United States General Accounting Office

GAO Testimony

Before the Committee on Agriculture, Nutrition, and

Forestry, U.S. Senate

For Release on Delivery

Expected at

9 a.m.

Thursday,

May 14, 1998

YEAR 2000 COMPUTING

CRISIS

USDA Faces Tremendous

Challenges in Ensuring That

Vital Public Services Are

Not Disrupted

Statement of Joel C. Willemssen

Director, Civil Agencies Information Systems

Accounting and Information Management Division

GAO/T-AIMD-98-167

Mr. Chairman and Members of the Committee:

We are pleased to be here today to discuss the computing challenges that

the upcoming change of century poses to virtually all major organizations,

public and private, including government programs vital to Americans,

such as those of the Department of Agriculture (USDA). As the world’s most

advanced and most dependent user of information technology, the United

States possesses close to half of all computer capacity and 60 percent of

Internet assets.1

 As a result, the coming century change presents a

particularly sweeping and urgent challenge for entities in this country.2

For this reason, we have designated the Year 2000 computing problem as a

high-risk area3

 for the federal government, and have published guidance4

to help organizations successfully address the issue. Since early 1997 we

have issued over 35 products detailing specific findings and

recommendations related to the Year 2000 readiness of a wide range of

federal agencies.5

The common theme of these reports has been that serious vulnerabilities

remain in addressing the federal government’s Year 2000 readiness and

that much more action is needed to ensure that federal agencies

satisfactorily mitigate Year 2000 risks to avoid debilitating consequences.

Key economic sectors of the nation are also vulnerable. These include

state and local governments; telecommunications; banking and finance;

health, safety, and emergency services; transportation; utilities; and

manufacturing and small business. While actions by government and

industry are underway throughout the nation, the creation of the

President’s Council on Year 2000 Conversion represents an opportunity to

orchestrate the leadership and public/private partnerships essential to

confronting the unprecedented information technology challenge that our

nation faces.

1

Critical Foundations: Protecting America’s Infrastructures (President’s Commission on Critical

Infrastructure Protection, October 1997).

2

For the past several decades, automated information systems have typically represented the year

using two digits rather than four in order to conserve electronic data storage space and reduce

operating costs. In this format, however, 2000 is indistinguishable from 1900 because both are

represented only as 00. As a result, if not modified, computer systems or applications that use dates or

perform date- or time-sensitive calculations may generate incorrect results beyond 1999.

3

High-Risk Series: Information Management and Technology (GAO/HR-97-9, February 1997).

4

Year 2000 Computing Crisis: An Assessment Guide (GAO/AIMD-10.1.14, September 1997) and Year

2000 Computing Crisis: Business Continuity and Contingency Planning (GAO/AIMD-10.1.19,

March 1998 [exposure draft]).

5

A listing of our publications is included as an attachment to this statement.

Page 1 GAO/T-AIMD-98-167
This morning we bring a message of urgency relating to the Department of

Agriculture (USDA): its progress to date indicates that it will have a great

deal of difficulty in correcting, testing, and implementing its automated

information systems to work beyond 1999—that is, to become what is

called Year 2000 compliant—in time. This could have serious implications

for the many vital public health and safety and economic activities that its

systems support. Constituencies nationwide could be affected—farmers,

consumers, even schools.

At your request, my testimony today will briefly outline our views on what

additional actions must be taken to reduce the nation’s Year 2000 risks

overall; I will then discuss our assessment of USDA’s Year 2000 program. My

statement on USDA will include (1) an overview of the potential impact of

the century change on USDA’s mission, (2) how the department is

structured to address the crisis, (3) how much work remains to be

completed, and (4) the current efforts of 10 of USDA’s component agencies

and the department as a whole. In addition, I will provide observations on

the Year 2000 status at two other organizations, the Farm Credit

Administration (FCA) and the Commodity Futures Trading Commission

(CFTC).

To prepare for this testimony, we used our Year 2000 readiness guide to

perform an initial assessment of USDA’s departmentwide Year 2000

strategy.6

 We also discussed USDA’s strategy with its Chief Information

Officer, Year 2000 Program Executive, and staff in the Year 2000 Program

Office. We used the guide to assess the following 10 USDA component

agencies: the Agricultural Marketing Service (AMS); Agricultural Research

Service (ARS); Animal and Plant Health Inspection Service (APHIS); Farm

Service Agency (FSA); Food and Nutrition Service (FNS); Food Safety and

Inspection Service (FSIS); Forest Service; Grain Inspection, Packers and

Stockyards Administration (GIPSA); National Agricultural Statistical Service

(NASS); and the Risk Management Agency (RMA).

We reviewed applicable Year 2000 documentation of these component

agencies and interviewed Year 2000 personnel. In addition, we used the

guide to assess the Year 2000 programs of FCA’s and CFTC’s internal

systems. Finally, we reviewed FCA’s and CFTC’s actions to ensure the Year

2000 readiness of the industries that they regulate. We provided USDA, FCA,

and CFTC with the facts outlined in this testimony, and they were in general

6

GAO/AIMD-10.1.14, September 1997. This guide details the key tasks to be completed within each of

the five phases of a Year 2000 program: awareness, assessment, renovation, validation, and

implementation.

Page 2 GAO/T-AIMD-98-167
agreement with them. FCA and CFTC offered technical corrections which we

incorporated into the testimony.

