FEDERAL BUDGET 

Opportunities for 

Oversight and Improved 

Use of Taxpayer Funds 

Statement of David M. Walker, 

Comptroller General of the United States 

 

United States General Accounting Office

GAO Testimony

Before the Committee on the Budget 

U.S. House of Representatives 

For Release on Delivery 

Expected at 10:00 a.m. EDT 

Wednesday, June 18, 2003 

GAO-03-922T 

We revised this document on 7/15/03 to correct the spacing and a 

typographical error in a number on page 7 (under The Medicare 

Program--Reducing Improper Payments). The amount of improperly 

paid claims was $13.3 billion in fiscal year 2002.
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GAO-03-922T 1

Mr. Chairman, Mr. Spratt, members of the Committee 

It is a pleasure to be here today as you deal with one of your important obligations—to 

exercise prudence and due care in connection with taxpayer funds. No government 

should waste its taxpayers’ money, whether we are operating during a period of budget 

surpluses or deficits. 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 that deserve them and 

avoid abuse of taxpayer funds by preventing such diversions. Beyond preventing obvious 

abuse, government also has an obligation to modernize its priorities, practices, and 

processes so that it can meet the demands and needs of today’s changing world. More 

broadly, the federal government must reexamine the entire range of policies and 

programs—entitlements, discretionary, and tax incentives—in the context of the 21st

century. 

Periodic reexamination and revaluation of government activities has never been more 

important than it is today. Our nation faces long-term fiscal challenges. Increased 

pressure also comes from world events: both from the recognition that we cannot 

consider ourselves “safe” between two oceans--which has increased demands for 

spending on homeland security-- and from the U.S. role in an increasingly interdependent 

world. And government faces increased demands from the American public for modern 

organizations and workforces that are responsive, agile, accountable and responsible. 
GAO-03-922T 2

As everyone on this committee knows well, only about 39% of the federal budget—and 

even less if you look only at programmatic spending--is discretionary. The rest is direct 

or mandatory spending.1

 

In addition, we can’t forget about tax incentives. I make this point to reinforce the fact 

that efforts to assure prudent use of taxpayer funds, efforts to guard against fraud, waste, 

abuse and mismanagement, and efforts to improve economy, efficiency and effectiveness 

cannot focus solely on discretionary appropriations but must also encompass mandatory 

programs and tax policy, including tax incentives. 

Direct, or mandatory, spending programs are by definition assumed in the baseline and 

not automatically subject to annual congressional review as are appropriated 

discretionary programs. Nonetheless, a periodic reassessment of these programs, as well 

as tax incentives, is critical to achieving fiscal discipline in the budget as a whole. 

 

1

 While Social Security and Medicare are the largest direct spending or mandatory programs, this category 

also includes such others as farm price supports, insurance programs, food stamps, TANF block grants to 

the states, federal civilian and military pension and health. 

2003

54%

39%

7%

Discretionary Mandatory Net interest

Composition of Federal Spending

Note: Includes $41 billion in discretionary spending and about $1 billion in mandatory spending for the Iraq war supplemental.

Includes $11 billion in mandatory spending for the 2003 tax cut package.

Source: GAO analysis of data from the Congressional Budget Office.
GAO-03-922T 3

Moreover, such a review can help ascertain whether these programs are protected from 

the risk of fraud, waste and abuse and are designed to be as cost effective and efficient as 

possible. 

 As you know, the Budget Resolution directs GAO to prepare a report identifying 

“instances in which the committees of jurisdiction may make legislative changes to 

improve the economy, efficiency, and effectiveness of programs within their 

jurisdiction.” My testimony draws in part on some of the items that will be included in 

that report. 

Today I want to talk about program reviews, oversight, and stewardship of taxpayer 

funds on several levels: 

• First, it is important to deal with areas vulnerable to fraud, waste, abuse and 

mismanagement. Payments to ineligibles drain resources that could otherwise go 

to the intended beneficiaries of a program. Everyone should be concerned about 

the diversion of resources and subsequent undermining of program integrity. 

• Second, and more broadly, policymakers and managers need to look at ways to 

improve the economy, efficiency and effectiveness of federal programs and 

specific tax expenditures. Even where we agree on the goals of programs, 

numerous opportunities exist to streamline, target and consolidate to improve 

their delivery. This means looking at program consolidation, at overlap and at 

fragmentation. For example, it means tackling excess federal real property—

whether at home or abroad. It means improved targeting in both spending 

programs and tax incentives—in some cases, spreading limited funds over a wide 

population or beneficiary group may not be the best approach. 

• Finally, a fundamental reassessment of government programs, policies, and 

activities can help weed out programs that are outdated ineffective unsustainable, 

or simply a lower priority than they used to be. In most federal mission areas—
GAO-03-922T 4

from low-income housing to food safety to higher education assistance—national 

goals are achieved through the use of a variety of tools and, increasingly, through 

the participation of many organizations, such as state and local governments and 

international organizations, that are beyond the direct control of the federal 

government. Government cannot accept as “givens” all of its existing major 

programs, policies, and operations. A fundamental review of what the federal 

government does, how it does it, and in some cases, who does the government’s 

business will be required, particularly given the demographic tidal wave that is 

starting to show on our fiscal horizon. 

Addressing Vulnerabilities to Fraud, Waste, Abuse and Mismanagement

Programs and functions central to national goals and objectives have been hampered by 

daunting financial and program management problems, exposing these activities to fraud, 

waste and abuse. These weaknesses have real consequences with large stakes that are 

important and visible to many Americans. Some of the problems involve the waste of 

scarce federal resources. Other problems compromise the ability of the federal 

government to deliver critically needed services, such as ensuring airline safety and 

efficiently collecting taxes. Still others may undermine government’s ability to safeguard 

critical assets from theft and misuse. 

In 1990, GAO began a program to report on government operations we identified as 

“high risk.” This label has helped draw attention to chronic, systemic performance and 

management shortfalls threatening taxpayer dollars and the integrity of government 

operations. Over the years GAO has made many recommendations to improve these 

high-risk operations. We discovered that the label often inspired corrective action—

indeed 13 areas have come off the list since its inception. For each of these areas, we 

focus on (1) why the area is high-risk; (2) the actions that have been taken and that are 

under way to address the problem since our last update report and the issues that are yet 

to be resolved; and (3) what remains to be done to address the risk. 
GAO-03-922T 5

In January of this year we provided an update for the 108th Congress, giving the status of 

high-risk areas included in our last report [January 2001] and identifying new high-risk 

areas warranting attention by the Congress and the administration.2 GAO’s 2003 highrisk list is shown in Attachment I. 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. 

In addition to perseverance by the administration in implementing needed solutions, we 

have noted that continued congressional interest and oversight, such as that exemplified 

by this hearing today are of crucial importance. The administration has looked to our 

recommendations in shaping government-wide initiatives such as the President’s 

Management Agenda, which has at its base many of the areas we have previously 

designated as high risk. 

Clearly progress has been made in addressing most of the areas on our current high risk 

list, both through executive actions and congressional initiatives. However, many of these 

problems and risks are chronic and long standing in nature and their ultimate solution will 

require persistent and dedicated efforts on many fronts by many actors. Some will require 

changes in laws to simplify or change rules for eligibility, provide improved incentives or 

to give federal agencies additional tools to track and correct improper payments. 

Continued progress in improving agencies’ financial systems, information technology 

resources and human capital will be vital in attacking and mitigating risks to federal 

program integrity. Some areas may indeed require additional investments in people and 

technology to provide effective information, oversight and enforcement to protect 

programs from abuse. Ultimately, a transformation will be needed in the cultures and 

operations of many agencies to permit them to manage risks and foster the kind of 

sustained improvements in program operations called for. Continued persistence and 

 

2

 U.S. General Accounting Office, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: 

January 2003). 
GAO-03-922T 6

perseverance in addressing the high risk areas will ultimately yield significant benefits for 

the taxpayers over time. Finding lasting solutions offers the potential to achieve savings, 

improved service and strengthened public trust in government. 

I will now address some specific areas and examples from both our high risk work and 

other program reviews that illustrate both the problems facing us and the opportunities 

for congressional and executive actions to better safeguard taxpayer funds.3

Improper Payments

Improper payments include inadvertent errors, such as duplicate payments and 

miscalculations; payments for unsupported or inadequate supported claims; payments for 

services not rendered; payments to ineligible beneficiaries; and payments resulting from 

outright fraud and abuse by program participants and/or federal employees. Recently, 

agencies' financial statements also have begun to identify and measure the wide range of 

improper payments involved in many activities throughout government. Agency 

financial statements for both fiscal years 2002 and 2001 identified improper payment 

estimates of approximately $20 billion. OMB recently testified that the amount of 

improper payments was closer to $35 billion annually for major benefit programs. This 

range may be indicative of the fact that it is hard to get a handle on the precise total. 

Furthermore, as significant as these amounts are, they do not represent a true picture of 

the magnitude of the problem governmentwide because they do not consider other 

significant but smaller programs and other types of agency activities that could result in 

improper payments. In reviewing fiscal year 2002, agency financial statements of the 24 

CFO Act agencies, we found references to improper payments in 17 agencies and 27 

programs. Unfortunately, not all of them provided information on the amount of such 

payments. In the federal government, improper payments occur in a variety of program 

activities, including those related to contractors and contract management, such as 

defense; healthcare programs, such as Medicare and Medicaid; financial assistance 

benefits, such as Food Stamps and housing subsidies; and tax refunds. 

