by OMB are critical; our experience over the past 15 

years has shown that persistence and perseverance is required to fully 

resolve high-risk areas. 

The Congress, too, will continue to play an important role through its 

oversight and, where appropriate, through various legislative actions, 

particularly in addressing challenges in broad-based transformations. As I 

have repeatedly noted, the creation of a COO/CMO position in select 

agencies, especially the Department of Defense, could help to elevate 

attention on management issues and transformational change, integrate 

various key management and transformation efforts, and institutionalize 

accountability in leading these changes. I am pleased that you have both 

endorsed this concept by introducing legislation to create deputy secretary 

for management positions for the Departments of Defense and Homeland 
Page 25 GAO-06-497T 

Security.21 I continue to believe that there is a strong need for such a senior 

leadership position to provide the continued focus and integrated approach 

required to address the significant and long-standing transformation and 

management challenges facing these departments.

Over the past 13 months, your subcommittee alone has held 5 hearings 

relating to our high-risk areas, covering the list in total as well as individual 

areas in DOD, including personnel security clearances, supply chain 

management, as well as business systems modernization and overall 

business transformation. Together, committees and subcommittees in both 

houses have held more than 60 hearings since our last high-risk update 

report, involving 20 of the 25 areas on GAO’s January 2005 high-risk list. I 

have personally testified in many of these hearings. This level of oversight, 

coupled with related legislation, where appropriate, is very instrumental to 

making real and sustainable progress in these areas.

Forward-looking Focus 

Needed

Addressing the important problems identified by our high-risk program will 

in many cases encompass the need for transformation and, for some 

challenges, require action by both the executive branch and the Congress. 

However, if we are going to meet the long-term fiscal challenge and other 

emerging challenges confronting the nation, we must also engage in a 

fundamental reexamination of what government does and how it does it, 

who does it, and how it gets financed.

Although prompted by fiscal necessity, such a fundamental review of major 

program and policy areas can also serve the vital function of updating the 

federal government’s programs and priorities to meet current and future 

challenges. While we should be striving to maintain a government that is 

free of waste, fraud, abuse, and mismanagement, it should also remain 

effective and relevant to a changing society—a government that is as free 

as possible of outmoded, duplicative, and ineffective commitments and 

operations. Many current federal programs and policies, in fact, were 

designed decades ago to respond to trends and challenges that existed at 

21Senators Ensign, Akaka, and Voinovich introduced S. 780 on April 14, 2005, to create a 

Deputy Secretary of Defense for Management, who would report to the Secretary of 

Defense and serve for a term of 7 years with an annual performance agreement. Senators 

Akaka and Voinovich introduced S. 1712 on September 15, 2005, to create a Deputy 

Secretary of Homeland Security for Management, who would report to the Secretary of 

Homeland Security and serve for a term of 5 years with an annual performance agreement.
Page 26 GAO-06-497T 

the time of their creation, and may no longer be well suited, designed, or 

targeted to address current national priorities.

Our recent entry into a new century has helped to remind us of how much 

has changed in the past several decades—rapid shifts in the aging of our 

population, globalization of economic transactions, significant advances in 

technology, and changing security threats. If government is to effectively 

address these trends, it cannot accept its existing programs, policies, and 

activities as “givens.” Outmoded, duplicative, and effective commitments 

and operations are an unnecessary burden on the present and future that 

can erode the capacity of our nation to better align its government with the 

needs and demands of a changing world and society.

Last year, we pulled together our insights and previous work for the 

Congress in another report, entitled 21st Century Challenges: 

Reexamining the Base of the Federal Government (GAO-05-325SP). That 

report provides policymakers with a comprehensive compendium of those 

areas throughout government that could be considered ripe for 

reexamination and review. It includes a number of illustrative questions for 

the Congress and other policymakers to consider as they carry out their 

various constitutional responsibilities. These questions span a broad range 

of budget categories and federal operations, including discretionary and 

mandatory spending and tax policies and programs. 

Answering these questions and addressing the challenges raised in the 21st 

century challenges report will invariably entail difficult political choices 

between competing programs that promise benefits to many Americans but 

are collectively unaffordable in the long run at current and expected 

revenue levels. We recognize that this kind of examination and the hard 

choices necessary to mitigate the risks inherent in conducting “business as 

usual” may take a generation to address. But the potential disruption from 

related changes can be lessened, and the options policymakers can 

consider will be greater, if the necessary policy changes are made sooner 

rather than later. However, in the final analysis, as you well know, only 

elected officials can decide whether, when, and how best to proceed to 

address these important issues.

We hope that our reports on our high-risk program, as well as our report on 

21st century challenges, along with the follow-up work we are committed 

to doing for the Congress, will continue to be used by various 

congressional committees, such as yours, as you consider which areas of 

government to examine and act on. 
Page 27 GAO-06-497T 

Mr. Chairman, Senator Akaka, and members of the subcommittee, this 

concludes my testimony. I would be happy to answer any questions you 

may have.

(450476)
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