Risk of Year 2000

Disruptions Requires

Leadership

The public faces the risk that critical services could be severely disrupted

by the Year 2000 computing crisis. Financial transactions could be

delayed, airline flights grounded, and national defense affected. The many

interdependencies that exist among the levels of governments and within

key economic sectors of our nation could cause a single failure to have

wide-ranging repercussions. While managers in the government and the

private sector are acting to mitigate these risks, a significant amount of

work remains.

The federal government is extremely vulnerable to Year 2000 problems

due to its widespread dependence on computer systems to process

financial transactions, deliver vital public services, and carry out its

operations. This challenge is made more difficult by the age and poor

documentation of many of the government’s existing systems, and its

lackluster track record in modernizing systems to deliver expected

improvements and meet promised deadlines.

Year 2000-related problems have already occurred. For example, an

automated Defense Logistics Agency system erroneously deactivated

90,000 inventoried items as the result of an incorrect date calculation.

According to the agency, if the problem had not been corrected (which

took 400 work hours), the impact would have seriously hampered its

mission to deliver materiel in a timely manner.7

Our reviews of federal agency Year 2000 programs have found uneven

progress, and our reports contain numerous recommendations, which the

agencies have almost universally agreed to implement. Among them are

the need to establish priorities, solidify data exchange agreements, and

develop contingency plans.

One of the largest, and largely unknown, risks relates to the global nature

of the problem. With the advent of electronic communication and

international commerce, the United States and the rest of the world have

become critically dependent on computers. However, with this electronic

dependence and massive exchanging of data comes increasing risk that

uncorrected Year 2000 problems in other countries will adversely affect

7

Defense Computers: Issues Confronting DLA in Addressing Year 2000 Problems (GAO/AIMD-97-106,

August 12, 1997).

Page 3 GAO/T-AIMD-98-167
the United States. And there are indications of Year 2000 readiness

problems internationally. In September 1997 the Gartner Group, a private

research firm acknowledged for its expertise in Year 2000 computing

issues, surveyed 2,400 companies in 17 countries and concluded that

“[t]hirty percent of all companies have not started dealing with the year

2000 problem.”8

Additional Actions Must Be

Taken to Reduce Nation’s

Year 2000 Risks

As 2000 approaches, the scope of the risks that the century change could

bring has become more clear, and the federal government’s actions have

intensified. This past February, an executive order was issued establishing

the President’s Council on Year 2000 Conversion. The Council Chair is to

oversee federal agency Year 2000 efforts as well as be the spokesman in

national and international forums, coordinate with state and local

governments, promote appropriate federal roles with respect to private

sector activities, and report to the President on a quarterly basis.

As we testified in March,9

 there are a number of actions we believe the

Council must take to avert this crisis. In a report issued last month, we

detailed specific recommendations.10 The following summarizes a few of

the key areas in which we recommend action.

• Because departments and agencies have taken longer than we and others

have recommended to assess the readiness of their systems, it is unlikely

that they will be able to renovate and fully test all mission-critical systems

by January 1, 2000. Consequently, setting priorities is essential, with the

focus being on systems most critical to health and safety, financial well

being of individuals, national security, and the economy.

• Agencies must start business continuity and contingency planning now to

safeguard their ability to deliver a minimum acceptable level of services in

the event of Year 2000-induced failures. In March we issued an exposure

draft of a guide providing information on business continuity and

contingency planning issues common to most large enterprises; the Office

of Management and Budget (OMB) recently adopted this guide as a model

for federal agencies.11 Agencies developing such plans only for systems

currently behind schedule, however, are not addressing the need to ensure

8

Year 2000-World Status (Gartner Group, Document #M-100-037, November 25, 1997).

9

Year 2000 Computing Crisis: Strong Leadership and Effective Public/Private Cooperation Needed to

Avoid Major Disruptions (GAO/T-AIMD-98-101, March 18, 1998).

10Year 2000 Computing Crisis: Potential For Widespread Disruption Calls For Strong Leadership and

Partnerships (GAO/AIMD-98-85, April 30, 1998).

11GAO/AIMD-10.1.19, March 1998 [exposure draft].

Page 4 GAO/T-AIMD-98-167
business continuity in the event of unforeseen failures. Further, such plans

should not be limited to the risks posed by the Year 2000-induced failures

of internal information systems, but must include the potential Year 2000

failures of others, including business partners and infrastructure service

providers (e.g., power, water, transportation, and voice and data

telecommunications).

• OMB’s assessment of the current status of federal Year 2000 progress is

predominantly based on agency reports that have not been consistently

verified or independently reviewed. Without such independent reviews,

OMB and the President’s Council on Year 2000 Conversion have little

assurance that they are receiving accurate information. Accordingly,

agencies must have independent verification strategies involving

inspectors general or other independent organizations.

• As a nation, we do not know where we stand overall with regard to Year

2000 risks and readiness. No nationwide assessment—including the

private and public sectors—has been undertaken to gauge this. In

partnership with the private sector and state and local governments, the

President’s Council could orchestrate such an assessment.

Year 2000 Impact on

USDA Programs

Could Be Severe

If the systems that support USDA’s various programs cannot operate

reliably into the next century, it would not take long for the effects to be

felt. USDA’s systems support many vital public health and safety and

economic activities and, if not properly fixed, tested, and implemented,

severe consequences could result, such as the following.