 

3

 Attached to this testimony is a list of selected GAO reports related to the specific examples cited. 
GAO-03-922T 7

The Medicare Program

The sheer size and complexity of the Medicare program makes it highly vulnerable to 

fraud, waste and abuse. In fiscal year 2002, Medicare paid about $257 billion for a wide 

variety of inpatient and outpatient health care services for over 40 million elderly and 

disabled Americans. To help administer claims the Centers for Medicare & Medicaid 

Services (CMS) contracts with 38 health insurance companies to process about 900 

million claims submitted each year by over 1 million hospitals, physicians, and other 

health care providers. Although CMS has made strides, much remains to be done. We 

have recommended actions in a number of specific areas, including: 

• Reducing Improper Payments-- Since 1996, annual audits by the Department of 

Health and Human Services’ Office of the Inspector General have found that 

Medicare contractors have improperly paid claims worth billions of dollars—

$13.3 billion in fiscal year 2002 alone. CMS has been working to better hold 

individual contractors accountable for claims payment performance and help them 

target remedial actions to address problematic billing practices. Program 

safeguard activities have historically produced savings—in the past CMS has 

estimated a return of over $10 for every dollar spent in this area 

• Monitoring managed care plans: In 2001 auditors found that 59 of 80 health 

plans had misreported key financial data or had accounting records too unreliable 

to support their data, but CMS did not have a plan in place to resolve these issues. 

• Improving financial management processes: Despite a “clean” opinion on its 

financial statements, CMS financial systems and processes do not routinely 

generate information that is timely or reliable and do not ensure confidentiality of 

sensitive information. 
GAO-03-922T 8

• Collecting debt: At the end of fiscal year 1999, over $7 billion of debt had 

accumulated on contractors’ books as accounts receivable that were neither 

collected nor written off. While Medicare contractors have referred eligible 

delinquent debt to the Treasury for collection, CMS continues to face challenges 

in ensuring that contractors consistently make these referrals and is working to 

address this. 

• Reducing excessive payments for services and products. These hurt not only the 

taxpayers but also the program’s beneficiaries who are generally liable for copayments equal to 20 percent of Medicare’s approved fee. Excessive payments 

have been found for 

o Home health care or skilled nursing facility care: Medicare pays as much 

as 35 percent more than providers’ costs for home health care and 19 

percent more for skilled nursing facility care. Unfortunately, CMS has not 

adopted our recommendation that would minimize excessive payments to 

some home health agencies.4

 

o Medical products—Medicare’s payment approaches lack the flexibility to 

keep pace with market changes. Payments for medical equipment and 

supplies are through fee schedules that remain tied to suppliers’ historical 

charges to the program. Evidence from two competitive bidding projects 

suggests that competition might provide a tool that facilitates setting more 

appropriate payment rates that result in program savings 

o Outpatient drugs—Medicare pays list prices set by drug manufacturers, 

not prices providers actually pay. In September 2001, we reported that in 

2000 Medicare paid over $1 billion more than other purchasers for 

 

4

 U.S. General Accounting Office, Medicare Home Health: Prospective Payment System Will Need 

Refinement as Data Become Available, GAO-HEHS-00-9 (Washington, D.C.: April 7, 2000); and 

Medicare Home Health: Prospective Payment System Could Reverse Recent Declines in Spending, GAOHEHS-00-176 (Washington, D.C.: Sept. 8, 2000). 
GAO-03-922T 9

outpatient drugs that the program covers. CMS has not acted upon our 

recommendations in this area.5

 

Medicare Excessive Payments: Outpatient Drugs 

• In some cases, Medicare’s payments were so high that the 

beneficiaries’ co-payments alone exceeded the purchase price 

available to the provider. 

• In 2001, 

o Medicare paid $3.34 per unit for Ipratropium bromide 

although it is widely available for $0.77 per unit; 

o Medicare paid $588 for leuprolide acetate although it 

was widely available at a cost of $510. 

The Medicaid Program

Medicaid, which pays for both acute health care and long-term care services for over 44 

million low-income Americans, has been subject to waste and exploitation. In fiscal year 

2001, federal and state Medicaid expenditures totaled $228 billion. The federal share 

was about 57 percent, representing 7 percent of all federal outlays. Medicaid is the third 

largest social program in the federal budget (after Social Security and Medicare) and the 

second largest budget item for most states (after education). 

CMS, in the Department of Health and Human Services (HHS) is responsible for 

administering the program at the federal level, while the states administer their respective 

program’s day-to-day operations. The challenges inherent in overseeing a program of 

Medicaid’s size, growth, and diversity, combined with the open-ended nature of the 

program’s federal funding, puts the program at high risk. Inadequate fiscal oversight has 

led to increased and unnecessary federal spending. GAO has made recommendations in a 

number of areas, such as: 

 

5 Medicare: Payments for Covered Outpatient Drugs Exceed Providers’ Cost, GAO-01-1118 

(Washington, D.C.: Sept. 21, 2001). 
GAO-03-922T 10

• Curb state financing schemes. Such schemes inappropriately increase the federal 

share of Medicaid expenditures. For example, some states have created the 

illusion that they made large Medicaid payments to providers while in reality they 

only made temporary electronic funds transfers that the providers were required to 

return to them. In some cases, states have used federal payments for purposes 

other than Medicaid. Although Congress and CMS have repeatedly acted to 

curtail abusive financing schemes, states have developed new variations. Each 

has the same result: some of the state’s share of program expenditures is shifted 

to the federal government. Curbing abusive state practices is of increasing 

importance today since states are under budgetary pressures. Experience shows 

that some states are likely to look for other creative means to supplant state 

financing, making a compelling case for the Congress and CMS to sustain 

vigilance over federal Medicaid payments. 

Curbing states’ exploitative practices can yield substantial savings. CMS’ 2001 

regulation to close one significant loophole that was being increasingly used by 

states to generate excessive federal Medicaid payments, referred to as the upper 

payment limit, is estimated to save the federal government $55 billion over 10 

years, and a related 2002 CMS regulation is estimated to yield an additional $9 

billion over 5 years. To reduce these and other exploitative schemes and to better 

ensure that federal funds were used to reimburse providers only for Medicaidcovered services actually provided to eligible beneficiaries, we recommended in 

1994 that the Congress enact legislation to prohibit making Medicaid payments to 

a government-owned facility in excess of the facility’s costs. To date, no action 

has been taken. 
GAO-03-922T 11

The figure below shows one state’s arrangement to increase federal Medicaid 

payments inappropriately. 

• Address inappropriate provider claims. 

o The improper payments that states have identified suggest that—with 

augmented and consistent effort—states have the potential to save 

Medicaid millions of dollars. An estimate of savings from cost recoveries 

for the state of Washington alone, for example, was over $9 million in 

Medicaid funds during fiscal year 2002 through its hospital and physician 

audits. 

o Our review of certain Medicaid services provided to children through their 

schools also demonstrates the importance of heightened scrutiny over 

Medicaid expenditures. In one state alone, there were $324 million in 

disallowed claims involving school-based services for a 3 1⁄2 year period 

ending in fiscal year 2001. Some claims were for service not covered by 

Medicaid or for services provided to non-Medicaid-eligible children. 

• Improve federal and state agency controls over payments. CMS does not have a 

sound method for states to identify areas at high risk for improper Medicaid 

payments. Also, in our June 2001 review, we noted that no state requested the full 

amount of federal funds available for antifraud efforts due to a reluctance to put 

up state matching funds. 
GAO-03-922T 12

Improper Payments at DOD

Ensuring prompt, proper, and accurate payments continues to be a challenge for the 

Department of Defense (DOD). DOD managers do not have the important information 

needed for effective financial management, leading DOD to overpay contractors by 

billions of dollars over the past eight years. In our past reports, we have noted that (1) 

contractors were refunding hundreds of millions of dollars to DOD each year for a total 

of about $6.7 billion between fiscal year 1994 and 2001; (2) DOD made overpayments 

due to duplicate invoices and paid invoices without properly and accurately recovering 

progress payments; (3) contract administration actions had resulted in significant 

contractor debt or overpayment; (4) DOD and contractors were not aggressively pursuing 

the timely resolution of overpayments or underpayments when they were identified; and 

(5) DOD did not have statistical information on the results of contract reconciliation. In 

May 2002, we reported that DOD has various short-term corrective actions underway that 

appear to be having positive results. However, cost increases, performance issues, or 

schedule delays have beset two of DOD’s key long-term initiatives: the Defense 

Procurement Payment System, which is intended to be DOD’s standard contract payment 

system, and the Standard Procurement System, which is intended to be DOD’s single, 

standard system to support contracting functions and interface with financial management 

functions. GAO has recommended that DoD take a number of steps including 

developing controls over contractor debt and overpayments

Earned Income Credit (EIC) Noncompliance

For tax year 2001, about $31 billion was paid to about 19 million EIC claimants. 

Although researchers have reported that the EIC has generally been a successful 

incentive-based antipoverty program, IRS has reported high levels of EIC overpayments 
GAO-03-922T 13

going back to 1985. IRS’s most recent study, released in 2002, estimated that between 

$8.5 and $9.9 billion should not have been paid out to EIC claimants for tax year 1999. 

Administering the EIC is not an easy task—IRS has to balance its efforts to help ensure 

that all qualified persons claim the credit with its efforts to protect the integrity of the tax 

system and guard against fraud and other forms of noncompliance associated with the 

credit. Further, the complexity of the EIC may contribute to noncompliance. The EIC is 

among the more complex provisions of the tax code, which can contribute to 

unintentional errors by taxpayers. In addition, unlike other income transfer programs, the 

EIC relies more on self-reported qualifications of individuals than on program staff 

reviewing documents and other evidence before judging claimants to be qualified for 

assistance. 

Early in 2002, the Assistant Secretary of the Treasury and the IRS commissioner 

established a joint task force to seek new approaches to reduce EIC noncompliance. The 

task force sought to develop an approach to validate EIC claimants’ eligibility before 

refunds are made, while minimizing claimants’ burden and any impact on the EIC’s 

relatively high participation rate. Through this initiative, administration of the EIC 

program would become more like that of a social service program for which proof of 

eligibility is required prior to receipt of any benefit. 

According to IRS, three areas—qualifying child eligibility, improper filing status, and 

income misreporting (i.e., underreporting)—account for nearly 70 percent of all EIC 

refund errors. Although the task force initiative is designed to address each of these 

sources of EIC noncompliance, many of the details about its implementation are still to 

be settled. A significant change to the initiative was announced just this past Friday, June 

13, when IRS said that its pilot effort to precertify the eligibility of qualifying children for 

the EIC would not include requesting claimants to show their relationship to the 

qualifying child. Because planning and implementation for the EIC initiative will 

proceed simultaneously, its success will depend on careful planning and close 

management attention. 
GAO-03-922T 14

Congress has already focused oversight attention on the EIC initiative and continued 

oversight can help ensure that the initiative balances efforts to reduce EIC overpayments 

with continued efforts to maintain or increase the portion of the EIC eligible population 

that receives the credit. Further, Congress can consider making the several definitions of 

children in the tax code more uniform. The differing definitions contribute to the 

complexity taxpayers face and complexity is widely believed to contribute to errors 

taxpayers make in claiming the EIC. As early as 1993 we had suggested that Congress 

consider changes that would have made the definitions for children more similar for 

several tax purposes. More recently, IRS’s Taxpayer Advocate, the Joint Committee on 

Taxation, and the Department of the Treasury have made proposals as well. 

EIC Problems 

• IRS estimated in 2002 that of the $31.3 billion in earned income credits claimed 

by taxpayers in tax year 1999, about $8.5 billion to $9.9 billion, should not have 

been paid . 

• This level of noncompliance has remained relatively unchanged even after a 5-

year effort to reduce it. 

Collection of Unpaid Taxes

Collecting taxes due the government has always been a challenge for IRS, but in recent 

years the challenge has grown. In testimonies and reports we have highlighted large and 

pervasive declines in IRS’ compliance and collections programs. For example, between 

1996 and 2001 the programs generally experienced larger workloads, less staffing, and 

fewer number of cases closed per employee For the last several years, Congress and 

others have been concerned that the declines in IRS’s enforcement programs are eroding 

taxpayers’ confidence in the fairness of our tax system putting at risk their willingness to 

voluntarily comply with the tax laws. Because of the potential revenue losses and the 

threat to voluntary compliance, the collection of unpaid taxes is a high risk area. 
GAO-03-922T 15

A key to reversing these trends and ensuring compliance with the tax laws is continuing 

to modernize IRS’s management and systems. Such change is required across IRS. IRS 

needs to acquire and analyze data on noncompliance by continuing to implement the 

National Research Program as planned. IRS needs to reengineer it compliance and 

collection programs. Reengineering depends, in turn, on successfully modernizing 

business information systems by implementing recommended management controls. 

IRS needs to implement its planned centralized cost accounting system in order to 

strengthen controls over unpaid tax assessments. Because of their magnitude, these 

efforts are a major management challenge. IRS has tried to increase enforcement 

staffing. However, the hiring of additional staff has been delayed by factors such as 

unbudgeted cost increases. 

Uncollected Taxes 

By the end of fiscal year 2002, IRS had deferred collection action on about one out of 

three collection cases and had an inventory of $112 billion of known unpaid taxes with 

some collection potential. 

Student Financial Assistance

The Department of Education’s student financial assistance programs disburse about $65 

billion annually. Education also manages a $267 billion loan portfolio. Millions of 

dollars in loans and grants have been disbursed to ineligible students because of internal 

control weaknesses. While the default rate on student loans has come down substantially, 

the dollars in default remain high. 

Education has made progress on improving its financial management; however it needs to 

implement corrective actions to ensure that relevant, reliable accounting information is 
GAO-03-922T 16

available. Over the years, Education has spent millions to integrate and modernize its 

many financial aid systems in an effort to provide more information and better service to 

customers—students, parents, institutions, and lenders. However Education did not have 

an enterprise architecture6

 and it lacked the ability to track students across programs. 

Education also faces challenges in maintaining program integrity, specifically ensuring 

that information reported on student aid applications is correct and that adequate internal 

controls exist to prevent erroneous and improper payments of grants and loans. To 

improve the integrity of the financial aid programs, Education should (1) continue to 

coordinate with the Internal Revenue Service to verify income information reported on 

student aid applications, (2) provide clear policy and guidance on the effect of using tax 

provisions on student aid awards, and (3) implement controls to limit improper 

disbursements of grants and loans. 

Fraud in Student Aid Programs 

• The owner, registrar, director of education, and other employees at The Training 

Center, a computer and travel school in Michigan, were indicted for falsifying 

documents to illegally obtain student financial aid. The indictment included an 

$875,000 forfeiture to recover the funds these individuals illegally received. 

• An investigation at Beacon Career Institute in Florida (BCI) in Florida revealed a 

major Pell Grant case that defrauded Education of over $720,000. The former 

BCI administrator and other BCI officials created false documents to justify the 

disbursement of these grants. They were ordered to pay restitution totaling 

$1,778,472 and sentenced to prison. 

• A former instructor at Piedmont College of Hair Design in South Carolina pled 

guilty and was ordered to pay restitution of $27,000 for Pell Grant fraud. Her 

actions caused over $300,000 in Pell Grants to be given to ineligible students. 

• One individual in Los Angeles, who was convicted of student aid fraud, 

conducted weekly seminars for parents and students, charging $300 for the 

programs at which he advised and assisted them in preparing student aid 

applications that deliberately misstated their income or dependency status. The 

potential loss to the government from his actions was about $800,000. 

 

6

 Enterprise architecture is an institutional blueprint that defines in both business and technology terms the 

organizations current and target operating environments and provides a transition roadmap. 
GAO-03-922T 17

For example, in 2001, $21.8 billion remained in default. Education’s Office of Federal 

Student Aid (FSA) draft fiscal year 2002 performance plan specified the goals it had for 

default management; however, it included only limited information about the strategies to 

achieve those goals. Without giving additional details on its strategies for default 

recovery and prevention, it is not clear how FSA will determine whether it has achieved 

its default management goals. Finally, while Education has set up voluntary flexible 

agreements with four of its guaranty agencies, it is in the process of assessing whether 

they have been successful in lowering default and delinquency rates. 

Food Assistance Programs

Each day 1 in every 6 Americans receives nutrition assistance through 1 or more of the 

15 programs administered by the U.S. Department of Agriculture (USDA) In FY 2002 

Congress appropriated about $38.8 billion—nearly half of USDA’s budget-- to provide 

children and low-income adults with access to food, a healthful diet, and nutrition 

education through programs such as Food Stamps, school-breakfast and school-lunch 

programs.) USDA continues to face serious challenges in ensuring that eligible 

individuals receive the proper benefits from the food assistance programs administered 

by its Food and Nutrition Service. 

In FY 2001 The Food Stamp program alone provided 17.3 million individuals with more 

than $15.5 billion in aid. About 149,000 authorized retail outfits accept food stamps. A 

program this large and this decentralized is vulnerable to problems and we have made 

recommendations in a number of areas, including: 

• Erroneous payments: USDA estimated that for FY 2001 erroneous payments 

totaled about $1.4 billion —about $1 billion in overpayments and just under $400 

million in underpayments. This is an error rate of about 9 percent. 

o To deal with the complexity of the Food Stamp Program and the high 

error rate, the Farm Security and Rural Investment Act of 2002 contained 

a number of administrative and simplification reforms, such as allowing 

states to use greater flexibility in considering the income of recipients for 
GAO-03-922T 18

eligibility purposes and to extend simplified reporting procedures for all 

program recipients. 