• Payments to schools, farmers, and others in rural communities could be

delayed or incorrectly computed.

• The economy could be adversely affected if information critical to crop

and livestock providers and investors is unreliable, late, or unavailable.

• The import and export of foodstuffs could be delayed, thus increasing the

likelihood that they will not reach their intended destinations before their

spoilage dates.

• Food distribution to schools and others could be stopped or delayed.

• Public health and safety could be at risk if equipment used in USDA’s many

laboratories to detect bacteria, diseases, and unwholesome foods is not

compliant.

USDA’s Approach

Relies on Component

Agencies

USDA’s Chief Information Officer (CIO) is responsible for leading the

department’s preparation for the Year 2000 date change and ensuring that

all critical USDA information systems are Year 2000 compliant and

operational. In October 1997 USDA’s CIO established the Year 2000 Program

Page 5 GAO/T-AIMD-98-167
Office under the direction of a Year 2000 Program Executive. This office is

responsible for providing oversight and guidance for the department’s

Year 2000 program, and serves as USDA’s liaison with other government

entities on the Year 2000 issue, such as the CIO Council.12

Direct accountability for assessing, renovating, validating, and

implementing systems conversion, however, rests with USDA’s 31

component agencies, which include staff offices. The Secretary of

Agriculture has required each component agency administrator to appoint

an executive sponsor specifically accountable for Year 2000 issues,

establish technical and program teams, ensure that an action plan is

developed, and certify that critical agency systems are reflected in Year

2000 implementation plans.

Component Agencies

Have a Tremendous

Amount of Remaining

Work

USDA’s component agencies have a great deal of work still to be

accomplished in the next 19 months in making its mission-critical systems

ready for the year 2000. As figure 1 indicates, for the 10 component

agencies in our review, 250 mission-critical systems were initially assessed

as compliant. As of this month 132 have been reported as repaired or

replaced, while work remains to be completed on 596 mission-critical

systems.13 Looked at another way, about 80 percent of the work remains

for these component agency systems.

12The CIO Council is comprised of CIOs and Deputy CIOs from 28 large federal departments and

agencies, 2 CIOs from small federal agencies, agency representatives from OMB, and the Chairs of the

Government Information Technology Services Board and Information Technology Resources Board.

13USDA’s last quarterly report to OMB, submitted in February 1998, stated that the department as a

whole had 1,319 mission-critical systems, of which 539 were compliant, 261 were to be replaced, 372

were to be repaired, and 147 were to be retired. USDA’s next quarterly report is due May 15, 1998.

Page 6 GAO/T-AIMD-98-167
Figure 1: Reported Year 2000

Conversion Status of Ten Component

Agencies’ Mission-Critical Systems,

May 1998

Assessed Compliant

Work Remaining Repaired/Replaced

250

132

596

Source: USDA. We did not independently verify this information.

In addition, about 42 percent of the reported 596 mission-critical systems

awaiting action are to be replaced. This is cause for some concern, as

replacement systems are often a high risk because federal agencies, and

USDA in particular, have a long history of difficulty in delivering planned

systems on time. Further, some USDA replacement systems are already

scheduled to miss the March 1999 implementation deadline established by

OMB and are at risk of not being compliant on January 1, 2000. For

example:

• AMS’ planned replacement of its Marketing News Information

System—which provides critical market information to producers,

processors, and distributors of agricultural commodities throughout the

United States—is currently not scheduled to be implemented until

August 1999. Further adding to the risk of this tight schedule is the fact

that AMS is currently not working on this and three other replacement

systems (which are scheduled to be implemented in September 1999),

pending approval by the CIO to do so.

• Although ARS plans to replace its existing Nutrient Data Bank System, it

does not yet have a contract in place to develop it. Concerned that it may

not meet USDA’s March 1999 deadline, ARS now plans to develop a

contingency plan.

Page 7 GAO/T-AIMD-98-167
• In April 1998 Forest Service decided to delay agencywide implementation

of the Foundation Financial Information System14 until October 1, 1999,

because of significant unresolved issues related to its capabilities.15 Forest

Service has not yet decided what to do about the over 20 existing

applications that are scheduled to be replaced by the Foundation Financial

Information System.

In addition to these risks, we identified two agencies that were

inaccurately reporting the number of compliant systems. GIPSA and RMA

reported 1 and 14 systems, respectively, as compliant, even though these

systems were under development or were planned. The GIPSA Year 2000

Executive Sponsor stated that the GIPSA system was reported as compliant

because the system is replacing a manual process. According to the RMA

Year 2000 Program Manager, RMA systems were reported as compliant

because they were being developed as compliant. We do not agree with

GIPSA and RMA. It is misleading to list systems as compliant when work is

still to be completed. USDA’s Year 2000 Program Executive stated that he

agreed that these systems should not be listed as compliant.