• Misuse of benefits: individuals sometimes illegally sell their benefits for cash—a 

practice known as trafficking. In its most recent report on trafficking [March 

2000] USDA estimated that about 3.5 cents of every dollar of food stamp benefits 

issued each year from 1996 through 1998 was trafficked by stores—about $660 

million. 

o Storeowners generally do not pay the financial penalties assessed for 

trafficking. For example, we reported in May 1999 that USDA and the 

courts collected only $11.5 million, or about 13 percent, of the $78 million 

in total penalties assessed against storeowners for violating food stamp 

regulations from 1993 through 1998.7

 Better use of information 

technology has the potential to help USDA minimize fraud, waste, and 

abuse in the Food Stamp Program. The Food and Nutrition Service has 

taken some actions to implement our recommendations, such as assisting 

states in the use of EBT data to identify traffickers and has other actions 

under way. 

Other nutrition programs also suffer from fraud and abuse. 

• For example in FY 2001 the Child and Adult Care Food Program (CACFP) 

provided subsidized meals for a daily average of 2.6 million participants in the 

care of about 215,000 day care providers and received $1.8 billion in FY 2002. . 

In response to our November 1999 recommendation8

 and reports by the USDA 

OIG, legislation was enacted in June 2000 to strengthen CACFP management 

 

7

U.S. General Accounting Office, Food Stamp Program: Storeowners Seldom Pay 

Financial Penalties Owed for Program Violations, GAO/RCED-99-91. (Washington, 

D.C.: May 11, 1999).

8

U.S. General Accounting Office, Food Assistance: Efforts to Control Fraud and Abuse 

in the Child and Adult Care Food Program Should Be Strengthened, GAO/RCED-00-12. 

(Washington, D.C.: Nov. 29, 1999). 
GAO-03-922T 19

controls and to reduce its vulnerability to fraud and abuse. As a result, the Food 

and Nutrition Service has intensified its management evaluations at the state and 

local levels and has trained its regional and state agency staff on revised 

management procedures. 

Child & Adult Care Food Program 

• To identify potentially fraudulent or abusive claims, reimbursement claims are 

reviewed, but the reviews are not foolproof. For example, one state we visited 

used several methods to evaluate the soundness of claims, but a state reviewer 

found that the reviews did not catch a $5,000 overpayment to a day care home 

sponsor. In this case, the claim for reimbursement had jumped in one month to 

$7,000, from an average monthly claim of $2,000. 

• FNS has not effectively directed states’ efforts to control fraud and abuse. In 

fiscal years 1997 and 1998, only 23 of FNS’ 47 management evaluations directly 

evaluated the states’ implementation of required controls over reimbursements to 

sponsors and providers. Almost half of these reviews found serious problems, 

including the failure of some states to conduct any administrative reviews of 

sponsors or providers.

National School Lunch Program provided nutritionally balanced, low-cost or free lunches 

for over 27 million children each school day in more than 98,000 public and nonprofit 

private schools and residential child care institutions. Past reports have disclosed that the 

number of children certified as eligible to receive free lunches in this program was 18 

percent greater than the estimated number of children eligible for this benefit. 

Furthermore, in its strategic plan for fiscal years 2000 through 2005, USDA specifically 

identified the challenge it faces in ensuring that only eligible participants are provided 

benefits in the National School Lunch Program. USDA has taken some initial steps to 

develop a cost-effective strategy to address this integrity issue, such as pilot testing 

potential policy changes to improve the certification process. 
GAO-03-922T 20

Credit Card Abuse

We and a number of Inspectors General have identified improper and fraudulent use of 

purchase cards as well as control weaknesses in numerous agencies such as the 

Departments of Agriculture, Defense, Education, Housing and Urban Development, 

Interior, and the Federal Aviation Administration. Identified problems include 

weaknesses in the review and approval processes, lack of training for cardholders and 

approving officials, and ineffective monitoring. These weaknesses created a lax control 

environment that allowed cardholders to make fraudulent, improper, abusive, and 

questionable purchases. Similarly, we have found that a weak control environment 

contributed to significant abuse and potential fraud in the use of travel cards in the 

Department of Defense. 

For instance, in March 2003, we reported that weaknesses in FAA’s purchase card

controls resulted in instances of improper, wasteful, and questionable purchases, as well

as missing and stolen assets. These weaknesses contributed to $5.4 million of improper

purchases. This included 997 transactions totaling $5.1 million associated with purchases

that were split into two or more segments to circumvent single purchase limits. In

addition, over half of the asset purchases—such as computers and other equipment—that

we examined had not been recorded in FAA’s property system, increasing the risk of loss

or theft. As a result, FAA could not locate or document the location of over a third of the

items. These missing items totaled almost $300,000. In separate internal reviews, one

FAA location identified over 800 items, totaling almost $2 million, that were lost or

stolen in fiscal years 2001 through 2002. Given systemic weaknesses in FAA’s property

controls, the actual amount of missing or stolen equipment FAA-wide could be much

higher. We made a total of 27 recommendations to strengthen FAA’s internal controls

and compliance in its purchase card program, decrease wasteful purchases, and improve

the accountability of assets in order to reduce vulnerability to improper and wasteful

purchases. These included requiring centralized receiving of accountable assets and

sensitive property items, improving physical security over the storage of computerrelated equipment, and following up on missing property items.
GAO-03-922T 21

Purchase Card Abuses

• At Education, a purchase cardholder made several fraudulent purchases from two Internet

sites for pornographic services. The name of one of the sites—Slave Labor

Productions.com—should have caused suspicion when it appeared on the employees’

monthly statement.

• At HUD, we found improper purchases totaling about $1 million where HUD employees

either split, or appeared to have split, purchases into multiple transactions to circumvent

cardholder limits.

• At the two Navy units we reviewed, we identified over $11,000 of fraudulent purchases

including clothing from Nordstrom, as well as improper, questionable, and abusive

purchases, such as rentals of luxury cars and purchases of designer and high-cost leather

goods such as leather purses costing up to $195 each.

Poor oversight and management of travel card programs led to high delinquency rates

costing millions in lost rebates and increased ATM fees. For example, as of March 31,

2002, we found that over 8,000 Navy cardholders had $6 million in delinquent debt. 

During the period of our reviews, over 400 Air Force, 250 Navy, and 200 Army

personnel committed potential bank fraud by writing three or more nonsufficient (NSF)

fund checks to the Bank of America. Also, many cardholders used their cards for

inappropriate purchases, such as cruises and event tickets. Our review of Air Force travel

cards, for example, found documented evidence of disciplinary actions in less than half of

the cases reviewed where cardholders wrote NSF checks, or their accounts were charged

off or placed in salary offset. We made several recommendations to DOD and the Air

Force, including providing sufficient training to agency program coordinators to promote

proper oversight of the travel card program, including effective monitoring for

inappropriate transactions; reviewing the security clearances of cardholders with financial

problems; and strengthening procedures for canceling cards of employees leaving the

service. DOD and the Air Force concurred and said that they had actions under way to

address many of them.
GAO-03-922T 22

Examples of Abusive Air Force Travel Card Activity

Category Examples of vendors Number of 

transactions

Approximate 

dollar amount 

Cruises Carnival, Celebrity, 

Norwegian, and Princess 

70 $ 31,000 

Gambling Global Cash Access 79 14,000 

Sports, concerts, 

and other events 

Dallas Cowboys, Backstreet 

Boys, and other Ticketmaster 

purchases 

223 31,000 

Gentlemen’s clubs Cheetah’s Lounge, Déjà vu 

Showgirls 187 32,000 

HUD Single-Family Mortgage Insurance and Rental Assistance Programs

HUD manages about $550 billion in insurance and $19 billion per year in rental 

assistance. The department relies on a complex network of thousands of third parties to 

manage their risk. We have made recommendations in a number of areas: 

 

• Reducing rental subsidy overpayments: HUD estimates that rental subsidy 

overpayments in fiscal year 2000 were $2 billion—over 10 percent of total 

program expenditures. A significant portion of this overpayment is attributable 

to tenants’ underreporting of income. We have recommended steps to improve 

data sharing between HUD and the Department of Health and Human Services to 

help identify unreported income before rental subsidies are provided.9

 HUD 

needs to ensure that its rental housing assistance programs operate effectively and 

efficiently, specifically that assistance payments are accurate, recipients are 

eligible, assisted housing meets quality standards, and contractors perform as 

expected. 

 

9

U.S. General Accounting Office, Benefit and Loan Programs: Improved Data Sharing Could Enhance 

Program Integrity, GAO/HEHS-00-19, (Washington, D.C., Sept. 13, 2000). 
GAO-03-922T 23

• Reduce risk of losses in the single-family housing program: HUD also needs to 

reduce the risk of losses in its single-family housing program due to fraud, loan 

defaults, and poor management of foreclosed properties. Ineligible buyers 

sometimes fraudulently obtain loans, or loans are made on properties actually 

worth less than the loan amount, increasing the risk of default and losses. In 

addition, foreclosed properties are not always secured and maintained in a timely 

fashion and their condition can deteriorate, resulting in lower sales prices and 

limiting FHA’s ability to recover its costs. HUD’s IG has reported that fraud in 

the origination of mortgages of single-family properties continues to be the most 

pervasive problem uncovered by its investigations. We have reported on 

weaknesses in HUD’s oversight of mortgage lenders and have made 

recommendations aimed at strengthening HUD’s processes for approving and 

monitoring lenders and holding them accountable for poor performance.10 We 

have also recommended that HUD adopt a foreclosure process more like that 

used by other entities to better ensure that properties do not deteriorate and that it 

recoups more of its losses when the houses are sold.11 HUD needs to improve 

the management and oversight of its single-family housing programs to reduce its 

risk of financial losses. 

Fraud in FHA Program 

• A joint investigation between HUD’s Inspector General and the Federal Bureau of 

Investigation uncovered a 20-person property-flipping scheme in Chicago, Illinois, 

that resulted in 21 indictments and convictions and 12 jail sentences. 

• The use of fraudulent documentation to qualify borrowers for FHA-insured 

mortgages had led to criminal indictments and convictions in several other 

communities. 

 

10U.S. General Accounting Office, Single-Family Housing: Stronger Oversight of FHA Lenders Could 

Reduce HUD’s Insurance Risk, GAO/RCED-00-112 (Washington, D.C.: April 28, 2000). 11U.S. General Accounting Office, Single-Family Housing: Opportunities to Improve Federal Foreclosure 

and Property Sales Processes, GAO-02-305 (Washington, D.C.: Apr. 17, 2002). 
GAO-03-922T 24

• Improve acquisition management and monitoring of contractor performance. 

Contractors are responsible for managing and disposing of HUD’s inventory of 

single-family and multifamily properties–properties that had a combined value of 

about $3 billion as of September 30, 2001. Our review of HUD’s files and 

disbursements indicates that its oversight processes have not identified instances 

in which contractors were not performing as expected. Weaknesses in HUD’s 

acquisition management limit its ability to readily prevent, identify, and address 

contractor performance problems. Without a systematic approach to oversight 

and adequate on-site monitoring, the department’s ability to identify and correct 

contractor performance problems and hold contractors accountable is reduced. 

The resulting vulnerability limits HUD’s ability to assure that it is receiving the 

services for which it pays. 

HUD Contractor Performance Oversight 

In one case, HUD paid $227,500 to have 15,000 square feet of concrete replaced; 

however, we determined that only about one-third of the work HUD paid for was 

actually performed.12 

Improving Economy, Efficiency, Effectiveness

Important as safeguarding funds from fraud, waste, abuse and mismanagement is, I 

believe that for long-lasting improvements in government performance the federal 

government needs to move to the next step: to widespread opportunities to improve the 

economy, efficiency and effectiveness of existing federal goals and program 

commitments. The basic goals of many federal programs—both mandatory and 

discretionary—enjoy widespread support. That support only makes it more important for 

us to pay attention to the substantial opportunities to improve their cost effectiveness and 

 

12U.S. General Accounting Office, Financial Management: Strategies to Address Improper Payments at 

HUD, Education and Other Federal Agencies, GAO-03-167T (Washington, D.C.: Oct. 3, 2002). 
GAO-03-922T 25

the delivery of services and activities. No activity should be exempt from some key 

questions about its design and management. 

Key Questions for Program Oversight 

• Is the program targeted appropriately? 

• Does the program duplicate or even work at cross purposes with related programs 

and tools? 

• Is the program financially sustainable and are there opportunities for instituting 

appropriate cost sharing and recovery from nonfederal parties including private 

entities that benefit from federal activities? 

• Can the program be made more efficient through reengineering or streamlining 

processes or restructuring organizational roles and responsibilities? 

• Are there clear goals, measures and data with which to track progress, benefits 

and costs? 

GAO’s work illustrates numerous examples where programs can and should be changed 

to improve their impact and efficiency. Today I want to touch on some of these areas and 

highlight some significant opportunities for program changes that promise to improve 

their cost effectiveness. I recognize that many of these will prompt debate—but that 

debate is both necessary and healthy. 

Targeting

Our work has shown that scarce federal funds could have a greater impact on program 

goals by improving their targeting to places or people most in need of assistance. Poorly 

targeted funding can result in providing assistance to recipients who have the resources 

and interest to undertake the subsidized activity on their own without federal financing. 

Moreover, lax eligibility rules and controls can permit scarce funds to be diverted to 

clients with marginal needs for program funds. 
GAO-03-922T 26

• Grant programs: Many federal grant programs with formula distributions to state 

and local governments are not well targeted to places with high needs but low 

fiscal capacity. As a result, recipients in wealthier areas may enjoy higher levels 

of federal funds than harder pressed areas. Better targeting of grants offers a 

strategy to reduce federal outlays by concentrating reductions in wealthier 

communities with comparatively fewer needs and greater capacity to finance 

services from their own resources. For such mandatory programs as Medicaid, 

Foster Care and Adoption Assistance, reimbursement formulas can be changed to 

better reflect relative need, geographic differences in the cost of services and state 

bases. 

• Flood insurance losses: Repetitive flood losses are one of the major factors 

contributing to the financial difficulties facing the National Flood Insurance 

Program. Approximately 45,000 buildings currently insured under the National 

Flood Insurance Program have been flooded on more than one occasion and have 

received flood insurance claims payments of $1,000 or more for each loss. These 

repetitive losses account for about 38 percent of all program claims historically 

(currently about $200 million annually) even though repetitive-loss structures 

make up a very small portion of the total number of insured properties—at any 

one time, from 1 to 2 percent. The cost of these multiple-loss properties over the 

years to the program has been $3.8 billion. One option that would increase 

savings would be for FEMA to consider eliminating flood insurance for certain 

repeatedly flooded properties. 

• Medicare Incentive Payment Program: The Medicare Incentive Payment 

program was established in 1987 to provide a bonus payment for physicians to 

provide primary care in underserved areas. However, specialists receive most of 

the program dollars, even though primary care physicians have been identified as 

being in short supply. Shortages of specialists, if any, have not been determined. 

Moreover, since 1987 the Congress generally increased reimbursement rates for 

primary care services and reduced the geographic variation in physician 

reimbursement rates. HHS has acknowledged that structural changes to this 
GAO-03-922T 27

program are necessary to better target incentive payments to rural areas with the 

highest degree of shortage. For example, if the program’s intent is to improve 

access to primary care services in underserved rural areas, the bonus payments 

should be targeted and limited to physicians providing primary care services to 

underserved populations in rural areas with the greatest need. 

• Social Security Government Pension Offset Provision: The Social Security 

Administration (SSA) administers the Government Pension Offset (GPO) 

provision requiring benefits to be reduced for persons whose social security 

entitlement is based on another person’s social security coverage (usually a 

spouse’s). The GPO prevents workers from receiving a full Social Security 

spousal benefit in addition to a pension from government employment not 

covered by Social Security. However, the law provides an exemption from the 

GPO if an individual's last day of state/local employment is in a position that is 

covered by both Social Security and the state/local government's pension system. 

In a recent study, we found instances where individuals performed work in Social 

Security covered positions for short periods to qualify for the GPO last-day 

exemption. The practices we identified in Texas and Georgia alone could 

increase long-term benefit payments from the Social Security Trust Fund by $450 

million.13 In our report and testimony on this topic we presented a matter for 

congressional consideration that the last-day GPO exemption be revised to 

provide for a longer minimum time period, and the House has passed necessary 

legislation that is pending in the Senate. 

 

13We calculated this figure by multiplying the number of last-day cases reported in Texas and Georgia 

(4,819) by SSA data on the average annual offset amount ($4,800) and the average retirees life expectancy 

upon receipt of spousal benefits (19.4 years). This estimate may over/under estimate costs due to the use of 

averages, the exclusion of inflation/cost-of-living/net present value adjustments, lost investment earnings 

by the Trust Funds, and other factors that may affect the receipt of spousal benefits. 
GAO-03-922T 28

Consolidation

GAO’s work over the years has shown that numerous program areas are characterized by 

significant program overlap and duplication. In program area after program area, we have 

found that unfocused and uncoordinated programs cutting across federal agency 

boundaries waste scarce resources, confuse and frustrate taxpayers and beneficiaries and 

limit program effectiveness. 

• Food Safety: The federal system to ensure the safety and quality of the nations food 

is inefficient and outdated. The Food Safety and Inspection Service within USDA is 

responsible for the safety of meat, poultry and eggs and some egg products, while the 

Food and Drug Administration under HHS is responsible for the safety of most other 

foods. USDA, FDA and ten other federal agencies administer over 35 different laws 

for food safety. The current system suffers from overlapping and duplicative 

inspections, poor coordination and inefficient allocation of resources. The Congress 

may wish to consider consolidating federal food safety agencies under a single riskbased food safety inspection agency with a uniform set of food safety laws. 

• Grants for Homeland Security: GAO identified at least 16 different grant programs 

that can be used by the nation’s first responders to address homeland security needs. 

These grants are currently provided through two different directorates within the 

Department of Homeland Security, the Department of Justice, and the Department of 

Health and Human Services and serve state governments, cities and localities, 

counties, and others. Multiple fragmented grant programs create a confusing and 

administratively burdensome process for state and local officials and complicate their 

efforts to better coordinate preparedness and response to potential terrorist attacks 

across the wide range of specialized agencies and programs. In addressing the 

fragmentation prompted by the current homeland security grant system, Congress 

should consider consolidating separate categorical grants into a broader purpose grant 

with national performance goals defining results expected for the state and local 

partnership. 
GAO-03-922T 29

• Rural housing assistance: USDA and HUD both provide assistance for rural 

housing, targeting some of the same kinds of households in the same markets. The 

programs of both agencies could be merged, using the same network of lenders. A 

consolidation of these programs building off the best practices of both programs 

would improve the efficiency with which the federal government delivers rural 

housing programs. 