At the same time that USDA is facing an enormous challenge to replace,

repair, and retire its mission-critical systems, component agencies are

beginning to report losses of information technology staff. While USDA has

not performed a departmentwide assessment of its Year 2000 technology

staffing needs and losses, several component agencies have recently

expressed concern that the loss of staff will affect their ability to complete

their Year 2000 programs. For example, FSA stated that it had lost 28 of 403

(7 percent) of its information technology staff between October 1997 and

April 1998, and Forest Service officials said that they lost 12 information

technology staff in the past 5 months. Moreover, in its May 1998 report,

Forest Service reported losing contractors to better paying positions. The

CIO has taken some action, such as obtaining a waiver from the Office of

Personnel Management that allows USDA to rehire former federal personnel

without financial penalty. However, according to USDA, this rehiring

authority does not cover USDA employees who left the agency under the

department’s specific buyout authority.

14USDA’s Office of the Chief Financial Officer has overall responsibility for implementing this system

USDA-wide. The Office of the Chief Financial Officer shares responsibility with the Forest Service for

implementing the system at this component agency.

15Our report, Forest Service: Status of Progress Toward Financial Accountability (GAO/AIMD-98-84,

February 27, 1998) details some of these problems.

Page 8 GAO/T-AIMD-98-167
USDA will incur substantial costs to implement its Year 2000 program. It has

estimated its Year 2000 costs at $118 million (as of February 1998).

However, this estimate does not include all Year 2000-related costs, such

as (1) FNS’ share of repairing or replacing the state systems that are used to

implement its programs and (2) the cost to renovate or replace

telecommunications or vulnerable systems (which USDA defines as

embedded systems such as laboratory equipment and facility systems). At

the request of the Year 2000 Program Office, some component agencies

started reporting these cost estimates and USDA intends to incorporate the

costs to renovate or replace telecommunications and vulnerable systems

in its next quarterly report to OMB, due May 15, 1998.

Major Weaknesses in

Component Agency

Efforts

Although agencies should have completed the assessment phase of Year

2000 readiness last summer, critical assessment tasks for many USDA

agencies remain unfinished. Even some basic tasks, such as inventorying

systems, have not yet been completed. For example, while some of the

component agencies in our review reported having completed inventories

of telecommunications and vulnerable systems, most have not. USDA

expects these inventories to be completed this July.

Table 1 identifies key tasks that should be done during the assessment or

renovation phases, yet remain incomplete in many cases.

Page 9 GAO/T-AIMD-98-167
Table 1: Reported Status of Component Agencies’ Completion of Critical Assessment/Renovation Tasks

USDA agency

Detailed project

tracking

Actual costs

tracked

Test or validation

strategy

Contingency/continuity

plans intended

AMS No Some Planned Planning to develop

system-related

contingency plans

APHIS Yes Some Draft Planning to develop

system-related

contingency plans

ARS No Some Planned Planning to develop

system-related

contingency plans

FNS Yes Yes Yes If system is behind

schedule

Forest Service Some Some Draft If system is behind

schedule

FSA Yes Yes Yes One system-related plan

completed

FSIS No No Planned If system is behind

schedule

GIPSA Yes Some Planned Planning to develop

system-related

contingency plans

NASS No Yes No Draft

RMA No Some No Planning to develop

system-related

contingency plans

Source: GAO’s analysis based on USDA data.

According to our Year 2000 readiness guide,16 agencies should track their

renovation and replacement efforts and use project metrics to manage

costs and schedules. Although all of the component agencies we reviewed

performed some form of project tracking, many of the component

agencies’ Year 2000 program offices did not track baseline to actual

completion dates for project milestones, or track the percentage of

milestone completion. Also, Forest Service currently performs detailed

tracking for only its major applications but plans to perform such tracking

for all of its applications in the future. Moreover, while three component

agencies tracked actual costs, one did not, and others tracked some costs

but not others, such as contractor costs but not staffing.

16GAO/AIMD-10.1.14, September 1997.

Page 10 GAO/T-AIMD-98-167
As expressed in our Year 2000 readiness guide, the scope of a component

agency’s testing and validation requires careful planning; accordingly,

overall testing and validation strategies should initially be developed

during the assessment phase. However, eight of the ten component

agencies in our review lacked such strategies; only FNS and FSA had them.

Moreover, in some agencies—such as NASS and FSIS—only the

programmers who made the changes or developed the systems determined

the scope of the tests to be completed. In addition, while FNS had a testing

strategy, it planned to implement this strategy only for about half of its

mission-critical systems; it lacks a testing strategy for the other

mission-critical systems. According to an FNS official, the other systems

will be tested through a combination of the responsible contractor or FNS

staff who made the change and user acceptance testing. One of these

systems is vital to ensuring that schools and other entities are reimbursed

for providing food services to children and adults.

In reviewing the test documentation of systems that were repaired or

replaced at FNS and FSA to determine whether their testing strategies were

followed for the three systems that these agencies reported as Year 2000

compliant, we found mixed results.

• The FNS system, called the National Integrated Quality Control

System—used by state welfare agencies to perform federally-mandated

quality control functions—was not one of the systems covered by FNS’ test

strategy, and we were unable to verify whether the system was indeed

Year 2000 compliant. The system was replaced by a contractor who

conducted limited Year 2000 testing; neither FNS nor the contractor had

developed test plans for the system. Further, while FNS utilized its regional

offices and nine states for acceptance testing, it did not provide

instructions on what to test, and had no documentation concerning

exactly what was tested. As a result, FNS officials did not know whether

the testing included any Year 2000 test scenarios.

• Two FSA mission-critical systems had more positive results. Written test

plans existed, the testing was carried out by an independent organization,

and test result documentation showed that sufficient testing had been

performed to determine that the system was Year 2000 compliant.