Cost Recovery

The allocation of costs that once made sense when programs were created needs to be 

periodically reexamined to keep up with the evolution of markets. In some cases, private 

markets and program beneficiaries can play greater roles in financing and delivery of 

program services. 

• Public Power: The federal government began to market electricity following the 

construction of dams and major water projects primarily from the 1930’s to the 

1960’s. However, the restructured and increasingly competitive electricity industry 

suggests that a reassessment of the roles and missions of federal subsidies is needed. 

Although the Power Marketing Administrations (PMAs) are generally required to 

recover all costs, in fact in some cases rates do not recover full costs incurred by the 

federal government in producing, transmitting and marketing federal power. The 

Congress has the option of requiring the PMAs to sell their power at market rates to 

better ensure the full recovery of these costs. 

• Child Support Enforcement: The Child Support Enforcement Program is to 

strengthen state and local efforts to obtain child support for both families eligible for 

Temporary Assistance for Needy Families (TANF) and non-TANF families. From 

fiscal year 1984 through 1998, non-TANF caseloads and costs rose about 500 percent 

and 1200 percent, respectively. While states have the authority to fully recover the 

costs of their services, states have charged only minimal application and service fees 

for non-TANF clients, doing little to recover the federal government’s 66 percent 
GAO-03-922T 30

share of program costs. In fiscal year 1998, for example, state fee practices returned 

about $49 million of the estimated $2.1 billion spent to provide non-TANF services. 

To defray some of the costs of child support programs, Congress could require that 

mandatory application fees should be dropped and replaced with a minimum 

percentage service fee on successful collections for non-TANF families. 

Beyond program design: operational economy, efficiency and effectiveness

Beyond program management, there are governmentwide areas where major savings 

could come from improving economy, efficiency and effectiveness. Today I would like 

to highlight one GAO thinks is so important that we added it to the high-risk list—the 

management of federal real property. 

Excess and underused property and deteriorating facilities present a real challenge—but 

also an opportunity to reap great rewards in terms of improved structure and savings for 

the federal government’s operations. In the U.S. government’s fiscal year 2002 financial 

statements show an acquisition cost of more than $335 billion for the federal 

government’s real property. This includes military bases, office buildings, embassies, 

prisons, courthouses, border stations, labs, and park facilities. Available governmentwide 

data suggest that the federal government owns roughly one-fourth of the total acreage of 

the nation—about 636 million acres. 

Underutilized or excess property is costly to maintain. DoD alone estimates that it 

spends about $3 to $4 billion per year maintaining unneeded facilities. Excess DoE 

facilities cost more than $70 million per year, primarily for security and maintenance. 

There are opportunity costs –these buildings and land could be put to more costbeneficial uses, exchanged for needed property, or sold to generate revenue for the 

government. Table 1 below highlights excess and underutilized property challenges 

faced by some of the major real property-holding agencies. 
GAO-03-922T 31

Table 1: Excess Property Challenges at Some of the Major Real Property-Holding 

Agencies

Agency Excess and underutilized property challenge 

DOD Even with four rounds of base realignment and closures that reduced its holdings by 

21 percent, DOD recognized that it still had some excess and obsolete facilities. 

Accordingly, Congress gave DOD the authority for another round of base 

realignment and closure in the fiscal year 2002 defense authorization act, scheduled 

for fiscal year 2005. 

VA VA recognizes that it has excess capacity and has an effort underway known as the 

Capital Asset Realignment for Enhanced Services (CARES) that is intended to 

address this issue. VA recently completed its initial CARES study involving 

consolidation of services among medical facilities in its Great Lakes Network 

(including Chicago) as well as expansion of services in other locations. VA 

identified 31 buildings that are no longer needed to meet veterans' health care needs 

in this network, including 30 that are currently vacant. 

GSA GSA recognizes that it has many buildings that are not financially self-sustaining 

and/or for which there is not a substantial, long-term federal purpose. GSA is 

developing a strategy to address this problem. The L. Mendel Rivers Federal 

Building in Charleston, S.C. is a prime example of a highly visible, vacant federal 

building held by GSA. 

DOE After shifting away from weapons production, DOE had 1,200 excess facilities 

totaling 16 million square feet, and the performance of its disposal program had not 

been fully satisfactory, according to DOE’s Inspector General. Facility disposal 

activities have not been prioritized to balance mission requirements, reduce risks, 

and minimize life-cycle costs. In some cases, disposal plans were in conflict with 

new facility requirements. 

USPS The issue of excess and underutilized property will need to be part of USPS’s efforts 

to operate more efficiently. Facility consolidations and closures are likely to be 

needed to align USPS’s portfolio more closely with its changing business model. 

State Although State has taken steps to improve its disposal efforts and substantially 

reduce its inventory of unneeded properties, it reported that 92 properties were 

potentially available for sale as of September 30, 2001, with an estimated value of 

more than $180 million. State has begun the disposal process for some of these 

properties. State will also need to dispose of additional facilities over the next 

several years as it replaces more than 180 vulnerable embassies and consulates for 

security reasons. Security also has become a primary factor in considering the 

retention and sale of excess property. 
GAO-03-922T 32

If the federal government is to more effectively respond to the challenges associated with 

strategically managing its multi-billion dollar real property portfolio, a major departure 

from the traditional way of doing business is needed. Better managing these assets in the 

current environment calls for a significant paradigm shift to find solutions. Solutions 

should not only correct the long-standing problems we have identified but also be 

responsive to and supportive of agencies’ changing missions, security concerns, and 

technological needs in the 21st century. Solving the problems in this area will undeniably 

require a reconsideration of funding priorities at a time when budget constraints will be 

pervasive. 

Because of the breadth and complexity of the issues involved, the long-standing nature of 

the problems, and the intense debate about potential solutions that will likely ensue, 

current structures and processes may not be adequate to address the problems. Thus, as 

discussed in our high-risk report, there is a need for a comprehensive and integrated 

transformation strategy for federal real property. This strategy could address challenges 

associated with having adequate capacity (people and resources) to resolve the problems. 

The development of a transformation strategy would demonstrate a strong commitment 

and top leadership support to address the risk. An independent commission or 

governmentwide task force may be needed to develop the strategy. We believe that 

OMB is uniquely positioned to be the catalyst for identifying and bringing together the 

stakeholders that would develop the transformation strategy, drawing on resources and 

expertise from the General Services Administration, the Federal Real Property Council, 

and other real property-holding agencies. For example, OMB could assess agency real 

property activities as part of the executive branch management scorecard effort. 

Congress will need to play a key role in implementing the transformation strategy’s 

roadmap for realigning and rationalizing the government’s real property assets so that the 

portfolio is more directly tied to agencies’ missions. Without measurable progress and a 

comprehensive strategy to guide improvements, real property will most likely remain on 

the high risk list. 
GAO-03-922T 33

Reassessing What Government Does

I have talked about the need to protect taxpayer dollars from fraud, waste, abuse and 

mismanagement and about the need to take actions improving the economy, efficiency 

and effectiveness of government programs, policies, and activities. However, to meet the 

challenges of today and the future, we must move beyond this to a more fundamental 

reassessment of what government does and how it does it. 

In part this requires looking at current federal programs—both spending and tax—in 

terms of their goals and results. Why does the program/activity exist? Is the activity 

achieving its intended objective? If not, can it be fixed? If so, how? If not, what other 

approaches might succeed in achieving the goal/objective? More fundamentally, even if 

a program/activity is achieving its stated mission—or can be “fixed” so that it does so—

where does it fit in competition for federal resources? Is its priority today higher or 

lower than before given the nation’s evolving challenges and fiscal constraints? 

It also requires asking whether an existing program, policy, or activity “fits” the world we 

face today and in the future. It is important not to fall into the trap of accepting all 

existing activities as “givens” and subjecting new proposals to greater scrutiny than 

existing ones undergo. Think about how much the world has changed in the past few 

decades and how much it will change in future years. 

One example of a disconnect between program design and today’s world is the area of 

federal disability programs—a disconnect great enough to warrant designation as a “high 

risk” area this year. Already growing, disability programs are poised to surge as babyboomers age, yet the programs remain mired in outdated economic, workforce, and 

medical concepts and are not well positioned to provide meaningful and timely support to 

disabled Americans. Disability criteria have not been updated to reflect the current state 

of science, medicine, technology and labor market conditions. Using outdated 

information, agencies—primarily SSA and VA--risk overcompensating some individuals 

while under-compensating or denying compensation entirely to others. Although federal 
GAO-03-922T 34

disability programs present serious management challenges and can be vulnerable to 

fraud or abuse, the overarching and longer-term challenge is to design a disability system 

for the modern world. 