Turning to business continuity and contingency planning, most of the

component agencies intended to develop contingency plans only for

specific systems or only if the systems were likely to miss the USDA March

1999 deadline for compliance. Agencies that develop contingency plans

only for systems currently behind schedule, however, are not addressing

Page 11 GAO/T-AIMD-98-167
the need to ensure the continuity of a minimal level of core business

operations in the event of unforeseen failures. As a result, when

unpredicted failures occur, agencies will not have well-defined responses

and may not have enough time to develop and test effective contingency

plans. Contingency plans should be formulated to respond to two types of

failures: those that can be predicted (e.g., system renovations that are

already far behind schedule) and those that are unforeseen (e.g., a system

that fails despite having been certified as Year 2000 compliant or a system

that cannot be corrected by January 1, 2000, despite appearing to be on

schedule today).

Moreover, contingency plans that focus only on agency systems are

inadequate. Federal agencies depend on data provided by their business

partners as well as on services provided by the public infrastructure (e.g.,

power, water, transportation, and voice and data telecommunications).

One weak link anywhere in the chain of critical dependencies can cause

major disruptions to business operations. Given these interdependencies,

it is imperative that contingency plans be developed for all critical core

business processes and supporting systems, regardless of whether these

systems are owned by the agency. NASS was the only component agency in

our review that had drafted a plan to address the agency’s options in the

event that Year 2000-induced failures do not enable it to use its normal

processes to develop and issue its January 2000 statistical reports. NASS

intends to finalize this plan in the fall of 1998.

More Effective

Departmental

Leadership Required

Given the enormous potential risk, USDA has determined that the Year 2000

crisis is its top information technology priority. It has not, however,

translated that sentiment into effective action. The department’s role has

remained limited—a condition that cannot continue if sufficient progress

is to be achieved.

USDA Has Not Identified

Its Highest Priority

Systems

Just as federal departments and agencies establish their own priorities

among mission-critical systems, we have recommended that the

government as a whole determine national priorities.17 Similarly, it is

important for the Secretary of Agriculture to know, as time dwindles,

which mission-critical systems are USDA’s highest priorities. However,

USDA’s CIO stated that the department has not set Year 2000 priorities.

Priority setting has, rather, been left to the individual component agencies,

which determined which systems are mission-critical.

17GAO/AIMD-98-85, April 30, 1998.

Page 12 GAO/T-AIMD-98-167
The component agencies judged systems to be mission-critical in an

inconsistent manner. For example, while Forest Service tells us that it has

17 mission-critical systems, it has reported to the department that it has

423 mission-critical systems.18 This is because Forest Service reported

applications and not systems. Forest Service reports applications rather

than systems because it tracks its system migration and Year 2000 project

at the application level. Further, not all of these applications are critical.

For example, a January 1998 Forest Service analysis of the applications

that it plans to repair indicated that only 48 of 137 are critical applications.

Another example of USDA’s inconsistent reporting is provided by USDA’s two

data centers, the National Information Technology Center (NITC) and the

National Finance Center (NFC). NITC reported as mission-critical the

systems that support its infrastructure (e.g., operating systems and

utilities), while NFC reported its application systems but not the systems

that support its infrastructure.

We further found that the department’s Year 2000 Program Office and

most of the component agencies lacked a key piece of information

necessary for setting such priorities: the system’s failure date. This is the

first date that a system will fail to recognize and process dates correctly.

The Year 2000 Program

Office Has Performed

Limited Oversight

The oversight provided by the Year 2000 Program Office has been limited

to monthly meetings with component agency executive sponsors, regularly

scheduled meetings on topics such as telecommunications and reviews of

monthly status reports, and written guidance on awareness and

assessment. In lieu of developing additional written guidance, the Year

2000 Program Executive stated that he told the component agencies to use

our readiness guide.19

Further, the program office maintains no up-to-date portfolio of

components’ mission-critical systems, and has performed only limited

analysis of what it does have. For example, in November 1997, the

Program Office collected information on the (1) planned completion date

of the awareness, assessment, renovation, validation, and implementation

dates of systems to be renovated; (2) implementation dates of replacement

systems; and (3) planned dates for systems to be retired. This information

was updated in February 1998. However, the Year 2000 Program Office did

18Forest Service reported an additional 59 mission-critical systems that we did not include because the

agency had retired them.

19GAO/AIMD-10.1.14, September 1997.

Page 13 GAO/T-AIMD-98-167
not compare the November 1997 and February 1998 data to determine

whether there were any changes that needed to be reviewed. Further,

many of the dates in the February 1998 inventory were questionable. For

example:

• In 39 cases, the validation date was before the renovation date.

• In 40 cases, there were no dates for renovation and/or validation.

• In 233 cases, the renovation date equaled the validation date.

To assist the Year 2000 Program Office in identifying and selecting

appropriate courses of action, on April 29, 1998, the program office

awarded a contract for a review of its plans, documentation, and products.

Among other items, the contractor is to review whether mission-critical

systems have been appropriately identified, Year 2000 time frames are

realistic, appropriate test plans are being developed and implemented, and

the Year 2000 program office is appropriately staffed. In addition, the

contractor is to identify Year 2000 testing methodologies and risks, and

risk mitigation strategies. These deliverables are expected in about a

month.

Observations on the

Farm Credit

Administration and

the Commodity

Futures Trading

Commission

At your request, Mr. Chairman, we also reviewed the Year 2000 readiness

of the Farm Credit Administration (FCA) and the Commodity Futures

Trading Commission (CFTC), two independent agencies that regulate,

respectively, the Farm Credit System and the futures and options industry.

FCA and CFTC are concerned not only with the Year 2000 compliance of

their internal systems, but also with those of the institutions they regulate.

These organizations are heavily dependent on information technology, and

Year 2000-induced failures on the part of the industries that FCA and CFTC

regulate could have repercussions for the financial services industry and

the national economy.

The Farm Credit

Administration

FCA regulates, and performs periodic examinations of, the entities that

make up the Farm Credit System. The Farm Credit System consists of a

network of banks, associations, cooperatives, and other related entities

that make short, intermediate, and long-term loans. In addition, FCA

oversees the system’s fiscal arm that markets its debt securities and the

Federal Agricultural Mortgage Corporation that provides a secondary

market for mortgage loans secured by agriculture real estate and rural

housing. Its risks associated with the century change are similar to those

of other financial institutions: errors in interest calculation and

Page 14 GAO/T-AIMD-98-167
amortization schedules. In addition, the Year 2000 problem may expose

the institutions and data centers to financial liability and loss of customer

confidence.

With respect to their internal systems, FCA identified 25 mission-critical

systems of which FCA considers 17 compliant. Of the 8 considered by FCA

to be noncompliant systems, 6 are being repaired, 1 is being replaced, and

1 is being retired. Two of the systems being repaired are the responsibility

of other entities, USDA’s National Finance Center’s payroll processing

system and the Department of the Treasury’s electronic payment system.

FCA does not have a written test or validation strategy for any of its

internal systems. At the conclusion of our review, FCA officials told us that

they plan to develop a written test strategy by the end of this month.

To address the Year 2000 readiness of its regulated institutions, FCA has

(1) had its institutions provide responses to a Year 2000 questionnaire,

(2) conducted reviews of institutions’ Year 2000 programs during its

examinations, and (3) issued informational memoranda to the institutions.

For example, in November 1997, December 1997, and March 1998, FCA

asked its regulated institutions to complete Year 2000 questionnaires.

Additionally, in November 1997, FCA issued Year 2000 examination

procedures for its examiners. As of March 30, 1998, FCA reported

completing 58 safety and soundness examinations that included a review

of the institutions’ Year 2000 programs. In addition, 15 examinations were

in process and 85 were planned through the end of fiscal year 1998.

According to FCA, it will perform targeted Year 2000 examinations by

December 30, 1998, for institutions that are not scheduled for a safety and

soundness examination in fiscal year 1998.

Both the questionnaire and the examination procedures were based on the

guidelines developed by the Federal Financial Institutions Examination

Council.20 We have previously reported21 that the Council’s guidance and

procedures were not designed to collect all the data needed to determine

where (i.e., in which phases) the institutions are in the Year 2000

correction process. FCA plans to issue this June a more detailed

questionnaire requesting more specific information on renovation, testing,

20This organization is made up of the following federal regulators: the Federal Reserve System, the

Comptroller of the Currency, the National Credit Union Administration, the Federal Deposit Insurance

Corporation, and the Office of Thrift Supervision.

21Year 2000 Computing Crisis: Federal Regulatory Efforts to Ensure Financial Institution Systems Are

Year 2000 Compliant (GAO/T-AIMD-98-116, March 24, 1998).

Page 15 GAO/T-AIMD-98-167
and validation. In addition, on March 31, 1998, FCA issued new examination

procedures that superseded those of November 1997.

FCA has assessed the risks that each of its institutions face based on the

responses to the questionnaire, as well as the knowledge of its examiners.

Each institution was placed in one of three risk categories—low,

moderate, or critical. As of March 31, 1998, 70 institutions were in the low

risk category in that the institutions met FCA’s guidelines; 71 were

classified as at moderate risk, where some key actions have not been

completed or were not consistent with FCA guidelines; and 74 were

classified as critical, where actions have not been taken in key areas and

there is an increased risk that the institution will not be prepared for the

year 2000.

The informational memoranda that FCA has issued to the institutions that it

regulates covered issues such as testing and establishing a due-diligence

process to determine the Year 2000 readiness of service providers and

software vendors. However, FCA has not called for the regulated

institutions to develop business continuity and contingency plans unless

certain deadlines are not met or service providers and software vendors

have not provided adequate information about their Year 2000 readiness,

or where the provider or vendor solutions do not appear to be viable. As I

stated earlier, business continuity and contingency plans should be

formulated to respond to those types of failures that can be predicted (e.g.,

system renovations that are already far behind schedule) and those that

are unforeseen (e.g., a system that fails despite having been certified as

Year 2000 compliant or a system that cannot be corrected by January 1,

2000, despite appearing to be on schedule today). In response to our

review, FCA officials stated that they would issue an information

memorandum by the end of May requiring institutions to develop business

continuity and contingency plans for all core business processes.