We should be striving to maintain a government that is effective and relevant to a 

changing society—a government that is as free as possible of outmoded commitments 

and operations that can inappropriately encumber the future. The difference between 

“wants,” “needs,” and overall “affordability” and long-term “sustainability” is an 

important consideration when setting overall priorities and allocating limited resources. 

Finally, any reassessment of federal missions and strategies should include the entire set 

of tools the federal government can use to address national objectives. These tools 

include discretionary and mandatory spending, loans and loan guarantees, tax provisions, 

and regulations. If we are evaluating federal support for higher education, we need to 

look not only at spending but also at tax preferences. The same thing is true for health 

care. The figure below shows federal activity in health care and Medicare budget 

functions in FY 2000: $37 billion in discretionary BA, $319 billion in entitlement 

outlays, $5 million in loan guarantees, and $91 billion in tax expenditures. 
GAO-03-922T 35

Government must operate in the context of broader trends shaping the United States and 

its place in the world. These include: 

• National and global response to terrorism and other threats to personal and 

national security 

• Increasing interdependence of enterprises, economies, civil society, and 

national governments—a/k/a globalization. 

• The shift to market-oriented, knowledge-based economies; 

• An aging and more diverse U.S. population; 

• Advances in science & technology and the opportunities & challenges created 

by these changes 

• Challenges and opportunities to maintain & improve the quality of life for the 

nation, communities, families & individuals; and 

• The increasingly diverse nature of governance structures and tools. 

Relative Reliance on Policy Tools in the

Health Care Budget Functions (FY2000)

20%

8%

72%

Tax Expenditures Discretionary budget authority Mandatory outlays

Note: Loan Guarantees account for about $5 million, or about .001 percent, of the approximately $447 billion in 

total federal health care resources.

Source: Budget of the United states Government, FY 2002, Office of Management and Budget.
GAO-03-922T 36

In addition to the above trends, growing fiscal challenges at the federal, state, and local 

levels are of great concern. Furthermore, rising health care costs and other health care 

related challenges (e.g., access, quality) are of growing concern crossing all sectors of the 

economy and all geopolitical boundaries. 

Government leaders are responsible and accountable for making needed changes to 

position the federal government to take advantage of emerging opportunities and to meet 

future challenges. Focusing on accountable, results-oriented management can help the 

federal government operate effectively within a broad network that includes other 

governmental organizations, nongovernmental organizations, and the private sector. 

Concluding Remarks

There is a Chinese curse that goes “May you live in interesting times.” We clearly do. I 

would prefer to see this not as a curse—but as a challenge and an opportunity. 

 Tackling areas at risk for fraud, waste, abuse & mismanagement will require 

determination, persistence and sustained attention by both agency managers and 

Congressional committees. Large and complex federal agencies must effectively use a 

mixture of critical resources and improved processes to improve their economy, 

efficiency, and effectiveness, Congressional oversight will be key. 

In view of the broad trends and long-term fiscal challenges facing the nation, there is a 

need to fundamentally review, reassess, and reprioritize the proper role of the federal 

government, how the government should do business in the future, and—in some 

instances—who should do the government’s business in the 21st century. It is also 

increasingly important that federal programs use properly designed and aligned tools to 

manage effectively across boundaries work with individual citizens, other levels of 

government, and other sectors. Evaluating the role of government and the programs it 

delivers is key in considering how best to address the nation’s most pressing priorities. 
GAO-03-922T 37

Periodic reviews of programs in the budget, on the mandatory and discretionary sides of 

the budget as well as tax preferences, can prompt a healthy reassessment of our priorities 

and of the changes needed in program design, resources and management needed to get 

the results we collectively decide we want from government. 

 

Needless to say, we at GAO are pleased to help Congress in this very important work. 
GAO-03-922T 38

Attachment I: 

GAO’s 2003 High-Risk List 

2003 High-Risk Areas 

Year 

Designated 

High Risk 

Addressing Challenges In Broad-based Transformations 

• Strategic Human Capital Management* 2001 

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

• Protecting Information Systems Supporting the Federal Government 

and the Nation’s Critical Infrastructures 

1997 

• Implementing and Transforming the New Department of Homeland 

Security 

2003 

• Modernizing Federal Disability Programs* 2003 

• Federal Real Property* 2003 

Ensuring Major Technology Investments Improve Services 

• FAA Air Traffic Control Modernization 1995 

• IRS Business Systems Modernization 1995 

• DOD Systems Modernization 1995 

Providing Basic Financial Accountability 

• DOD Financial Management 1995 

• Forest Service Financial Management 1999 

• FAA Financial Management 1999 

• IRS Financial Management 1995 

Reducing Inordinate Program Management Risks 

• Medicare Program* 1990 

• Medicaid Program* 2003 

• Earned Income Credit Noncompliance 1995 

• Collection of Unpaid Taxes 1990 

• DOD Support Infrastructure Management 1997 

• DOD Inventory Management 1990 

• HUD Single-Family Mortgage Insurance and Rental Assistance 

Programs 

1994 

• Student Financial Aid Programs 1990 

Managing Large Procurement Operations More Efficiently 

• DOD Weapon Systems Acquisition 1990 

• DOD Contract Management 1992 

• Department of Energy Contract Management 1990 

• NASA Contract Management 1990 

*Additional authorizing legislation is likely to be required as one element of addressing 

this high-risk area. 

Source: GAO 
GAO-03-922T 39

Attachment II: 

Selected Reports Regarding Specific Examples Cited in Testimony 

Erroneous payments, Misuse of benefits, Child and Adult Care Food Program 

(CACFP), National School Lunch Program: 

Food Assistance: WIC Faces Challenges in Providing Nutrition Services. GAO-02-142. 

Washington, D.C.: December 7, 2001. 

Food Stamp Program: Better Use of Electronic Data Could Result in Disqualifying More 

Recipients Who Traffic Benefits. GAO/RCED-00-61. Washington, D.C.: March 7, 2000. 

Food Assistance: Efforts to Control Fraud and Abuse in the Child and Adult Care Food 

Program Should Be Strengthened. GAO/RCED-00-12. Washington, D.C.: November 29, 

1999. 

Food Stamp Program: Storeowners Seldom Pay Financial Penalties Owed for Program 

Violations. GAO/RCED-99-91. Washington, D.C.: May 11, 1999. 

Credit Card Abuse: 

Purchase Cards: Control Weaknesses Leave the Air Force Vulnerable to Fraud, Waste, 

and Abuse. GAO-03-292. Washington, D.C.: December 20, 2002. 

Government Purchase Cards: Control Weaknesses Expose Agencies to Fraud and 

Abuse. GAO-02-676T. Washington, D.C.: May 1, 2002. 

FAA Purchase Cards: Weak Controls Resulted in Instances of Improper and Wasteful 

Purchases and Missing Assets. GAO-03-405. Washington, D.C.: March 21, 2003. 

HUD Single-Family Mortgage Insurance and Rental Assistance Programs: 

U.S. General Accounting Office, Financial Management: Strategies to Address Improper 

Payments at HUD, Education and Other Federal Agencies, GAO-03-167T (Washington, 

D.C.: Oct 3, 2002). 

U.S. General Accounting Office, Strategies to Manage Improper Payments: Learning 

from Public and Private Sector Organizations, GAO-02-69G (Washington, D.C.: 

October 2001).

U.S. General Accounting Office, Major Management Challenges and Program Risks, 

Department of Housing and Urban Development, GAO-01-248 (Washington, D.C.: 

January 2001). 
GAO-03-922T 40

U.S. General Accounting Office, HUD Management: HUD’s High-Risk Program Areas 

and Management Challenges, GAO-02-869T (Washington, D.C.: July 24, 2002). 

U.S. General Accounting Office, Financial Management: Coordinated Approach Needed 

to Address the Government’s Improper Payments Problems, GAO-02-749 (Washington, 

D.C.: Aug 9, 2002). 

DoD Improper Payments: 

U.S. General Accounting Office, Financial Management: Coordinated Approach Needed 

to Address the Government’s Improper Payments Problems, GAO-02-749 (Washington, 

D.C.: Aug 9, 2002). 

U.S. General Accounting Office, Department of Defense: Status of Achieving Key 

Outcomes and Addressing Major Management Challenges, GAO-01-783 (Washington, 

D.C.: June 25, 2001). 

Grant Programs: 

Formula Grants: Effects of Adjusted Population Counts on Federal Funding to States. 

GAO/HEHS-99-69. Washington, D.C.: February 26, 1999. 

Medicaid Formula: Effects of Proposed Formula on Federal Shares of State Spending. 

GAO/HEHS-99-29R. Washington, D.C.: February 19, 1999. 

Welfare Reform: Early Fiscal Effect of the TANF Block Grant. GAO/AIMD-98-137. 

Washington, D.C.: August 22, 1998. 

Public Housing Subsidies: Revisions to HUD’s Performance Funding System Could 

Improve Adequacy of Funding. GAO/RCED-98-174. Washington, D.C.: June 19, 1998. 

School Finance: State Efforts to Equalize Funding Between Wealthy and Poor School 

Districts. GAO/HEHS-98-92. Washington, D.C.: June 16, 1998. 

School Finance: State and Federal Efforts to Target Poor Students. GAO/HEHS-98-36. 

Washington, D.C.: January 28, 1998. 