Commodity Futures

Trading Commission

CFTC’s mission is to protect market participants from manipulation, fraud,

and abusive trade practices, related to the sale of commodity futures and

options and to foster open, competitive, and financially sound commodity

futures and options markets. CFTC works in conjunction with

self-regulatory organizations (SRO), such as the commodity exchanges and

independent clearinghouses to regulate these markets. All companies and

individuals handling customer funds or providing trading advice must

register with the Commission and be a member of at least one of these

organizations. SROs audit their member institutions, and CFTC regularly

Page 16 GAO/T-AIMD-98-167
reviews SROs’ audit activities. The SROs and member institutions are, not

surprisingly, very reliant on information technology, with many

interdependencies among them; these include foreign firms and exchanges

as well. Major Year 2000 failures could easily, then, have worldwide

economic repercussions.

CFTC reports having two mission-critical systems, which it states it repaired

to be Year 2000 compliant in 1993 and 1994. It has also inventoried and

assessed its external data exchanges, telecommunications, and personal

computers; it plans to upgrade its personal computers and network

servers next month and replace noncompliant equipment and a

noncompliant network operating system by March 1999.

Regarding CFTC’s oversight of SROs, on March 18, 1998, CFTC sent a letter to

all exchanges and independent clearinghouses requesting information on

the Year 2000 readiness status of SRO, SRO’s member firms, and floor

brokers and floor traders. In particular, CFTC requested information on

(1) contingency plans, both with regard to processes that cannot be made

compliant in the necessary time frame and for instances in which, despite

the best plans, procedures developed to address the Year 2000 problem do

not work, (2) whether and how SRO can ensure full participation in the

Year 2000 testing being planned by the Futures Industry Association,22 and

(3) SRO’s authority under its own rules to intervene and, if necessary,

restrict or terminate the member’s business, and what procedures would

apply. CFTC asked SROs to provide the information by May 15, 1998. CFTC

has a coordinator for external Year 2000 activities who will evaluate SRO

responses with assistance from CFTC’s Office of Information Resources

Management, which is in charge of CFTC’s internal systems, and CFTC’s

audit and evaluation group.

Although CFTC has not yet reviewed the Year 2000 readiness of the SRO

member institutions, it has worked with the SRO audit organization, the

Joint Audit Committee.23 The members of this committee have requested

that the registrants for which they are responsible fill out questionnaires

on their Year 2000 progress. According to CFTC’s Chief Accountant, CFTC’s

auditors will (1) confirm that the SRO auditors had sent the questionnaires

to its members, (2) determine whether SRO auditors had reviewed the

questionnaires for completeness and unusual items, and (3) determine

22The Futures Industry Association plans to hold a series of industry tests beginning in June 1998 and

continuing through the first quarter of 1999.

23This committee is a representative committee of U.S. futures exchanges and regulatory

organizations.

Page 17 GAO/T-AIMD-98-167
whether SRO auditors had followed up on any exceptions found. However,

because CFTC does not have any electronic data processing auditors, it may

have difficulty assessing the SRO’s Year 2000 audit activities.

CFTC also issued advisory notices, in November 1997 and April 1998, and

has participated in meetings with the Futures Industry Association. The

advisory notices asked the SROs to report on their Year 2000 programs,

asked the SRO auditors to include a Year 2000 readiness inquiry to their

inspections, set disclosure requirements for institutions with Year 2000

problems, and strongly encouraged registrants to share information with

SROs and membership organizations.

While CFTC has taken some action to address the effect the year 2000 will

have on the futures and options markets, the potential major disruption

that the year 2000 could hold for these markets suggests that the

commission should take a strong leadership role in providing reasonable

assurance that the futures and options markets will be Year 2000

compliant in time.

In conclusion, the change of century will present many difficult challenges

in information technology and in ensuring the continuity of business

operations, and has the potential to cause serious disruption to the nation

and to government entities on which the public depends, including the

Department of Agriculture. These risks can be mitigated and disruptions

minimized with proper attention and management. However, much work

remains at USDA and its agencies to address these risks and ensure

continuity of mission-critical business operations. Continued

congressional oversight through hearings such as this can help ensure that

this attention is sustained and that appropriate actions are taken to

address this crisis.

Mr. Chairman, this completes my statement. I would be happy to respond

to any questions that you or other members of the Committee may have at

this time.

Page 18 GAO/T-AIMD-98-167
Page 19 GAO/T-AIMD-98-167
GAO Reports and Testimony Addressing the

Year 2000 Crisis

Year 2000 Computing Crisis: Continuing Risks of Disruption to Social

Security, Medicare, and Treasury Programs (GAO/T-AIMD-98-161, May 7, 1998).

IRS’ Year 2000 Efforts: Status and Risks (GAO/T-GGD-98-123, May 7, 1998).

Year 2000 Computing Crisis: Potential For Widespread Disruption Calls

For Strong Leadership and Partnerships (GAO/AIMD-98-85, April 30, 1998).

Defense Computers: Year 2000 Computer Problems Threaten DOD

Operations (GAO/AIMD-98-72, April 30, 1998).

Department of the Interior: Year 2000 Computing Crisis Presents Risk of

Disruption to Key Operations (GAO/T-AIMD-98-149, April 22, 1998).

Year 2000 Computing Crisis: Business Continuity and Contingency

Planning (GAO/AIMD-10.1.19, Exposure Draft, March 1998).