School Finance: State Efforts to Reduce Funding Gaps Between Poor and Wealthy 

Districts. GAO/HEHS-97-31. Washington, D.C.: February 5, 1997. 

Federal Grants: Design Improvements Could Help Federal Resources Go Further. 

GAO/AIMD-97-7. Washington, D.C.: December 18, 1996. 

Public Health: A Health Status Indicator for Targeting Federal Aid to States. 

GAO/HEHS-97-13. Washington, D.C.: November 13, 1996. 
GAO-03-922T 41

School Finance: Options for Improving Measures of Effort and Equity in Title I. 

GAO/HEHS-96-142. Washington, D.C.: August 30, 1996. 

Highway Funding: Alternatives for Distributing Federal Funds. GAO/RCED-96-6. 

Washington, D.C.: November 28, 1995. 

Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity. GAO/HEHS96-26. Washington, D.C.: November 13, 1995. 

Department of Labor: Senior Community Service Employment Program Delivery Could 

Be Improved Through Legislative and Administrative Action. GAO/HEHS-96-4. 

Washington, D.C.: November 2, 1995. 

Flood Insurance Losses: 

Flood Insurance: Information on Financial Aspects of the National Flood Insurance 

Program. GAO/T-RCED-00-23. Washington, D.C.: October 27, 1999. 

Flood Insurance: Information on Financial Aspects of the National Flood Insurance 

Program. GAO/T-RCED-99-280. Washington, D.C.: August 25, 1999. 

Flood Insurance: Financial Resources May Not Be Sufficient to Meet Future Expected 

Losses. GAO/RCED-94-80. Washington, D.C.: March 21, 1994. 

Medicare Incentive Payment Programs: 

Physician Shortage Areas: Medicare Incentive Payments Not an Effective Approach to 

Improve Access. GAO/HEHS-99-36. Washington, D.C.: February 26, 1999. 

Health Care Shortage Areas: Designations Not a Useful Tool for Directing Resources to 

the Underserved. GAO/HEHS-95-200. Washington, D.C.: September 8, 1995. 

Social Security Pension Offset Provision: 

Social Security Administration: Revision to the Government Pension Offset Exemption 

Should Be Considered. GAO-02-950. Washington, D.C.: August 15, 2002. 

Social Security: Congress Should Consider Revising the Government Pension Offset 

“Loophole”. GAO-03-498T. Washington, D.C.: February 27, 2002. 
GAO-03-922T 42

Food Safety: 

Food Safety: CDC Is Working to Address Limitations in Several of Its Foodborne 

Surveillance Systems. GAO-01-973. Washington, D.C.: September 7, 2001. 

Food Safety: Federal Oversight of Shellfish Safety Needs Improvement. GAO-01-702. 

Washington, D.C.: July 9, 2001. 

Food Safety: Overview of Federal and State Expenditures. GAO-01-177. Washington, 

D.C.: February 20, 2001. 

Food Safety: Federal Oversight of Seafood Does Not Sufficiently Protect Consumers. 

GAO-01-204. Washington, D.C.: January 31, 2001. 

Food Safety: Actions Needed by USDA and FDA to Ensure That Companies Promptly 

Carry Out Recalls. GAO/RCED-00-195. Washington, D.C.: August 17, 2000. 

Food Safety: Improvements Needed in Overseeing the Safety of Dietary Supplements and 

“Functional Foods”. GAO/RCED-00-156. Washington, D.C.: July 11, 2000. 

Meat and Poultry: Improved Oversight and Training Will Strengthen New Food Safety 

System. GAO/RCED-00-16. Washington, D.C.: December 8, 1999. 

Food Safety: Agencies Should Further Test Plans for Responding to Deliberate 

Contamination. GAO/RCED-00-3. Washington, D.C.: October 27, 1999. 

Food Safety: U.S. Needs a Single Agency to Administer a Unified, Risk-Based Inspection 

System. GAO/T-RCED-99-256. Washington, D.C.: August 4, 1999. 

Food Safety: Opportunities to Redirect Federal Resources and Funds Can Enhance 

Effectiveness. GAO/RCED-98-224. Washington, D.C.: August 6, 1998. 

Food Safety: Federal Efforts to Ensure the Safety of Imported Foods Are Inconsistent 

and Unreliable. GAO/RCED-98-103. Washington, D.C.: April 30, 1998. 

Food Safety: Changes Needed to Minimize Unsafe Chemicals in Food. GAO/RCED-94-

192. Washington, D.C.: September 26, 1994. 

Food Safety and Quality: Uniform Risk-based Inspection System Needed to Ensure Safe 

Food Supply. GAO/RCED-92-152. Washington, D.C.: June 26, 1992. 

Grants for Homeland Security: 

Federal Assistance: Grant System Continues to Be Highly Fragmented. GAO-03-718T. 

Washington, D.C.: April 29, 2003. 

Multiple Employment and Training Programs: Funding and Performance Measures for 

Major Programs. GAO-03-589. Washington, D.C.: April 18, 2003. 
GAO-03-922T 43

Managing for Results: Continuing Challenges to Effective GPRA Implementation. 

GAO/T-GGD-00-178. Washington, D.C.: July 20, 2000. 

Workforce Investment Act: States and Localities Increasingly Coordinate Services for 

TANF Clients, but Better Information Needed on Effective Approaches. GAO-02-696. 

Washington, D.C.: July 3, 2002. 

Fundamental Changes are Needed in Federal Assistance to State and Local 

Governments. GAO/GGD-75-75. Washington, D.C.: August 19, 1975. 

Rural Housing Assistance:

Rural Housing Programs: Opportunities Exist for Cost Savings and Management 

Improvement. GAO/RCED-96-11. Washington, D.C.: November 16, 1995. 

Public Power: 

Congressional Oversight: Opportunities to Address Risks, Reduce Costs, and Improve 

Performance. GAO/T-AIMD-00-96. Washington, D.C.: February 17, 2000. 

Federal Power: The Role of the Power Marketing Administrations in a Restructured 

Electricity Industry. GAO/T-RCED/AIMD-99-229. Washington, D.C.: June 24, 1999. 

Federal Power: PMA Rate Impacts, by Service Area. GAO/RCED-99-55. Washington, 

D.C.: January 28, 1999. 

Federal Power: Regional Effects of Changes in PMAs’ Rates. GAO/RCED-99-15. 

Washington, D.C.: November 16, 1998. 

Power Marketing Administrations: Repayment of Power Costs Needs Closer Monitoring. 

GAO/AIMD-98-164. Washington, D.C.: June 30, 1998. 

Federal Power: Options for Selected Power Marketing Administrations’ Role in a 

Changing Electricity Industry. GAO/RCED-98-43. Washington, D.C.: March 6, 1998. 

Federal Electricity Activities: The Federal Government’s Net Cost and Potential for 

Future Losses. GAO/AIMD-97-110 and 110A. Washington, D.C.: September 19, 1997. 

Federal Power: Issues Related to the Divestiture of Federal Hydropower Resources. 

GAO/RCED-97-48. Washington, D.C.: March 31, 1997. 

Power Marketing Administrations: Cost Recovery, Financing, and Comparison to 

Nonfederal Utilities. GAO/AIMD-96-145. Washington, D.C.: September 19, 1996. 

Federal Power: Outages Reduce the Reliability of Hydroelectric Power Plants in the 

Southeast. GAO/T-RCED-96-180. Washington, D.C.: July 25, 1996. 
GAO-03-922T 44

Federal Power: Recovery of Federal Investment in Hydropower Facilities in the PickSloan Program. GAO/T-RCED-96-142. Washington, D.C.: May 2, 1996. 

Federal Electric Power: Operating and Financial Status of DOE’s Power Marketing 

Administrations. GAO/RCED/AIMD-96-9FS. Washington, D.C.: October 13, 1995. 

Child Support Enforcement: 

Child Support Enforcement: Clear Guidance Would Help Ensure Proper Access to 

Information and Use of Wage Withholding by Private Firms. GAO-02-349, March 26, 

2002. 

Child Support Enforcement: Effects of Declining Welfare Caseloads Are Beginning to 

Emerge. GAO/HEHS-99-105. Washington, D.C.: June 30, 1999. 

Welfare Reform: Child Support an Uncertain Income Supplement for Families Leaving 

Welfare. GAO/HEHS-98-168. Washington, D.C.: August 3, 1998. 

Child Support Enforcement: Early Results on Comparability of Privatized and Public 

Offices. GAO/HEHS-97-4. Washington, D.C.: December 16, 1996. 

Child Support Enforcement: Reorienting Management Toward Achieving Better Program 

Results. GAO/HEHS/GGD-97-14. Washington, D.C.: October 25, 1996. 

Child Support Enforcement: States’ Experience with Private Agencies’ Collection of 

Support Payments. GAO/HEHS-97-11. Washington, D.C.: October 23, 1996. 

Child Support Enforcement: States and Localities Move to Privatized Services. 

GAO/HEHS-96-43FS. Washington, D.C.: November 20, 1995. 

Child Support Enforcement: Opportunity to Reduce Federal and State Costs. GAO/THEHS-95-181. Washington, D.C.: June 13, 1995. 

(450194) 
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