Tax Administration: IRS’ Fiscal Year 1999 Budget Request and Fiscal Year

1998 Filing Season (GAO/T-GGD/AIMD-98-114, March 31, 1998).

Year 2000 Computing Crisis: Strong Leadership Needed to Avoid

Disruption of Essential Services (GAO/T-AIMD-98-117, March 24, 1998).

Year 2000 Computing Crisis: Office of Thrift Supervision’s Efforts to

Ensure Thrift Systems Are Year 2000 Compliant (GAO/T-AIMD-98-102,

March 18, 1998).

Year 2000 Computing Crisis: Strong Leadership and Effective

Public/Private Cooperation Needed to Avoid Major Disruptions

(GAO/T-AIMD-98-101, March 18, 1998).

Post-Hearing Questions on the Federal Deposit Insurance Corporation’s

Year 2000 (Y2K) Preparedness (AIMD-98-108R, March 18, 1998).

SEC Year 2000 Report: Future Reports Could Provide More Detailed

Information (GAO/GGD/AIMD-98-51, March 6, 1998).

Year 2000 Readiness: NRC’s Proposed Approach Regarding Nuclear

Powerplants (GAO/AIMD-98-90R, March 6, 1998).

Page 20 GAO/T-AIMD-98-167
GAO Reports and Testimony Addressing the

Year 2000 Crisis

Year 2000 Computing Crisis: Federal Deposit Insurance Corporation’s

Efforts to Ensure Bank Systems Are Year 2000 Compliant (GAO/T-AIMD-98-73,

February 10, 1998).

Year 2000 Computing Crisis: FAA Must Act Quickly to Prevent Systems

Failures (GAO/T-AIMD-98-63, February 4, 1998).

FAA Computer Systems: Limited Progress on Year 2000 Issue Increases

Risk Dramatically (GAO/AIMD-98-45, January 30, 1998).

Defense Computers: Air Force Needs to Strengthen Year 2000 Oversight

(GAO/AIMD-98-35, January 16, 1998).

Year 2000 Computing Crisis: Actions Needed to Address Credit Union

Systems’ Year 2000 Problem (GAO/AIMD-98-48, January 7, 1998).

Veterans Health Administration Facility Systems: Some Progress Made In

Ensuring Year 2000 Compliance, But Challenges Remain (GAO/AIMD-98-31R,

November 7, 1997).

Year 2000 Computing Crisis: National Credit Union Administration’s

Efforts to Ensure Credit Union Systems Are Year 2000 Compliant

(GAO/T-AIMD-98-20, October 22, 1997).

Social Security Administration: Significant Progress Made in Year 2000

Effort, But Key Risks Remain (GAO/AIMD-98-6, October 22, 1997).

Defense Computers: Technical Support Is Key to Naval Supply Year 2000

Success (GAO/AIMD-98-7R, October 21, 1997).

Defense Computers: LSSC Needs to Confront Significant Year 2000 Issues

(GAO/AIMD-97-149, September 26, 1997).

Veterans Affairs Computer Systems: Action Underway Yet Much Work

Remains To Resolve Year 2000 Crisis (GAO/T-AIMD-97-174, September 25,

1997).

Year 2000 Computing Crisis: Success Depends Upon Strong Management

and Structured Approach (GAO/T-AIMD-97-173, September 25, 1997).

Year 2000 Computing Crisis: An Assessment Guide (GAO/AIMD-10.1.14,

September 1997).

Page 21 GAO/T-AIMD-98-167
GAO Reports and Testimony Addressing the

Year 2000 Crisis

Defense Computers: SSG Needs to Sustain Year 2000 Progress

(GAO/AIMD-97-120R, August 19, 1997).

Defense Computers: Improvements to DOD Systems Inventory Needed for

Year 2000 Effort (GAO/AIMD-97-112, August 13, 1997).

Defense Computers: Issues Confronting DLA in Addressing Year 2000

Problems (GAO/AIMD-97-106, August 12, 1997).

Defense Computers: DFAS Faces Challenges in Solving the Year 2000

Problem (GAO/AIMD-97-117, August 11, 1997).

Year 2000 Computing Crisis: Time is Running Out for Federal Agencies to

Prepare for the New Millennium (GAO/T-AIMD-97-129, July 10, 1997).

Veterans Benefits Computer Systems: Uninterrupted Delivery of Benefits

Depends on Timely Correction of Year-2000 Problems (GAO/T-AIMD-97-114,

June 26, 1997).

Veterans Benefits Computers Systems: Risks of VBA’s Year-2000 Efforts

(GAO/AIMD-97-79, May 30, 1997).

Medicare Transaction System: Success Depends Upon Correcting Critical

Managerial and Technical Weaknesses (GAO/AIMD-97-78, May 16, 1997).

Medicare Transaction System: Serious Managerial and Technical

Weaknesses Threaten Modernization (GAO/T-AIMD-97-91, May 16, 1997).

Year 2000 Computing Crisis: Risk of Serious Disruption to Essential

Government Functions Calls for Agency Action Now (GAO/T-AIMD-97-52,

February 27, 1997).

Year 2000 Computing Crisis: Strong Leadership Today Needed To Prevent

Future Disruption of Government Services (GAO/T-AIMD-97-51, February 24,

1997).

High-Risk Series: Information Management and Technology (GAO/HR-97-9,

February 1997).

(511452) Page 22 GAO/T-AIMD-98-167
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